Outlook brighter for NZ's power problems

By CHRIS DANIELS, Energy writer

You don't have to be old to remember the last time New Zealanders were being asked urgently to save power. Only two winters ago, Energy Minister Pete Hodgson appeared on television, standing on the rocky bed of Lake Tekapo, urging us to cut electricity use. And once again we are faced with the same winter prospect.

Will it be the same again next year? And the year after that? Despite appearances to the contrary, we may not be doomed by geography and climate to endure an endless future of cold showers.

We are in a bottleneck that could last for two, three or four years. But the outlook for five or 10 years is not quite as gloomy.

More than $1 billion has been invested in new generation since the wholesale market began in 1996. At present, 27 per cent of New Zealand's energy needs are being met by stations built in the past seven years.

And since 2000, resource consent has been granted for new stations that could generate 1300MW of electricity, the equivalent of three Clyde dams.

They have not been built because 90 per cent of this new capacity comes in the form of gas-fired thermal power stations. These stations do not take long to build - up to three years, which isn't bad compared to the years of consenting and construction needed for major hydro projects.

The one advantage of a dam, however, is that the fuel - water - falls from the sky and does not cost a cent. Gas, however, costs money, and its price is increasing.

New gas-fired stations have not been built because the transition from the dwindling Maui gasfield means big power generators cannot secure the long-term gas contracts needed to justify the investment.

Contact Energy, the largest of the private sector power companies, last year shelved plans to build a 400MW gas-fired station at its Otahuhu site. This week it announced that it was likely to build a small 192MW station at Otahuhu which could run on oil distillates, a diesel/jet fuel-style liquid. Natural gas could also fire the planned four generators.

There is clear evidence that "insurance plants" like this are critical to New Zealand's ability to cope with the dry years that constrain our South Island hydro power stations with what seems like alarming regularity.

Engineers are looking at bringing the oil-fired station at Marsden B into production. This station was built but mothballed in 1979 before it generated any power as the oil shocks and introduction of Maui gas made it uneconomic.

This year's crisis would not have been so bad had things not been so good for the New Zealand economy. There has been a strong growth in electricity demand - 3.9 per cent for the year to March, compared with the long run average of 2.3 per cent.

Keeping a lid on demand is not easy. Too much power is wasted in homes and businesses but economic growth means new factories, new homes and more wealth to buy appliances.

Government agencies such as EECA, the Energy Efficiency and Conservation Authority, work to keep down demand growth but growth in our economy and population inevitably means more power use.

Any one of three factors - low rainfall, high demand and a gas shortage - would not necessarily spark a crisis on its own but all three occurring together is enough to signal a problem which will still be here next winter.

Within three years, it is hoped the lack of gas will be partially solved. New gas for the power stations will be coming from a variety of smaller fields.

The Pohokura field in Taranaki will be the first to come on stream. Its owners say they expect "to be in a position to commit to develop the field by early 2004".

The Commerce Commission is studying an application that would allow the three owners of the field - Preussag Energie, Shell Exploration and Todd Petroleum - to jointly market the gas that comes from the Taranaki field.

The first station to use this gas will be built by state-owned generator Genesis, which is in the final planning stages for a new gas-fired power station that would sit alongside its existing station at Huntly.

Genesis also owns 81 per cent of the undeveloped off shore Kupe gasfield, which is smaller than Pohokura and further from coming into production.

There are no new gasfields ready to come on stream apart from these two, but as the price of gas increases with the end of Maui, exploring for gas becomes more attractive.

Liquefied Natural Gas (LNG) can also be imported to fuel power stations, though this is expensive.

Plans for new hydroelectric power stations are being developed.

The biggest, Project Aqua, is a 570MW scheme to build a 60km canal along the banks of the Waitaki River between Oamaru and Timaru. It is being developed by New Zealand's biggest generator, the state-owned Meridian.

Expected to cost at least $1.2 billion, Meridian wants to divert at least three-quarters of the Waitaki's water into the canal, where it would be fed through six power stations.

While it is apparent that South Island hydro stations are vulnerable in dry years, Project Aqua would not be an additional, separate risk. Water is stored by Meridian in Lakes Pukaki and Tekapo, which account for 55 per cent of New Zealand's total hydro storage.

The same water is used to generate power down a string of hydro power stations, including the 540MW Benmore station. Project Aqua would allow the same precious water to be used for electricity generation on six more occasions before it finishes its journey from the mountains to the sea.

Hydro projects take a long time to gain resource consent and build. Assuming all goes according to plan for Meridian, Project Aqua will not start generating its first power till 2008.

As the price of electricity rises, so too does the economic attractiveness of less-traditional forms of power generation. New windfarms are being planned by the Tauranga-based generator Trustpower and Meridian.

Trustpower owns New Zealand's largest windfarm, the 32MW Tararua farm near Palmerston North, which has 48 turbines. Plans are well advanced to double its size.

Meridian is planning a windfarm generating somewhere between 40MW and 80MW. It is being coy about the location of this farm, but it would be a safe bet to expect the new farm to be built in the lower North Island.

But new technology that allows power to be created economically from the wind and sun may be competing with one of the oldest methods of generating power - coal-fired boilers.

The coal lobby says New Zealand has been blinded to the potential of this black gold, biased by images of Dickensian smog and soot.

New Zealand has 10 billion tonnes of economic coal reserves - equivalent to 50 Maui gasfields - of which around 2 million tonnes is used each year.

Solid Energy, another state-owned enterprise, is promoting coal as the power-station fuel of the future. New technology means coal can be burned in a much cleaner and more efficient manner.

And it isn't as expensive as once thought, says Solid Energy. Expensive labour practices are a thing of the past, and coal can be just as economic as wind or gas.

But Government policy is crucial to the development of coal-fired power stations. No matter how clean the processes might be, coal emits more greenhouse gases than gas when it is burned. Kyoto Protocol commitments mean a long-term commitment to coal-powered generation could be difficult for the present Government to reconcile.

Energy Minister Pete Hodgson, speaking this year, said the use of coal "might get bigger in the next couple of years" as the transition away from the Maui gasfield was managed. Its future, however, was "in quite modest amounts".

Since those comments were made, political arguments about the role of the state in the power industry have forced themselves to the top of the Government's agenda.

Three of the big four generator/retailers are state-owned enterprises: Meridian, Genesis and Mighty River Power. Most of the country's 28 local lines companies, including the largest, Vector, are owned by their local communities, usually through trusts.

After years of trying to get the state out of the provision of electricity, publicly owned bodies are still by far the most dominant players.

Little attempt has been made to hide Government intervention in these state-owned enterprises that are supposed to be free from such political meddling.

Genesis chief executive Murray Jackson says Hodgson told him to buy coal to stockpile for the Huntly power station this winter. Hodgson's office says the minister merely asked Jackson how he planned to run the station in the event of a dry winter.

In the next few years, until new gas comes on stream and until new stations are built, these SOEs, established with a view to eventual privatisation, will be increasingly brought closer to the bosom of their owner, the Government.

The pendulum, once swinging the way of the private sector, is now heading back towards more centralised control.

Few Governments can take the risk of voters heading for the polling booth after a week of cold showers.