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New report on cost of electricity generation

Tuesday, 21 May 2002

A report released today indicates that the marginal cost of electricity generation is about 5 cents a standard unit.

A report by East Harbour Management Services prepared for the Ministry of Economic Development examines the long run marginal cost of new gas-fired generation, the cheapest likely source of new electricity supply capacity. The long run marginal cost includes both the capital and operating cost and is the key figure determining whether new generation is economic.

The report says that with a gas price of $3.00-$3.50 a gigajoule (GJ) the long run marginal cost of electricity generated from new gas combined cycle plant running as base-load is about 4.7- 5.1 cents a kilowatt-hour (kWh).

The going rate for electricity for commercial and industrial consumers, excluding line charges, is currently around 5-6 cents a kilowatt-hour. This covers the base-load cost of generation plus the costs of variability in demand, transmission losses, and retailing.

Energy Minister Pete Hodgson said there was considerable uncertainty about future gas prices, which may be pushed up with the expected early depletion of the Maui field. Every extra dollar on the price above $3/GJ would add about 0.8c/kWh to the long run marginal cost of electricity.

The report is available on the Ministry of Economic Development website:


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