Energy Minister hints at winter of discontent

By CHRIS DANIELS energy writer

Energy Minister Pete Hodgson has raised fears of another dry winter and high power prices, saying a new power-savings push is on the way.

A meeting with power chief executives had agreed to plan and progressively implement an electricity savings campaign, he said, with action coming within a week.

High prices on the national wholesale electricity market this week have prompted Comalco to cut back aluminium production at its Tiwai Pt smelter and Fletcher Building to periodically halt production at its Pacific Steel site in Auckland.

Prices have reached $800 a megawatt hour - 10 times normal levels.

A lobby organisation of big power users, the Major Electricity Users Group (MEUG), has used the price spikes as an opportunity to renew its call for further restructuring, urging the separation of the generation and retail arms of the three big state-owned power companies.

The high prices have been attributed to the tight supply and demand situation, with a suggestion that big users should be well aware of the perils involved in buying electricity on the volatile spot market.

Such risks were demonstrated in 2001, when a cold, dry winter sent prices skyrocketing, curtailing production from big power users.

Demand for power is increasing at an annual rate of about 5 per cent, more than double that estimated.

MEUG chairman Terrence Currie said the electricity market worked as no other world power market did, with spot prices consistently higher than the long-run marginal cost (the cost at which it become economic to build new generation).

Despite this fact, no new generation was being built - a sure sign of a structural problem, with market power concentrated in too few hands.

A lack of competition among generators, coupled with the uncertain supply conditions over the next few years, meant the wholesale market structure could not be sustained in its present form, Currie said.

Chris Russell, chief executive of M-Co, the company that runs the wholesale electricity market, said that although he could not comment on whether current prices were justified, the market was working as normal.

"It is not evident that there is something untoward or unusual happening, but I think it would be true to say that people are probably being more cautious in how they adjust to signals that are being sent, bearing in mind what happened in 2001."

In an open letter to Meridian's chief executive Keith Turner, MEUG asked why its prices had increased so dramatically in the past few weeks.

It also asked what steps had been taken to assist "all classes of consumer conserve energy".

Turner said when prices were cheap, as they were last year, there was nothing to be heard from the big industrial power users.

If an industry was going to take advantage of the spot it also had to be prepared to manage circumstances when the price was high, as much as when it was low, he said.

* The only one of the big generator/retailers that is not state owned, Contact, yesterday gave details of a month-long shutdown of its new gas-fired Taranaki power station.

Contact says it is essential maintenance, needed to ensure the plant will be reliable through the winter.

Herald Feature: Electricity

Energy Efficiency and Conservation Authority