Dialogue: Risk in improving networks

By RICHARD BRADDELL

Meridian Energy's chief executive, Keith Turner, wants national grid operator Transpower to beef up its central North Island distribution lines so he can sell more cheap South Island power in Auckland.

But Transpower's chief executive, Bob Thomson, won't play ball.

That seems odd, since the strategy of any good empire builder should be to take every opportunity to make the empire larger.

But Mr Thomson's reluctance to help out Dr Turner highlights a fundamental debate about the impact that new (in the jargon, "disruptive") technologies will have on the way electricity is produced.

Until recently, large hydro and thermal projects capable of producing 300MW or more have been the typical approach to electricity generation. But a school of thought now says that smaller projects, perhaps less than 10MW, will spell the end of those large schemes.

The advantage of small schemes is that they can be located closer to demand, thus avoiding transmission losses. And while they may never replace large generators, they may be used to fill gaps in demand when transmission lines would otherwise be overloaded.

New storage cell technologies that store electricity at off-peak times might fill a similar function.

Importantly for Mr Thomson, as local micro-generation proliferates, it will delay or eliminate the need to build more transmission lines, in the local network as well as in the national grid.

Hence his reluctance to spend what ultimately might balloon out into hundreds of millions of dollars in transmission line upgrades, only to find that the proliferation of distributed generation, as the small-scale projects are known, renders the investment worthless.

Distributed generation is not new. Large industrial plants in forestry and dairying are among those that have used waste byproducts to generate heat and electricity for use in their plants.

But there is a limit to the number of sites that can support cogeneration, and its popularity for uses in places like swimming pools has waned since the break-up of local power supply authorities, which often promoted its introduction.

Mr Thomson concedes that only the most compelling projects have attracted investment to date, but he believes more will, once rural supply lines come up for renewal and the economic case for replacing them with distributed generation becomes overwhelming.

"They are living off a sunk cost and when the sunk cost comes up for renewal, you're in trouble," Mr Thomson says of rural lines networks.

What is also changing the outlook is the huge effort going into new technologies that might just prove ideal for distributed generation. The ones talked of most are fuel cells and microturbines.

On the face of it, the emerging technologies are highly attractive. Fuel cells, which use a catalyst to combine hydrogen and oxygen to produce electricity, have little or no emissions other than water. And they are quiet.

But they are hellishly expensive and at this time need methanol, natural gas or some other hydrogen-rich feedstock to power them.

But research is marching on, driven by concerns about greenhouse gases and concerns that other jurisdictions may follow California in mandating a percentage of new cars with zero emissions.

The use of fuel cells for distributed generation will, however, almost certainly lag behind their use by the car industry, where most of development is focused.

Even there, their application may be squeezed out by hybrid petrol/electric vehicles, which are nearly as efficient and may be on the market within four years.

Mr Thomson has extended his time-frame for the application of fuel cells in distributed generation to between 10 and 15 years.

More promising, in the medium term at least, are microturbines. Gas-powered and low maintenance, prices have still to fall to levels originally expected by their manufacturers.

Another possibility, the Stirling engine, burns fuel externally and so can use multiple fuels. But after years of development, a reasonably priced commercial product has yet to appear.

An American technology commentator, ESource, has a sobering view of the prospects for new distributed generation technologies.

"Costs and operating technology have simply not met promises," it said last year.

In the end, the most likely distributed generation technology remains the internal combustion engine, powered by diesel or natural gas.

Auckland, albeit reluctantly, has had considerable experience, having embarked on New Zealand's largest distributed energy project during the Mercury crisis.

That most of the generators brought in then are not being used now suggests that it was not a great financial success.

But many firms still maintain standby diesel generators, most of which are routinely tested, and Transpower argues that with the encouragement of suitable tariff structures, testing could be moved to peak demand times, thus shaving the top of the load off other infrastructure.

And for all the doubts, UnitedNetworks, which operates a third of the country's electricity lines, sees a place for distributed generation.

Its general manager of asset strategy, Graeme Watson, would like to be able to take portable generators to places such as Thames-Coromandel to meet seasonal peak milking demands. And distributed generation would help in fast-growth areas such as Gulf Harbour.

At the moment, lines companies are barred from generation, although under legislation before Parliament they would be able to generate up to 2 per cent of their peak demand, or a total of 20MW for UnitedNetworks.

Mr Watson cautions that distributed generation in remote areas remains a questionable proposition. Putting aside the capital investment required, fuel still has to be delivered to those sites.

Nevertheless, Mr Watson sees economic benefits for the country and not just lines companies.

At the moment, large users look the best target. But a time may come when photovoltaics and systems suited for residential use might enable householders to supply electricity to their local network.

Mr Watson sees a need for existing low-voltage networks, such as United's, to be able to distribute excess energy between customers.

But the household generation would have to meet strict quality standards and not jeopardise the security of the network.

Meantime, the best approach may be one suggested by the Energy Efficiency and Conservation Authority. It is simply to use less. In Auckland, 1 per cent of consumers account for 40 per cent of use. The authority reckons that at moderate cost, the commercial sector could reduce its consumption by 30 per cent.

* Fran O'Sullivan's column will resume next week.