Power asset plan would swap 'jewels'

Gerry Brownlee. Photo / Greg Bowker

One option the Government is considering to foster competition in the retail electricity market is an asset swap between state-owned generators Meridian Energy and Genesis Energy.

It would prise the jewel from Meridian's crown, the Manapouri hydro scheme, and transfer it to Genesis. Genesis in turn would lose its best asset, the e3p gas combined cycle plant at Huntly, and a small 40MW gas-fired plant at the same site, which would go to Meridian.

The proposal would create a better geographical spread, and a better balance of hydro and thermal generation assets.

That carve-up, when combined with constraints in the national grid, has seen the SOEs concentrate their retailing activities in the island where their generation is concentrated. Meridian in particular is seen as dominant in the south.

It has also left Meridian without the natural hedge of thermal generation of its own in dry years when less snow and rain than normal fall in the catchments of the southern hydro lakes.

In theory, price signals in the spot market and hedge contracts between generators ought to deal with that, but Energy Minister Gerry Brownlee does not believe those features of the current system have worked adequately.

The Government has already ruled out two other proposed asset reshuffles the Layton committee proposed, and Brownlee said it would take some persuading that a swap was the way to go.

It has the attraction of being a one-off change. But it would cost up to $44 million and would need to save the average consumer $3.40 a year to pass a cost/benefit test.

And Meridian's recently renegotiated contract to supply the Rio Tinto aluminium smelter at Tiwai Point - which was built to use power from Manapouri - would need to be carefully managed.