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A third of the power supply to the North Island is under threat after Transpower shut down an important section of the Cook Strait cable because it was so degraded it could not be insured against "catastrophic failure".
Any power cuts will largely affect residential homes, a report reveals.
Three major insurance companies cancelled Transpower's coverage for the oldest section of the cable - one of two carrying power across Cook Strait - after finding it was too risky to insure against potential environment, life and property loss.
An expert report commissioned by Transpower warned that a major failure to Pole 1, one of two systems operating the cables, could cause widespread damage and power outages, and was likely within "a few months rather than years".
The type of "catastrophic failure" scenarios at Pole 1 stations in Lower Hutt and at Benmore in the South Island included a massive hydrogen explosion, mercury vapour fallout over populated areas and huge fires and oil slicks along rivers.
In response, Transpower has shut down the stations serving the cable - which needs $450 million repairs - leaving the North Island and South Island connected by a single link.
A report by the National Winter Group, a Transpower-led body which investigates peak electricity demand, states the ability to meet power needs will be "tight" with the system occasionally having to be run in "emergency secure state".
In such a state there is no room for error on the national power grid. Generator or transmission problems would result in "automatic disconnection of a significant number of customers", the report states. These would be largely residential customers.
The NWG report states the built-in safety system would disconnect "one or two 16 per cent blocks of consumer demand, in this case across the North Island". It means that almost a third of power supply to the North Island could be cut.
It is the latest infrastructure failure to hit Transpower, and follows a major power cut to most of Auckland in 2006 - caused by a simple faulty shackle. At the time, Transpower faced questions over the level of investment into the lines network.
The revelation of the state of the Cook Strait cable equipment follows the exit of senior management and board members. The chief executive, chairman and deputy chairman were changed in the past six months.
Transpower is now hoping to get half of Pole 1 going, allowing technicians to cannibalise the old system for spare parts. The move means it might be possible to limp through winter with the jury-rigged system able to be turned on during periods of peak power demand.
However, it is unclear whether Transpower will get insurance cover to underwrite the system. The total insurance cover for Pole 1 was about $500m - a burden the government has said it might take on.
Energy Minister David Parker told the Herald on Sunday that he had informed Transpower the government would consider underwriting the system. He was also frustrated that the state of the transmission grid had created the problem. He admitted that there was no flexibility left in the system. "I wouldn't want to be critical (but) I don't like surprises like that.
"When I became minister I was concerned at the lack of investment in the grid over the past decade and a half." He had since made it clear to Transpower and the Electricity Commission, which authorises aspects of Transpower plans, that it needed to solve the infrastructure problem urgently.
Transpower chief executive Patrick Strange said that transmission in New Zealand was "stressed". "We have less reserve capacity than we have had for the past 30 years."
He was unable to explain how Pole 1 had become so rundown as he was new with the company. However, he said the technology had come under more pressure in recent years, with North Island power stations sending power to the South Island.
The extent of the wear, and condition of the equipment, had surprised the company.
It was at the "bounds of the range" Transpower expected.
Transpower has yet to put forward a proposal to replace the link.
WHAT THE REPORT SAYS
Nine out of 15 major pieces of equipment used to transfer power across one of two sections of the Cook Strait cable have serious faults which could lead to catastrophic disaster.
A December 18 report by one of the world's leading insurance brokers, United States-based Marsh, described faults and, in another report, scenarios of disasters if Transpower persisted with its aged cable connection.
The report stated: "Due to the age, operating history and current condition of some items of plant, the risk of a machinery failure leading to a major fire is considered the most likely loss event."
It also highlighted the use of outdated mercury technology used in the equipment as posing particular dangers. The questionable equipment included auxiliary transformers and leaking resistors and converter transformers.
The possible risks and consequences relating to equipment failure include:
Earthquake - staff will be exposed to poisonous mercury vapour and nearby residents will need evacuating.
Major transformer fire.
Fire in mercury arc valve hall.
Rupture of bushing in valve hall.
Dam or penstock rupture at Benmore - with the potential to break open the dam.
