WHO WIELDS THE POWER?
5 October 2008
Garry SHEERAN
SOUTH ISLAND generators have been blamed for contributing to winter power shortages by failing to conserve South Island lake water last spring and early summer.
Industry sources say Meridian used water from its Waitaki system to generate power for big industrial customers in early summer, rather than buying on the spot market.
That would have cost Meridian more at the time, but not nearly as much as it later had to spend buying extensively off the spot market when prices were four, even five times higher. Industry sources say Meridian's moves were a surprise given what was known of lake levels and weather patterns at the time.
The Sunday Star-Times understands Genesis Energy, which runs the coal- fired Huntly power plant in the North Island, was at this time selling far less into the national grid than it expected to because it was constantly under-cut on price by cheaper South Island hydro generation.
This was considered unusual trading behaviour by the generators, given that lake levels were below average and were not showing signs of significant recovery.
Meridian last week reported a profit 47% lower at $128 million, while Contact Energy, which owns the Clyde and Roxburgh hydro stations on the Clutha River, said South Island prices would have to rise because demand was outstripping hydro supplies.
Major Electricity Users Group chief executive Ralph Matthes said there was concern within the industry that Meridian's "running its lakes pretty hard" in early summer was a significant factor in the South Island getting caught short in the autumn and winter months.
"It would have cost them more to buy off the spot market to meet demand during summer, but would have saved the country a lot of problems come winter," he said.
Matthes said his organisation would be urging the Electricity Commission inquiry into the winter's power problems to investigate Meridian's trading activities during this time. "We have energy to meet our demand, what we need is better management," he said.
Meridian Energy communications manager Alan Seay said he was "disappointed at the finger pointing" over the events leading up to the winter power shortages.
"One of the big positives to emerge from the winter was the way the industry worked together to overcome problems, so this is unfortunate," he said.
Seay said Meridian was very confident it acted cautiously and responsibly. He said alarm bells were not ringing when Meridian was using lake storage for generation in the spring.
"At that time you would have good reason to rely on a reasonable inflow into the Waitaki," he said.
However, its view had changed by Christmas and early New Year when they began seriously planning for shortages. Then during March and April Meridian was having to use up lake storage because of "prolonged and multiple outages" at North Island thermal plants.
"It's all very well to have 20-20 hindsight and make these kind of statements, but we are very happy to stand up and answer for our actions."
However, Meridian's approach to events from late October contrasts to that of Mighty River Power, which runs hydro generators on the Waikato River, and which also owns the Southdown (Auckland) gas-fired plant.
Chief executive Doug Heffernan said Mighty River began running Southdown from the last week in October "because we thought there were some risks associated with hydrology patterns for New Zealand".
"We were concerned to save all the water we could in our dams," he said.
"We felt it sensible to take a pre-emptive approach with Southdown. We could always turn it off if it rained, but we couldn't turn it on (when we did) if it didn't."
Heffernan said Mighty River ran Southdown flat-out and continuously from that time, and was a factor in helping the company through a difficult period in the autumn when the Waikato River was low. Despite a 9% output fall from its hydro dams, Mighty River Power last week reported a 14% increase in net profit to $99 million.
Electricity Commission chairman David Caygill said the inquiry into events surrounding the winter's power crisis would look at claims Meridian had not done enough to store water in its hydro lakes.
"However, this is not a witch hunt, but an attempt to find out what various parties did and why, " he said.
The commission would then decide whether generators had the right incentives to act in away that was optimal for the country as well as themselves.
Caygill said the power SOEs and Contact were right to take risks and act commercially. "But when something unusual happens, as it did this winter, we need to make sure normal commercial incentives don't get in the way of sensible outcomes," he said.
Caygill said one of the tools the Electricity Commission had, but had never used, was the power to require generators, including Contact Energy, to maintain certain levels of fuel, including water. "That would be a significant step to take," he said.
The inquiry is being conducted by energy consultant and former Contact Energy chief executive David Hunt, and business and company director John Isles, who is a member of the commission's ruling panel.
©2008 Fairfax New Zealand Limited.
Sunday Star-Times
Go to top
Print Page
Smaller
