Economy to feel impact as Maui's flame dulls

By BRIAN FALLOW

A shortage of electricity will constrain economic growth over the next five years, Meridian Energy chief executive Dr Keith Turner warned yesterday.

The costs of supplying electricity would rise. "So we are unlikely to protect what has been a critical competitive advantage."

The sector has been caught short by the suggestion that the Maui gas field will run out in 2007, two years earlier than previously thought, Turner told a meeting of the Energy Law Association in Wellington.

About 20 per cent of New Zealand's electricity is generated from Maui gas and, crucially, it has acted as a buffer, able to ramp up production when hydro-electric power is short in dry years.

Compounding the problem, Transpower has estimated that by 2005 there will not be enough generating capacity to meet demand in a dry year.

Turner said that over the past four years, about 900MW of old plant that could be run in emergencies had been retired or shipped off to Australia.

Only one new plant, the 400MW combined-cycle gas plant Genesis plans to build at Huntly, could potentially be ready by 2005 and so far no gas supply has been committed to it.

Genesis says it has secured enough gas supplies for the next 10 years to justify the plant. The company owns 70 per cent of the undeveloped Kupe oil and gas field.

Meridian has plans for a 600MW generation and irrigation scheme on the Waitaki.

But even if it got a dream run through the consent process, the project would not start generating until the end of 2008, Turner said.



David Salisbury, vice-president of Preussag Energie, said that Maui would be replaced by a portfolio of small gas fields.

"New Zealand is highly prospective and largely unexplored. But at the moment nothing like an adequate replacement portfolio has been identified."

Lead times are long. The Pohokura field was discovered five years after Preussag started looking and would not be producing until 2006, five years after its discovery.

New Zealand had been cursed by the good luck of Maui, Salisbury said.

The large size of the field had overshadowed the market, while the gas price was low, in part because it did not reflect the big increase in the national debt incurred developing the field.

Exploration picked up in 1999 and 2000, and there are now about 50 companies actively prospecting in New Zealand.

But there are few big players among them and the activity is capital-constrained, he said.

The Ministry of Economic Development estimates that electricity demand will grow 2 per cent a year, requiring about 150MW of additional generation capacity a year.

Turner said other potential sources of electricity to meet the shortfall would be significantly more expensive than the present level of wholesale prices (around 4c to 5c a kilowatt hour).

"We might get 400MW of wind generation capacity over the next 10 years, but that would only mop up about two years' worth of growth in demand and would cost upwards of 6c/kWh."

Objections to supposed visual pollution and noise could impede development.

There was a lot of potential hydro capacity feasible at prices up to 10c/kWh, the Environment Court permitting.

Power generated from imported liquefied natural gas would cost between 8c and 12c/kWh.

Generation based on the vast deposits of Southland lignite would cost in the 6c to 9c/kWh range, provided Southlanders did not mind seeing large swathes of prime farm land ripped up.

The big prize, Turner said, could come improved efficiency in the consumer's use of electricity, perhaps 10 per cent of current demand.

Feature: Electricity

Energy Efficiency and Conservation Authority