January 2, 2008
New Zealand

Energy strategy risks power shortages

There is a significant risk of power shortages from the Government’s aim for 90 per cent renewable power and prices will rise, according to former Electricity Commission chairman Roy Hemmingway.

The Government’s Energy Strategy, announced in December, will also impose a 10-year ban on building new fossil fuel power stations in an effort to cut carbon dioxide emissions.

Hemmingway left the job as Electricity Commission chairman at the end of 2006, at the end of an often turbulent three years. At that time, he openly criticised Energy Minister David Parker as an “interventionist” who appeared to think he was nearly always right.

Now living in the United States again, Hemmingway told BusinessDay the original Energy Strategy drafted by government officials was “fairly well balanced”. But Hemmingway said he understood that the more “extreme reliance” on renewable energy was substituted by Parker himself.

“More renewables are necessary if New Zealand is to meet climate change targets. However, in my opinion, the government’s policy puts so much emphasis on renewables to the exclusion of other generation sources that the power supply is at risk,” Hemmingway said.

He warned against an over-reliance on wind power.

“The most likely and abundant source of renewable electricity is wind, and wind is unpredictable,” Hemmingway said.

It was possible to predict the amount of wind energy available over the course of a whole year, but it was “very difficult” to predict how much wind power might be possible at the exact time it was needed to meet demand, he said.

“Given that New Zealand has begun to experience issues around meeting peak demand, there is a very serious problem with relying on wind,” he said.

There were not enough other forms of renewable power such as hydro and geothermal stations that would provide a more reliable power supply.

“Power prices will rise, simply because new sources of supply, of all kinds, are more expensive than the old sources,” Hemmingway said.

Banning non-renewable power from coal or gas fired stations potentially meant generators would have to turn to more expensive sources driving up prices.

Hemmingway did not estimate the potential impact on prices from the policy. However, independent electricity consultant Bryan Leyland has recently estimated the price of power could rise 30 to 40 per cent within a few years as a result.

Previous Electricity Commission figures suggest wind would cost 11 cents a unit, about twice the present cost of coal or gas. The Wind Energy Association says wind would cost between 7c and 10c a unit.

Bank economists have estimated government policies will see the price of petrol rise 4 per cent and electricity rise 7 per cent, at least, adding to the risks of inflation for the Reserve Bank.

New Zealand is already a world leader in renewable power, producing about two-thirds of its electricity mainly from hydro power, with smaller amounts of geothermal and wind power. Most Australian electricity, by comparison comes from coal-fired power stations.

About half of all New Zealand’s greenhouse gases are methane from farm animals.

New Zealand produces about 200g of CO2 for each kilowatt of power produced, about one-fifth of the average CO2 of Australian power. France, which relies heavily on nuclear power, is one of the few countries with lower CO2 emissions from power generation.

If more wind farms were built, they would have to be “where the wind blows”, and not necessarily near where people use most power, such as Auckland. That meant more transmission lines would be needed than for a power plant in Auckland.

Hemmingway pointed out it would be easier to build another gas-fired power station at Contact Energy’s Otahuhu plant in Auckland, which already has consents as an operating power station, than seek consents for new generation.

The power system would also need more back-up power stations to meet peak demand when the wind was not blowing, Hemmingway said.

State owned Genesis Energy was told by Parker in October not to proceed with any plans for thermal power generators.

However, a recent Court of Appeal judgment said the application for the proposed gas-fired Genesis station at Rodney, north of Auckland was still alive. Sources have indicated the station could yet be built to handle peaks in demand, rather than a base-load station operating almost full time. Genesis has said it was “still reviewing” the Rodney plant, but if it went ahead it would meet the requirements of the government’s Energy Strategy.

Hemmingway said security of supply was always an issue for New Zealand’s power system because of the unpredictable nature of water running into hydro lakes. That would be made worse by an even greater reliance on hydro and wind, as against the more predictable power from gas or coal.

For most of this year, hydro lake storage levels have been running under the long-run 80-year average.

Wholesale power prices started to rise from extremely low levels of just 2c a unit in early November as storage levels dropped, to more than 8c a unit in mid-December.

Prices have since fallen back somewhat, with rising lake storage levels, now about 90 per cent of average, up from 78 per cent full a month earlier.

It had been expected to be a dry summer and lake levels had reached a level where operators should be cautious, according to electricity consultant Leyland.

Low lake levels showed the importance of having gas and coal-fired power stations that could be brought on when needed, Leyland said.

He pointed out Contact Energy has now permanently closed its old 300 megawatt New Plymouth power station, at a cost of $25 million, reducing available generation.

In September, asbestos was found in areas of the 31-year-old plant where it had not been previously recorded and the plant was immediately shut down. The loss of New Plymouth meant the system had less back-up generation than before the introduction of the emergency supply Whirinaki station in Hawkes Bay.

And that increased the risks if there was a station failure.

“We are always at risk of the major failure at one of the big gas turbines and it is not a risk we should underestimate,” Leyland said.

There is also reduced transmission capacity on the Cook Strait power cable, down by about a third, adding to concerns about power supply.

On the other hand, Contact will get a fast-track consent process for its planned $500 million Te Mihi geothermal station near Taupo.

Leyland said if the summer was dry the system could be “easily be in serious trouble next winter”.

By James Weir

The Dominion Post


2 January 2008

URL to article:  https://www.wind-watch.org/news/2008/01/02/energy-strategy-risks-power-shortages/