New Zealand's prolonged recession has thrown up one short term spinoff - breathing space to get more than $10 billion in new power generation on stream.
Although consumption was trending down last year as the economy slowed, the country has gone from a famine - low lakes and high prices forcing some users to cut production - to something of a feast for the early part of this winter; lake levels at historic highs and wholesale power prices tracking at a fifth of what they were at the same time last year.
The fall in power consumption has been dramatic. In the first quarter of this year it dropped by 5 per cent compared with the same quarter last year. It was the lowest figure in over five years, reflecting the economic downturn dampening electricity consumption, and reduced use at the biggest single user, the Tiwai Point aluminium smelter, in the first half.
From 2 per cent annual growth for the past two decades (fuelled most recently by heat pump installations in homes, dairy conversions and energy hungry hotels) this reduced demand is set to continue into next year with conservative assumptions pointing to to a pickup in 2011, but just by 1.5 per cent.
That has generators reworking their numbers - projects that were marginal while the economy was growing don't stack up in today's terms and taking the longer view requires a leap of faith with uncertainty hovering around carbon pricing, interisland transmission pricing and the ministerial review of the electricity sector. So though there's a demand lull there's also a commitment pause.
Already a handful of big wind farm projects are in the doldrums - mainly due to high prices for imported equipment and resource issues; consents for gas fired power stations in and near Auckland are parked and it is understood Contact Energy would have pushed ahead with its Ti Mihi geothermal plant by now if not for the slump in demand.
Investment in new generation typically has a 20- to 50-year outlook. So what's on the drawing board to meet demand which over the past year typically has peaked at around 6400MW on some cold days during winter?
Government figures show some projects with the potential to generate 5275MW are either being built, have received consent or have applied for consent. The 45 plants due for completion over the next decade range from tide powered pilot plants to one of the biggest wind farms in the southern hemisphere.
Hydro generation is both the strength and weakness of the New Zealand system as it supplies at least 65 per cent of power but is notoriously vulnerable to low rainfall given limited storage capacity of around 10 weeks' winter electricity demand. Existing transmission constraints (requiring multibillion-dollar catchup infrastructure work by Transpower) aggravate tight supplies which would become critical in the event of a major equipment failure.
The easy large hydro sources have long been captured but among projects planned are Meridian Energy's 200MW North Bank Tunnel Project on the Waitaki River, TrustPower's 72MW Wairau scheme in Marlborough, and Contact's long term proposal to further dam the Clutha River. Long run marginal costs of new hydro generation are estimated by Meridian research in an Options Choices Decisions paper to range from $75 to $105/MWh (per megawatt hour).
Geothermal generation has high upfront costs but is reliable renewable energy as it doesn't depend on wind and rain and is nearly always available. It is the only form of renewable electricity generation that can displace traditional baseload gas and coal-fired power stations with minimal carbon emission charging and is enjoying a spectacular revival.
Contact Energy and Mighty River Power are aggressively pursuing new opportunities, mainly in the central North Island which will see geothermal's contribution grow from around 5 per cent to 10 per cent of generation by the middle of next decade. Known steam fields can produce at around $70MWh, according to the Meridian paper.
Planned wind farms make up the bulk of new projects on the drawing board. Meridian, a big backer of wind, calculated earlier this year the best sites produce power at a around $80MWh, while conceding it is unknown where wind turbine prices will go over the long term. TrustPower has two major South Island sites consented but is in a holding pattern waiting for the economics to gel although it is noting a softening in equipment prices with multimillion-dollar discounts offered on an Australian projects. Supposed clean green wind has attracted fierce opposition wherever projects have been proposed for visual and noise impacts. And even the best sites average full production less than half the time, sharpening the focus on project costs - which for a very large site will exceed $1 billion. Energy consultant and wind sceptic Bryan Leyland says for June and July turbines were spinning just 26 per cent of the time. "The wind blows in the springtime when the snow is melting and it is raining and does not blow in the autumn when we need it, windpower is not very useful on the New Zealand system."
In spite of the lifting of the ban on building thermal power stations, just one is under way - Contact's 200MW combined cycle plant at Stratford - and that has the padding of the Ahuroa storage reservoir allowing the company to "bank" gas. It has an even bigger station consented at Otahuhu but like Genesis Energy, which has conditional approval for a gas fired station in Rodney, it is waiting to see where carbon and gas prices go. Optimists say a replacement for the massive Maui gas field is "waiting to be discovered" while a worst case scenario has gas shortages within six years and the spectre of dependence on imported liquified natural gas.
On current prices gas-fired plants work out among the cheaper options at around 85MWh, and this assumes a $25 a tonne carbon charge. But with uncertainty over gas supplies a commitment to $500 million gas plant looks like a big call.
The rationale for the big generation build is easily followed, the blueprint plain; but who will do the work, and pay for it is less clear as increasingly risk-wary SOEs, listed and private companies wait for others to take the plunge first.
* The generators
Meridian Energy 27 per cent
Contact Energy 24 per cent
Genesis Power 22 per cent
Mighty River Power 16 per cent
TrustPower 5 per cent
Others 6 per cent
(percentage of the generation market)
<i>Grant Bradley:</i> Power companies wary about taking plunge
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