New electricity generation stacking up

Energy Minister Pete Hodgson today released information on electricity industry plans for new generation totalling more than 900 megawatts by winter 2006.

"New Zealand needs new generation of about 150 megawatts a year, on average, to keep pace with economic and population growth," Mr Hodgson said. "This is being achieved, with more than 500 megawatts being commissioned since the beginning of 2000. The information presented today shows that there is enough new investment in generation to meet normal demand."

However the government does not believe there is enough certainty about special generation to be held in reserve for dry years, such as this one.

The information on new generation, compiled by the Ministry of Economic Development, includes projects publicly announced by electricity companies and capacity figures for projects not yet announced that have been disclosed to the ministry in confidence.

"It should be noted that there may well be further generation options that have not been disclosed to the government, for example by electricity lines companies," Mr Hodgson said. "Equally, current plans for new generation will also be affected by changes in electricity demand growth. Some of the planned generation projects might not therefore be built, especially those in more distant years."

Mr Hodgson said the distinction between new generation needed to meet normal demand growth and reserve generation needed for dry years was an important one. Current information showed that generation investment was keeping up with normal demand growth but reserve capacity was becoming marginal. "New Zealand faces the risk of electricity shortages this winter because of a shortage of fuel, not generation capacity. The problem this year is a lack of water for hydro generation, combined with a downward revision of Maui gas reserves and difficulties in arranging replacement supplies of coal. The opportunity to use other fuels this year, such as oil and diesel, has been largely lost because generation plant able to use these fuels has been decommissioned.

"The government is of the view that the current electricity market structure does not adequately encourage companies to hold dry year reserve generation. Contact's decision to fast-track plans for a new diesel-fuelled plant to ensure adequate dry-year cover for the next few winters is very welcome, but New Zealand needs the assurance that dry-year reserve generation will be reliably provided in the future. Later this month the government will be announcing measures to ensure that happens."

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