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Reliable National Grid Vital For Supply Security

Reliable National Grid Vital For Security Of Electricity Supply

The prolonged review of national grid upgrade alternatives announced today must not be allowed to risk the reliability of New Zealand’s national electricity system, Contact Energy said today.

“We accept that residents on the route for the proposed Transpower upgrade into Auckland are angry and fearful, and that they need assurance that every alternative has been considered,” said Contact’s chief executive, Steve Barrett. “However, we would be concerned if this process were to create new uncertainties and delay much-needed development of new generation.”

Mr Barrett said Contact’s greatest concerns about possible outcomes are: a presumption that because of the review announced today, there may be no need to upgrade the grid into Auckland; a raised risk of reduced security of national electricity supply; reduced competition because of the development of a regionalised rather than national grid; reduced scope for a balanced mix of new generation developments, especially wind and other renewables; a slide back into central planning which could deter Contact’s plans to build and commission the 380 Megawatt Otahuhu-C station by 2010; and higher electricity costs to consumers resulting from the inefficiencies inherent in central planning.

“The fact is that upgrading the national grid is not an either/or choice,” said Mr Barrett.

“As the power company with the most advanced plans for a new, large-scale power station in Auckland, Contact has no doubt that a grid upgrade into Auckland is essential, as it will be in other parts of the country.

“A power plant is not a replacement for a fully functioning national system for transporting electricity. In addition to providing the foundation for a reliable system, the grid is fundamental to achieving the lowest cost to consumers and best environmental outcomes.
“If Contact builds Otahuhu-C, we will be committing more than $400 million on new plant and billions of dollars on gas to run the plant over its commercial life of around 30 years.

“We will be far less willing to make the substantial commitments necessary with the uncertainties introduced by such a protracted process, especially if it is accompanied by a return to the inefficiency and high costs to the nation of central planning.

“The current problems around transmission are unrelated to the market, but the result of more than 15 years’ under-investment in the national grid. The electricity market is already delivering a wave of investment in new electricity generation, both renewables and thermal plant, and vigorous activity to secure New Zealand’s future fuel supplies.

“Today’s announcements put a question-mark over investment decisions, owing to uncertainty about the regulatory regime that will apply in the future.

The key risks of failing to maintain a functional national grid are: risk of plant failure leading to black-outs and insecure electricity supplies because of limited access to back-up power sources in other regions – a major concern for Auckland; high price and environmental impacts from transmission constraints that prevent national coordination of the electricity system; reduced competition among industry players – development of regional markets would stifle competitiveness; impediments to the development of new renewable options, particularly wind and some hydro options. Because of its variability, wind-power requires back-up generation – this is best achieved by having a strong national grid; difficulty developing generation options distant from sources of energy demand (generally more an impediment to renewable options); more investment in new power stations to ensure security of supply than would be the case with a strong, integrated national grid; and difficulty absorbing larger sized units onto the grid, leading to lost economies of scale and higher prices to consumers.

Secure and economic electricity supplies will underpin New Zealand’s future economic growth,” said Mr Barrett. “This can only achieved with a strong core grid of First World standard.”

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