Transpower sends price jolt

By CHRIS DANIELS

Electricity prices north of Auckland will double in less than a decade unless money is invested in new power stations or improving the national grid, says an analysis from Transpower.

The state-owned enterprise, which owns and runs the national electricity grid, has just finished a "System Security Forecast" that shows what will happen if demand for power keeps rising and there is no new investment.

Transpower spokesman Wayne Eagleson said the forecast was to help market participants make their investment decisions.

He said 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.

Wholesale electricity prices are currently less than 3c a kilowatt hour, but recent heavy rainfall into southern hydro-storage lakes has caused prices to fall nearly 15 per cent over the past week.

Transpower, said Eagleson, did not believe a doubling of prices north of Auckland was realistic as new investments would deliver more power to the area.

Mighty River Power chief executive Doug Heffernan said he had seen similar forecasts of looming price spikes, but the projections were now being published.

"The whole reason for doing that is to ensure that people can see what long-term trends are without investment and can then take steps to have some impact."

He did not think prices would actually double for customers living north of Auckland.

Rather than a new hydro scheme being built at the bottom of the South Island and the power carried all the way to Auckland, forecasts such as this showed that generation plant had to be built closer to where the electricity was needed, said Mr Heffernan.

"If nothing else happens - if no new generation occurs and those demand forecasts are as projected - then you'd have to have transmission investment to avoid the security problems that they've identified."

He said the biggest problem facing New Zealand was the lack of gas supply for gas-fired power stations, with the Maui field now expected to run out in 2007, two years earlier than first thought.

Brian Leyland, an Auckland engineering consultant and critic of industry restructuring, said the Transpower price rise forecasts reflected the SOE's failure to invest enough money in new transmission.

"All they are saying is that because our transmission system is inadequate, unless something is done, these people are going to be paying a hell of a lot more for power.

"The assumption is that it's always cheaper for someone else to do something than for [Transpower] to fix their system," he said.

In the past 10-15 years, the public had paid many hundreds of millions more on their power bills simply because Transpower's statement of corporate intent required it only to maintain security of the national grid, not upgrade it.

Fixing the system to provide a better link to the north of Auckland would cost about $50 million, said Leyland, but Transpower preferred to wait until someone else offered to pay for it.

The market model for organising the electricity system had failed, he said, leaving no incentive for anyone to build generation plants to provide power during peak loads or dry years.

Generation in the North Island would soon not be enough to supply the island, meaning trouble if the Cook Strait link ever failed.

"We have got less and less power to meet the load," he said.

"The whole system is in a mess from end-to-end. It's a combination of not enough generation and an inadequate transmission system."

Leyland said a market model was not suitable for a nation such as New Zealand, which had to cope with the risk of a dry year.

Contact chief executive Steve Barrett, when announcing the company's annual results in May, said growth in electricity demand meant 150-200MW of new generation was needed each year,

He said the inability to sign up sufficient supplies of gas meant the company had to shelve plans for a new 400MW power station for its existing Otahuhu site.

The only significant generation project on the horizon is by state-owned Genesis, which is preparing to build a gas-fired power station alongside its Huntly station.

Construction is due to start in September or October.