POWER CRISIS IS OVER, SO LET'S TACKLE REAL ISSUES
19 June 2008
VERNON SMALL
If you really want something to worry about, can I recommend forgetting about the power "crisis" and concentrating instead on the recession we are living through.
Economists are nearly unanimous that the economy went backwards in the March quarter, with data due out next week, as Finance Minister Michael Cullen noted yesterday during evidence to the finance and expenditure committee.
The chances of the economy rebounding in the June quarter must be slim, given the hole the housing market has fallen into, slow retail spending, pain in the construction sector, the continuing impact of the drought and the mid-year trough it created in the meat industry from the early slaughtering of livestock.
Two negative quarters is a technical recession. What price a worse figure in the June quarter than March and another backward step in September?
By contrast, while it would be wise not to slacken efforts to save power, the weekend's rain lifted hydro lake levels and therefore national storage to 56 per cent of average from 49 per cent last week.
There was clearly a stoush between Energy Minister David Parker and five electricity sector chief executives a couple of weeks ago over the current advertising campaign.
But Mr Parker apparently relaxed and eventually "endorsed" it when he saw the nature of the campaign and that there would be no specific target for savings. But not before he had "waved a big regulatory stick", according to one of those present. Though that was not specified, it was interpreted by some as including stapling back together the three state-owned generators.
More sensible might be a provision allowing closer cooperation between state generators. They are treated under competition law as separate businesses, rather than firms with one owner. Being asked to cooperate by the Government – for instance, by finding a way for Meridian to conserve water in the wider national interest – could expose the Government (in the form of SOE Minister Trevor Mallard) to anti-collusion provisions.
Those who want to see the extent of the current "crisis" graphically displayed should go to the Electricity Commission's website at www.electricitycommission.govt.nz/opdev/secsupply/sos/status/minzone/index.html, and click on the "actual minzone" link.
The problem started to wane even as the industry's precautionary advertising regime started on Sunday. There was significant – though not yet sufficient – rainfall in the hydro lake catchments at the weekend and the full impact is yet to flow through to the lakes.
It is as if there is a doomsayer's raindance operating, or perhaps a sort of Brash effect (named after former National leader Don Brash, who decided to stand on the banks of a receding southern hydro lake to highlight the problem, just as that problem dissolved in the rain.
As of yesterday, the storage "snake" on the commission's graph was rearing up to the point at which even a steady decline from here on would barely clip the emergency zone.
If and when the industry declares the "crisis" history, it might be time to look rationally at the country's generating capacity again, and stop blaming successive governments, the electricity companies, the market system, or even Max Bradford, the poor old energy minister from the 1990s, for our woes.
There are some issues that need to be addressed. They include whether more should be spent on transmission, whether the current model of pricing power at the marginal cost is really the best for consumers, and the efficacy of the "reserve capacity" diesel plant at Whirinaki.
The latter was probably the wrong type of generation in the wrong place. If another is needed, it should probably be sited in the South Island (because getting power south is one of the major issues in dry winters) and ought to be gas-fired, though finding gas in the South Island makes it hard to achieve both goals.
But those issues aside, all those crying for urgent new generation, or who lament that the expanding supply of windpower will require an equal amount of thermal "back-up", may not be on the money.
Current capacity is 6250 megawatts. Demand growth requires an extra 150 MW of generation a year. About 300 MW should be completed by the end of 2009 and another 135 MW is due by 2012.
So the short term outlook is not so bleak. More than 4300 MW is either proposed or in the consent process, including nearly 2500 MW of wind power (though it also includes about 800 MW of hydro power, which is unlikely to get the nod).
That looks like plenty on the longer- term drawing board. However, with wind such a large proportion, its availability and whether it needs permanent back-up from thermal generation is an issue.
In that regard, the Government puts a lot of store by the work of Goran Strbac, who presented his preliminary views in April following a visit to New Zealand.
He found that the cost of wind integration was many times lower than experienced in Europe, and that hydro was an ideal complement to wind as it can economically and effectively balance variations in wind generation.
Worrying about the lack of new hydro generation, the complementarity of existing hydro plant with wind power and the impact of reliable new geothermal generation on overall supply is far more useful than shroud-waving about this year's big dry.
© 2008 Fairfax New Zealand Limited. All Rights Reserved.
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