Lakes dry but Commission sure of no blackouts

The Electricity Commission today expressed confidence about no blackouts or brownouts next winter despite low hydro lake levels due to the dry spring.

"Even if we get close to the lowest historical dry spell, we are still not anticipating that we will be in trouble this winter," commission chairman Roy Hemmingway told Radio New Zealand.

"We are predicting that we will not be in that situation, even if we get a quite dry summer."

However, critics say there is insufficient spare capacity to ride out a dry year coinciding with a breakdown at a major power plant.

Wholesale power prices have doubled since last month and are triple this time last year when lake storage levels were much higher.

Lakes are only one third full - about 70 per cent of the average for this time of year, with Lake Taupo above that and the key South Island lakes well below that.

The country's largest power user, Comalco, says it had already made minor cutbacks at its Tiwai Point aluminium smelter in Bluff and would decide this week about more severe cutbacks if prices remained high.

Energy consultant Bryan Leyland told Radio New Zealand the situation was similar to before the 2002 winter power "crisis" when brownouts meant cold showers for many and industry was forced to reduce output.

He questioned reliance on the thermal plants, many of which were getting old. They had to run flat out last year even though lake levels were high.

"We don't have a big margin of thermal capacity to get us through something unusual."

But Mr Hemmingway said it was too early to get concerned.

"We believe we would have to have a record drought situation for us to be really be in trouble to the point where we would have to curtail the use of electricity."

He admitted low snow melt and forecasts of a dry summer were a bad combination. But lake levels are normally low at this time of the year and could quickly return to normal with a few days of rain.

Predicting two extremely bad events to occur simultaneously meant "you may be buying more insurance than you want to pay for".

Mr Leyland said the commission had over-estimated the capacity of thermal plants replace hydro capacity.

It had counted on the New Plymouth reserve plant to provide a 2000 gigawatt hours in a dry year, but he said a "dry year" actually only ran for about six months.

"It seems there is something fishy about the 2000 gigawatt hours assumption," he said.

The commission was confident thermal plants could supply what their owners said they could, Mr Hemmingway said.

He expected wholesale prices to rise higher and that would result in other large industrial users cutting production.

However, with most power retailers fully hedged, Mr Hemmingway said the commission did not anticipate "this will necessarily lead to higher prices for smaller customers".

If "we get into trouble" the commission would advise consumers to cut power consumption, which in the past had been effective.

Mr Leyland said it was wrong that that was a last resort and "shutting down our productive industries is one of the first. It's crazy."

Comalco managing director Tom Campbell said he was "very concerned about the situation that is developing".

"We're sailing far too close to wind. The gap between supply and demand is so narrow that we don't have the resources to cover for every possible circumstance. It's a risky situation to be in.

"We need to have enough insurance so we can through years at least as bad as this one."

Comalco has idled 10 of its 650 furnace cells (pots) against two normally being upgraded.

This is despite aluminium prices being the best for years, 20 per cent above average. Comalco only buys 10 per cent of its power on the wholesale market and half of that is now hedged.

It can cut power to pots for periods as short of as half an hour when prices spike up. Longer cuts mean the pots have to be idled.

"If prices continue at this level, even for another few days, then we will probably make a decision and chop out some capacity -- about 3-4 per cent," Mr Campbell said.

He said the wholesale market, begun in 1996, had operated better since the introduction of the Electricity Commission last year. Prices had risen but the extreme volatility of 2001 and 2003 was not apparent.

"We accept the realities of the situation in New Zealand, when we have a drought year it's not possible (run at full capacity)."

Paul Baker of energy market analysts Energy Link agreed with the commission that there was no reason for panic, although he accepted the situation could get "tight".

He said the 1000 megawatt Huntly thermal plant could now use coal, and players in the wholesale market had better information and understanding.

"There's no reason to be particularly concerned about it but at the same time we haven't got a huge margin."

- NZPA