NZ electricity supply security unclear from 2019, Transpower says

The large-scale closure of New Zealand gas and coal-fired electricity generation capacity and uncertainty about the future needs of major industrial users, such as the Tiwai Point aluminium smelter, are combining to create an uncertain picture for the security of electricity supplies toward the end of the decade, national grid operator Transpower says.

In a new report, Transpower says it is confident it can manage the closure of Contact Energy's [NZX: CEN] 400 Megawatt Otahuhu-B power station, in south Auckland, and Mighty River Power's [NZX: MRP] 170MW Southdown plant, both of which burn natural gas. But it is less confident about Genesis Energy's plans to close its last 500MW of capacity at its ageing gas and coal-fired power station at Huntly.

The report is the latest to create pressure on Genesis, which has said it will withdraw the two remaining Rankine-brand units at Huntly unless market conditions change – code for wanting to be paid better for keeping the plant available for times when the country's mainly hydro, geothermal and wind power stations are unable to meet total demand for electricity.

The Genesis units are not due to be withdrawn from service until December 2018. Otahuhu-B closed in September and Southdown will close next month.

"There are a number of challenges facing the industry over the coming decade and it is becoming increasingly difficult to predict what New Zealand's 2019 energy environment might look like," said Transpower chief executive Alison Andrew, whose report coincides with Contact's annual meeting in Wellington this morning.

"With uncertainty over demand growth, emerging consumer technologies, New Zealand's large industrial loads and the mix of generation that will be available, we need to ensure we are able to keep abreast of potential risks to security of supply and signal these to the industry so that there is an opportunity to respond to them," she said.

The emergence of security of supply risks follows several years of static demand at the same time as a suite of new geothermal and wind power stations came on stream, contributing to depressed wholesale electricity prices and a halt by all major players to any significant new power station construction.

One major source of uncertainty is whether or not Rio Tinto-controlled New Zealand Aluminium Smelters will continue to operate its 44-year-old aluminium smelter at Tiwai Point, near Bluff. The plant is on a commercial knife edge as low global aluminium prices and a glut of production, especially from newer, more efficient smelters in China. The plant currently uses about one-seventh of all the electricity produced in New Zealand.

Its closure would ease pressure for new plant to be built.

"The challenge is from 2019, where we forecast a higher level of risk around meeting the energy needs of the country should no further generation be commissioned to replace the retiring Huntly units," Ms Andrew said. "Although there is limited future generation investment committed, we believe the current wholesale energy market operates effectively, and will respond appropriately to this situation."

Transpower was also reviewing whether any further transmission investment could be made to alleviate the level of security of supply risk in 2019, with a further report on grid investment to be published early next year.

(BusinessDesk)