Power players take sides on future supply

By CHRIS DANIELS

Will the often-criticised electricity market really ensure New Zealand's future energy needs are met?

The issue is again being hotly debated in the electricity sector, fuelled by the release of competing scientific predictions, one warning of impending doom, the other saying there is no need to panic.

Even the Opposition political parties, quiet during the entire three years of Labour's last term, have started sniffing around the energy portfolio, sensing potential for political point-scoring.

Their interest was sparked by the curious spectacle last week of a minister, who had politely been given an opportunity to see an advance copy of impending doom research, issuing rebuttal research he had commissioned himself.

This declared that the Christchurch-based Centre for Advanced Engineering and report author Bryan Leyland were too pessimistic in their views on future energy supply.

George Hooper, executive director of the centre, in his foreword to the report, says the need for new generation is becoming more urgent.

"The decline of the Maui gas resource means that New Zealand is now facing an unprecedented situation where, if nothing is done, there is a high risk of electricity shortages over the next few years," says Hooper.

"Experience over the last 60 years of public energy supply has shown that it is prudent to plan for a one-in-10-year dry year at least.

"This current review shows that by 2003, there will probably be serious shortages during a one-in-15-year dry year, and by 2006 almost any reduction from normal year hydro generation will result in electricity shortages."

Hooper says that by 2010, unless there is a change in current generation investment levels and patterns of energy use, there will not even be enough electricity generated to meet the needs of a normal year.

Transpower, the state-owned enterprise that owns and manages the national grid, issued its "System Security Forecast" in July.

It found that if there was no new investment in either the power grid or generation facilities, then power prices north of Auckland would be about 8c a kilowatt hour by 2011.

During September, the wholesale price of power at the Otahuhu reference point on the national grid was 2.83c a kilowatt hour.

The response from more optimistic energy watchers, including Transpower, is that of course new generation will be built and of course there will be changes in the pattern of energy use.

They are confident that as the market points to where prices will soon be high, the generators - Contact, Meridian, Mighty River Power and Genesis - will build new power stations to take advantage of the situation.

But this reliance on market signals to encourage timely investment comes in for special comment from Leyland, who is well known for his criticism of the wholesale electricity market, which he believes is inherently flawed.

Energy Minister Pete Hodgson, while expressing confidence in the market, says he is not just sitting back and hoping it delivers new generation at the right time in precisely the right part of the nation.

Instead, armed with sometimes confidential information from the power companies, he says he has good reason to be confident that new stations will be built in time.

Leyland is not so sure.

"The promoters of the wholesale market and its operating company [M-Co] contended that market forces would ensure that new generating capacity would be provided when it is needed," he says.

"This has not eventuated, and New Zealand is now faced with a high risk of serious electricity shortages."

In his report he says several factors are underlying the failure of the market and recent reforms to provide an adequate power supply.

These include Transpower's inability to provide an adequate transmission system and the fact that a market system does not reward generators for keeping dry- year reserve.

New, energy-intensive businesses planning to set up in this country, which would once have been lured by the promise of cheap power, will now have to do their sums more carefully, weighing up the contrasting claims from the pessimists and the optimists.

Who is right? It is impossible to say.

As the power supply situation worsens, pressure - both political and financial - grows to build more generation. If that is installed and the situation alleviated, then were the doomsayers correct?

All sides agree on one thing, however. The impending decline of cheap Maui gas is bringing a big change to the energy landscape.

And this means a big debate is on the way with political noise and bluster not far behind.

* In Forum tomorrow, Pete Hodgson and Bryan Leyland discuss the state of the energy sector.

Further reading
Feature: Electricity

Energy Efficiency and Conservation Authority