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Hydro power accounts for about 64% of New Zealand's
current electricity supply of 147 PJ or over
41,000 GWh in the March 2005 year. Gas, coal
and geothermal generation account for a further
16%, 10% and 6% respectively. Geothermal energy
is base-loaded but the share of gas and coal varies
from year to year depending largely on rainfall
and inflows in hydro catchments. Coal is taking
a larger share as it substitutes for gas at the
1000 MW Huntly power station.
 Because
of the high level of reliance on hydro power,
the electricity supply system is very susceptible
to dry years. New Zealand's electricity supply
has been exposed during periods of low hydro inflows,
such as occurred in 1992, 2001 and 2003. For dry
years, power stations are needed which have access
to a reliable supply of fuel above base load from
hydro, fossil fuels and geothermal. This role
has until recently been filled by thermal stations
burning large additional quantities of Maui gas.
This option is no longer available, hydro power
is being constrained by reductions in water rights,
and coal is facing high carbon taxes and supply
problems. Wind generation is making an increasing
contribution, is dispatched into the market on
a "must run" basis, but cannot be relied
on to operate continuously.
The end of Maui represents a fundamental change
in the fuel supply situation for thermal electricity
generation. Maui gas has provided swing capacity
against the limited storage capacity in the hydro
system. The electricity market is adjusting to
more expensive and dwindling gas supply as well
as a loss of flexibility. The higher prices for
new gas also corresponds to international increases
in the price of oil, coal and gas (in the form
of LNG).
As a legacy of abundant Maui gas at prices essentially
unchanged since the 1970s, gas has been the preferred
fuel for new power stations. However, low gas
prices have resulted in underinvestment in exploration
of a wide range of fuel options, a declining inventory
of gas reserves, and uncertainty in investment
in new gas-fired generating plant. Marginal gas
prices have more than doubled since redetermination
of Maui gas reserves in 2003 meant that without
new gas finds, there will be a gas supply shortfall
by about 2012.
The outlook for future electricity supply has
consequently moved quite quickly away from gas
and large hydro. Current debate on electricity
supply now revolves around the acceptability of
coal versus alternatives such as imported LNG,
wind, small scale local hydro and geothermal,
and the effect implementation of the Kyoto Protocol
will have on investment.
New generation plant is needed to meet electricity
demand growth of about 2% a year and to ensure
security of supply in dry years. This demand growth
is equivalent to over 800 GWh or 2.9 PJ
per year.
The difficulties of securing necessary investment
in generation plant prompted ad hoc responses
from Government to cover predicted supply shortfalls.
In June 2004, the 155 MW oil-fired Whirinaki
reserve generation plant was commissioned to help
provide increased certainty of electricity supply
when the limits of the electricity system were
tested by problems such as low inflows to the
hydro lakes or a major generation or transmission
breakdown. It is owned by the Government and its
operation was transferred to the Electricity Commission
in April 2005.
In August 2004, Government underwrote the development
of Genesis Energy's 385 MW combined cycle
gas turbine plant (e3p) at Huntly by agreeing
to share risk on long term gas supply.
Despite owning or partially underwriting two
fossil fuel generating plants, Government has
maintained a target of 30 PJ of additional
renewable consumer energy by 2012 which will be
difficult to meet without major new geothermal
developments. However, the accelerated development
of geothermal resources expected in central government
energy outlooks is difficult to reconcile with
recent regional government plans, where many of
the technically feasible resources are either
controlled by existing operators or protected
from development.
See Also Other Investment Climate
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