Electricity Supply

Hydro power accounted for about 55% of New Zealand’s current electricity supply of 153 PJ or over 42,000 GWh in the 2007 calendar year. Gas, coal and geothermal generation account ed for a further 26%, 7% and 8% respectively. Geothermal energy is base-loaded but the share of gas and coal varies from year to year depending largely on rainfall and inflows in hydro catchments. Coal is taking a larger share as it substitutes for gas at the 1000 MW Huntly power station.

Electricity transmission towers at sunsetBecause of the high level of reliance on hydro power, the electricity supply system is very susceptible to dry years. New Zealand’s electricity supply has been exposed during periods of low hydro inflows, such as occurred in 1992, 2001, 2003 and 2008. For dry years, power stations are needed which have access to a reliable supply of fuel above base load from hydro, fossil fuels and geothermal. This role has until recently been filled by thermal stations burning large additional quantities of Maui gas. This option is no longer available, hydro power is being constrained by reductions in water rights, and coal is facing high carbon costs and supply problems. Wind generation is making an increasing contribution, is dispatched into the market on a “must run” basis, but cannot be relied on to operate continuously.

The end of Maui represents a fundamental change in the fuel supply situation for thermal electricity generation. Maui gas has provided swing capacity against the limited storage capacity in the hydro system. The electricity market is adjusting to more expensive and dwindling gas supply as well as a loss of flexibility. The higher prices for new gas also corresponds to international increases in the price of oil, coal and gas (in the form of LNG).

As a legacy of abundant Maui gas at prices essentially unchanged since the 1970s, gas has been the preferred fuel for new power stations. However, low gas prices have resulted in underinvestment in exploration of a wide range of fuel options, a declining inventory of gas reserves, and uncertainty in investment in new gas-fired generating plant. Marginal gas prices have more than doubled since redetermination of Maui gas reserves in 2003 meant that without new gas finds, there will be a gas supply shortfall by about 2012.

New generation plant is needed to meet electricity demand growth of about 2% a year and to ensure security of supply in dry years. This demand growth is equivalent to around 800 GWh or 2.9 PJ per year.

The difficulties of securing necessary investment in generation plant prompted ad hoc responses from Government to cover predicted supply shortfalls.

In June 2004, the 155  MW oil-fired Whirinaki reserve generation plant was commissioned to help provide increased certainty of electricity supply when the limits of the electricity system were tested by problems such as low inflows to the hydro lakes or a major generation or transmission breakdown. It is owned by the Government and its operation was transferred to the Electricity Commission in April 2005.

In August 2004, Government underwrote the development of Genesis Energy’s 385 MW combined cycle gas turbine plant (e3p) at Huntly by agreeing to share risk on long term gas supply.

Despite owning or partially underwriting two fossil fuel generating plants, Government has maintained a target of 30 PJ of additional renewable consumer energy by 2012 which will be difficult to meet without major new geothermal developments. However, the accelerated development of geothermal resources expected in central government energy outlooks is difficult to reconcile with recent regional government plans, where many of the technically feasible resources are either controlled by existing operators or protected from development.

While there has been much positioning and debate by the generaters in terms of future generation options, the Government effectively sidelined some of these, at least temporarily with the announcement of the New Zealand Energy Strategy in October 2007. This included a moratorium on thermal electricity plant, unless for security of supply reasons, and so strong reliance on renewable options such as geothermal wind and hydro.

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