System efficiency must be among objectives

By CHRIS DANIELS energy writer

A parliamentary committee is urging the Government to expand the scope of Transpower so it starts including system efficiency in its objectives.

The Commerce Committee has just finished its financial review of the state-owned enterprise, which owns and operates the high-voltage national electricity grid.

Its report says Transpower has no one responsible for investigating and removing constraints in the electricity system.

"We consider this matter requires urgent attention by the minister and suggest that optimising grid efficiency should be included in Transpower's SCI [statement of corporate intent]."

During last year's cold dry winter, when low hydro lake levels caused wholesale electricity prices to soar, Transpower was criticised by retailers and generators for not acting quickly enough to fix transmission constraints in the national grid.

Transpower was asked to remove a constraint in Taranaki that would allow more power generated there to be moved to the South Island, reversing its usual course.

After negotiations, Transpower eventually reconfigured its network, but said this decision put the security of electricity supply at risk for large parts of Taranaki and parts of Wellington.

It says it can act unilaterally to fix constraints in the system if security of power supply is put at risk, but cannot act by itself simply because prices may be high in a particular area.

Some argue that these price signals are exactly how the market should operate, with a constraint in the central North Island encouraging power companies to invest in new generation in the top of the country, rather than in the South Island, far away from the actual electricity users.

"We recognise the issue of transmission constraints involves certain trade offs between security and economic values," says the report.

Transpower and Government officials will be putting together a new Statement of Corporate Intent for the SOE in the next few months, where the issue of including grid efficiency will be discussed.

Transpower spokesman Wayne Eagleson said representatives from all the main power companies had already gathered to talk through better ways of dealing with problems should they arise this winter.

Hydro lake levels are looking good for the coming winter.

Last Sunday national storage was at 3144 gigawatt hours, which is 97 per cent of the average for this time of the year.

National inflows for the past seven days were 115 per cent of the average.

The Commerce Committee also asked Transpower about Risk Reinsurance, a Cayman Islands-based wholly owned subsidiary set up in January last year.

Transpower says this company was established after insurance for the vital Cook Strait power cable became almost impossible to obtain, particularly after two incidents where the cable was damaged.

Known as a captive insurance subsidiary, Risk Reinsurance would pay the first $10 million of any insurance claim, while the rest would come from external reinsurers.

Eagleson said one Risk Reinsurance board meeting each year had to be held in the Cayman Islands - after Bermuda, the most popular home for such companies.

Three Transpower staffers are on the board of Risk Reinsurance, which costs around $130,000 a year to run.

Transpower's treasurer and capital markets manager went to the Northern Hemisphere each year anyway, said Eagleson, so the Cayman Islands' board meeting was scheduled to work in with this trip.