KEY POINTS:
Right now, electricity prices are three times higher than at this time last year and more than twice the average over the past couple of years.
Lake levels are as low as they were at this time in 1992 (when we had a serious shortage) and we have even less reserve capacity available than we had then. If, as Niwa predicts, dry conditions continue for a few more months, there will be a high risk of a shortage and continuing high prices that could cost the public and the economy dearly.
The transmission system is overloaded and constraints often cause very high prices in some areas. These constraints prevent some power stations from generating at full output.
Although the "Winter Group" believes that we might meet winter peak demands without blackouts, there is no doubt that the failure of a transmission line or a large generating unit will give a high risk of blackouts. The system is seriously short of generating capacity and transmission capacity. The situation will be worse next year because the load is increasing faster than generating capacity.
Beyond that it could be even more serious because most of the planned new generation will be from wind. Experience since 2003 and over the past winter tells us that we can rely on no more than 10 per cent of wind power during winter peak demand periods.
It is often claimed that our hydropower stations can back up large amounts of wind power. Not so. A few weeks ago, prices in the North Island were higher than $1/kWh because the wind suddenly stopped blowing. The prices were high because the hydropower operators were reluctant or unable to provide back-up for about 200MW of wind power. This shows that there is no chance that hydropower can back up all of the 3000MW or more that the Government dreams of in the Electricity Strategy. So expect high prices and blackouts every time the load is high and the wind isn't blowing!
The power system is desperately short of base load generation. What we need are more power stations that run continuously to allow the old Huntly steam station to do what it was originally designed to do - generate flat out during the winter peak periods and when storage lake levels are dangerously low. Like right now. But new gas or coal fired base load stations are to be banned. We are in this mess because of a series of wrong decisions made by people who should have known better.
We are short of capacity because they recommended an "Electricity Market" that did not reward the owners of stations that provided the reserve capacity that the system must have. Our transmission system is overloaded because Transpower management persuaded its board that distributed generation would eliminate the need to build new lines or upgrade existing ones. That this was nonsense should have been obvious to anyone who understood power systems.
We are short of gas because Government policies discouraged gas exploration at a time when it was obvious to everyone that the Maui field would soon run down. The ban on new base load generation is a further - and very powerful - disincentive to further gas exploration.
We can't contemplate coal fired generation because the Government believes - against the latest evidence - that man-made CO2 causes dangerous global warming. And we can't even discuss nuclear - the Government has ignored recent advances in nuclear technology and safety and decreed that it is "off limits".
The market killed co-ordinated planning, so we built a new combined cycle station at Huntly and the reserve station at Whirinaki even though it was obvious that if they had been sited in Auckland it would have eliminated the need for the $800 million 400kV line - perhaps forever. Had we simply stayed with the old Electricity Corporation of New Zealand or adopted a sensible market model, there is little doubt that we would be far better off than we are.
Perhaps the biggest shortcoming is a total lack of long term planning and foresight. It is strange that everyone accepts the need for long term co-ordinated planning for roads, for water supply and for sewage but not for electricity. In this modern world, electricity provides a service that is equally important and for which there is no substitute. I believe it should be treated like an essential service and not a "market commodity".
We are in this mess because dogma and short-term political expediency has overridden sound engineering and the hard-won lessons from the past. The reforms were supposed to free the electricity industry from political control - instead it has become more extensive and insidious.
* Bryan Leyland is an engineering consultant.
