The lessons NZ can learn from Australia to guide energy policy and keep prices down

As  consumers  receive their winter  power  bills,  many  are puzzled  and  some are incensed that they are  so  high.

There  is a  simple answer:  wholesale  prices are elevated (they have  been   very  high for  some time and reached $215 a  megawatt/hour last week).

And  there’s a  not-so-simple answer:

The  latter relates  to   New Zealand’s complicated  generating  system which –  to  the  casual  observer  looking at   the  power  stations – inspires admiration at  their  construction, as  for  example  on  the  Waikato river  or  at  Benmore in  the  south.

NZ’s system generates more  than 80 per cent of its power output  from renewable  sources, but under  the  Ardern  government  aims  to  get  to 100 per cent to  minimise  carbon emissions.

As  Australian consumers are  finding out, however, closing down fossil fuel plants,  and relying  on  renewable sources can send prices  soaring and  brings  another  set  of  headaches.

NZ has  relied on  the  Huntly power  station with its  fossil-fuelled  generators  as  a  back-up  to  its  renewable  system, but as long  ago as  2016 its  operator, Genesis,  signalled  the coal-fired generators would  be  phased out  by 2025.

That would leave only two gas-fired units  in  operation.

But the government has  come  under  pressure  from lobby groups like  Greenpeace  to  shut  down  its  fossil-fuelled  units because coal produces far more greenhouse gas emissions per therm of energy than gas does.

Genesis  drew  on cheap  Indonesian  coal  to  fuel  the coal-fired plant, but  now the  price   of  Indonesian coal is  around $US250-275 a  tonne,  up  from $US150.

Former Genesis  CEO  Marc England  said that by 2025, Genesis would only use coal in its thermal units in abnormal market conditions.

“It is our intent to remove coal completely by 2030. Abnormal market conditions would be a shortage of gas or a shortage of electricity.”

There would need to be help from the rest of the industry to provide energy security in a world without coal,  England said.

Over the past 12 months, only 10 per cent of the electricity produced by the coal and gas units at Huntly were used for Genesis customers.  The rest went to other companies to meet their own shortfall, he said.

As a result, the industry as a whole would have to come up with a solution to ensure there would always be a reliable source of electricity after coal is no longer available to be used in a crisis.

Those  comments from Genesis’ former  boss  are  instructive in  light   of  the  recent  issues  in the  power  system.

The  NZ Herald, in a  report by  one of  its  top journalists Jamie  Gray, explained   that Transpower’s (recent) power supply warnings have highlighted the system’s reliance on renewable energy sources, particularly as the country aims to cut its carbon emissions.

On Tuesday a  week ago, grid operator Transpower issued a consumer advice notice (CAN), a routine measure aimed at letting generators know there was a low level of residual generation in the tank for expected evening peak demand.

The week before, Transpower issued a “grid emergency” after Contact Energy’s 105 m/watt peaker at Stratford failed to start, one of Genesis Energy’s units at Huntly had to temporarily reduce output by 150 megawatts, and wind generation dropped from a forecast 90 megawatts to 30 megawatts.

Normal power supply was maintained throughout both events.

About 85 per cent of New Zealand’s power supply comes from renewable sources, a figure expected to hit 96 per cent by 2030.

As it stands, the country’s thermal generators step in during times of high demand.

Gray   quoted Greg Sise, managing director of Dunedin-based consultants EnergyLink,  who said CAN notices were not unusual and were a successful way of managing the system.

“It’s not unusual for Transpower to issue CAN notices advising that there is not enough generation in reserve – it does happen reasonably often,”.

Sise  said the ratio between peak demand and average demand is usually fairly static.

“But it feels like the peak is picking up relative to the average, which is probably a sign of some underlying demand growth to come.  Last week’s event was unusual because thermal plant is very well maintained,” Sise said.

Wholesale power prices had  been elevated, reaching $215 a megawatt hour.

Sise said hydro lake water levels were looking “quite reasonable” but tight gas supply and higher coal prices – US$250 a tonne from $125/tonne – had put upward pressure on spot power prices.

Analysts said the system was likely to be challenged as the country progressively used less thermal generated power and more renewables-generated.

“That’s a big question,” Sise said.

“A lot of people are looking at this to look at how this is going to be managed, especially as New Zealand approaches 100 per cent renewables.”

New Zealand has several renewable power projects – mostly wind generation – under way.

This  is  the  lesson   which  NZ  could  learn  from  Australia  which,  in  shutting down  its     vast   coal-fired  generating  system  and  turning  to  wind-power  and  solar  systems,  has  seen  the  cost  of  electricity  soaring,  particularly  when the  sun doesn’t shine  or the  wind  doesn’t blow

2 thoughts on “The lessons NZ can learn from Australia to guide energy policy and keep prices down

  1. One thing you have to add to the coal firing at Huntly is the carbon charges of about $100/ MWh (!0c a unit) When they fire up Whirinaki, the power from there costs about $1 a unit of which carbon charges make up a lot. So the higher electricity prices significantly benefit the government coffers. On gas fired plant, they “only” get about 4c a unit. Something to remember the next time the Minister bleats about high electricity prices and appoints no doubt another committee to investigate it.

    Liked by 1 person

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