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Weak NZ power station investment threatens supply

Collapsing investment in NZ power stations threatens electricity system again

By Pattrick Smellie

Dec. 29 (BusinessWire) - Power companies' intentions to build new power stations have collapsed over the past year, with potential for electricity shortages re-emerging from 2013 onwards unless more new projects are committed in the next 12 months, says the Electricity Commission.

In the meantime, a variety of factors are significantly raising the risks to electricity system security for the winters of 2010, 2011 and 2012, although the commission does not believe the risk is enough to procure emergency reserve energy over the next three years.

"There are ... serious concerns about peak capacity during winter 2012, with capacity margins projected to be below the security threshold" on a variety of scenarios analysed from normal to high-risk. "The outlook for 2012 should be re-evaluated in 2010."

The commission says the New Zealand electricity system is now becoming constrained by equipment limitations on top of existing energy constraints created by issues such as uncertain future gas supplies.

While the commission doesn’t say so, energy analysts have predicted such pressures will drive power prices higher, counteracting pro-competitive elements of the electricity reforms announced earlier this month by Energy Minister Gerry Brownlee.

Capacity constraints include weaknesses in the national grid, especially the Cook Strait cable until its upgrade in 2012, and the unpredictable impact of fluctuating windfarm capacity on security of supply during periods of peak demand.

In its latest and probably last draft annual assessment of electricity security of supply, the commission says "very little investment has been committed for 2011 and future years".

"Although the projection for 2011 is tight, there is still time for the market to provide additional peaking capacity," its draft report says, referring to fast-starting gas-fired power stations such as Contact Energy's new 200 megawatt development at Stratford, which is forecast to come on stream over the next two years.

A completely revised table of potential new power stations is presented in the report, showing a drop of more than two-thirds in anticipated new capacity over the next three years.

In last year's assessment, the EC was projecting total new build from 2010 to 2012 amounting to 1536 MW of installed capacity, not counting the 200 MW that it assumed would be in place at Stratford by now.

Instead, the new assessment projects a mere 549MW of new build plans from 2010 to 2012, including the 200MW at Stratford.

"Over 600MW of new generation that was rated as 'medium' or higher possibility for 2010 or 2011 in the 2008 assessment has since been deferred until at least 2013 or cancelled," the EC concludes. Among the biggest deferrals are Contact's new Te Mihi replacement plant for the Wairakei geothermal power station and its 540 MW Hauauru Ma Raki wind development near Raglan.

"This assessment indicates that a substantial amount of new firm generation will be needed by 2013 in order to maintain Winter Capacity Margins above the security threshold," says the commission, which is to be replaced by a new Electricity Authority when Brownlee's reforms become law towards the end of next year.

The commission also raises for the first time the threats to risk margins posed by electricity generators declining to run slow-starting power stations to meet volatile peak demand.

Genesis Energy has made it clear this year that it will no longer run the ageing Huntly coal and gas-fired power station unprofitably just to keep the lights on, as it argues it was accustomed to doing in the past. Huntly is a slow-starting plant with total installed capacity of around 1000 MW, half of which Genesis is proposing to decommission in coming years unless it can gain profitable contracts that ensure the plant's future.

"There is the potential for unit commitment problems to have a serious adverse effect on security of supply at peak times," says the commission assessment, which is out for consultation until Jan. 29.

With capacity rather than energy constraints the greater threat over the next few years, the commission warns of potential consequences including: more difficulty meeting peak demand both in winter and at other times of the year owing to changing patterns of power use; more occasions when instantaneous reserves cannot be maintained; and a generally "tighter" power system.

(BusinessWire)

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