KEY POINTS:
Contributing $1.1 billion to the Government's coffers over the past year no doubt guarantees Meridian Energy an attentive hearing for its views on the outlook for the electricity sector.
Especially as it is telling the Government just what it wants to hear: that a strategy which favours generation from renewable sources over the next 20 years is feasible without any substantial price shock.
As the Government prepares its draft energy strategy - with the Prime Minister's newly-elevated rhetoric about sustainability and carbon neutrality ringing in its ears - the state-owned generator has published a report laying out its view of the pros, cons and cost curves of the five main generation options: gas, coal, hydro, wind and geothermal.
It makes no explicit recommendations as to preferred options.
But the message is clear nonetheless. Barring the discovery of another giant natural gas field like Maui, renewables are competitive with gas and cheaper than coal, and have the advantage of avoiding the risk that fuel prices will soar during the long life of a new power station.
If demand for electricity grows at a rate of 1.9 per cent a year over the next 20 years, a touch below the 2.2 per cent average over the past 20, then by 2026 we will need to be generating about 22,000 gigawatt/hours more electricity a year than the 42,000GWh we do now. That increase is almost as large as the current output of the hydro system.
So it is instructive to look at how much generation Meridian reckons could be done for $80 a megawatt/hour, in today's dollars. That is 8c a unit in your power bill.
It is an arbitrary figure, of course, but it is lower than the average wholesale price so far this year and would represent about a 27 per cent real increase on the average wholesale price since the start of the millennium.
Remember that we are looking 20 years ahead here. Despite the perception that New Zealand's hydro-electric resources are pretty much fully exploited already, Meridian believes there are about 7000GWh a year yet to be had at a long-run marginal cost of $80 a MWh.
Indeed, it lists projects totalling nearly half that amount which are already being investigated, seeking resource consents or under way.
There is a fly in this soothing ointment, however.
Most of those untapped hydro resources are in the South Island, while most of the load is in the North.
The Electricity Commission takes the view that the cost of getting South Island power across Cook Strait should be borne by the South Island generators, as it is the cost of getting its product to market.
Meridian, whose assets are mainly in the south, naturally prefers the view that the Cook Strait cables are part of the national grid and should be treated like state highways for funding proposes, not as a one-way toll road.
Adding the cost of the inter-island link pushes up the cost curve for hydro by about $10 a MWh.
Then there is wind power. Meridian sees 6000GWh a year as potentially available at a long-run marginal cost of $80 a MWh or so.
Its obvious drawback, that it is only available when the wind blows, tends to be overstated, it says.
"Power systems are inherently variable - user demand can swing quite rapidly and large power station units such as combined cycle gas turbines sometimes trip off. The system operator [Transpower] has a number of tools at its disposal for managing this variability."
In addition, the hydro system can be used to balance wind power, and spreading wind farms around the country would reduce the overall variability.
While wind turbines have generally been getting bigger and cheaper, the capital cost is - as with other generation options to some degree or other - hostage to fluctuations in the exchange rate and world demand for the technology.
Geothermal resources are substantial as well. Meridian sees 8000GWh a year as do-able for $80 a MWh or less.
It is not quite as green an energy source as wind or hydro, because geothermal waters typically contain carbon dioxide, a greenhouse gas, as well as the malodorous hydrogen sulphide.
But emissions would normally be lower, often much lower, than a gas-fed power station of the same capacity, which in turn would be less than half those from a coal-fired one.
Taking these figures at face value there would seem to be just about enough wind, hydro and geothermal power available, at prices similar to those prevailing this year, to cover the projected growth in demand over the next 20 years.
But, of course, it is not that simple.
The hydro system upon which we rely for a majority of our power has limited storage capacity and is therefore subject to the substantial variability in the amount of rain and snow that falls in the catchments of the hydro lakes.
We got through the dry years of 2001 and 2003, and the risk of another this year, without blackouts because fossil fuel-burning generators were there to respond to the market's signals and crank up their plant earlier in the year than they normally would.
Reducing the thermal generators' market share too much might pose unacceptable risks for security of supply.
Also, Meridian's numbers show gas-fired generation at today's gas prices, even with a price on their greenhouse gas emissions slapped on top, as competitive with at least the more expensive options for wind, hydro and geothermal.
Contact Energy has called for tenders for another combined cycle gas turbine plant at Otahuhu and Genesis looks to be pretty serious about one at Rodney.
The problem, Meridian chief executive Keith Turner says, is that no one can secure fuel supply for the next 35 years. And the normal price risk is compounded by the near inevitability that there will be a cost to pay for carbon emissions.
Genesis' gas-fired E3P plant at Huntly, which is nearing completion, was only bankable because of the Government underwrote the fuel supply risk.
New gas discoveries have not been keeping pace with the rate at which Maui and the other existing fields are being depleted.
The question is not whether there is more gas out there - there almost certainly is - but whether it can be found soon enough and in sufficient quantities to avert the need for commitment to importing liquefied natural gas.
That is the costliest option, on Meridian's numbers, and would almost certainly require some kind of underwriting by the Government .
Other generators might take a different view on relative prices.
But Meridian deserves some credit for showing its hand and seeking to illuminate the debate to be kicked off when Energy Minister David Parker releases his energy strategy, sometime before Christmas.
It should make for interesting reading.
