Genesis boss adds to Meridian's woes voicing 'disappointment' over hydro spills
Thursday, 6 August 2020
Genesis Energy chief executive Marc England has conspicuously failed to defend fellow “gentailer” Meridian in the wake of accusations it manipulated the electricity market.
Speaking at the Downstream energy conference, England also signalled his doubts that the Tiwai Point aluminium smelter would close as slated next year, saying he thought that was only “possible”.
The Electricity Authority said in a preliminary ruling in June that Meridian Energy withheld hydro generation from its Waitaki hydro scheme to raise wholesale electricity prices in December.
The regulator said it suspected Meridian's actions caused an $80 million increase in the cost of electricity available on the spot market and resulted in thousands of tonnes of unnecessary carbon emissions as thermal power stations burnt gas while it water spilled.
**READ MORE:
* Flaw in the electricity market laid bare by preliminary ruling against Meridian
* Power companies accused of manipulation as minister prepares renewables push
**
New Zealand First has called for “heads to roll” at Meridian if the ruling is confirmed.
The three partly-state owned “gentailers” – Meridian, Mercury and Genesis – are often viewed as having regulatory interests that are largely in alignment.
But England said he was glad a group of electricity retailers laid a complaint that led to the authority’s draft ruling after raising the matter on stage at the Downstream conference, and that the authority had chosen to investigate it.
While it would be up to the authority to make a final decision on whether rules had been broken, “Genesis was as disappointed as the small retailers about what happened in the South Island in December,” he said.
All electricity companies went down in the public’s estimation in such situations, he said.
“The whole industry is affected.”
England said there was probably too much market power and not enough competition in the wholesale market in the South Island, which is where Meridian owns most of its hydro generation.
The Electricity Authority is consulting on its final ruling which could include information on the sanctions Meridian may face.
Meridian chief executive Neal Barclay appeared to deny the authority’s accusation of market manipulation on Thursday, without making that denial explicit, saying the company had operated “with good intent”.
He said Meridian’s decision to spill water coincided with a period of “exceptionally large hydro inflows”, an explanation that was not accepted in its entirety by the authority in its draft ruling.
“We were focussed on safety of dam structures and our environmental obligations when managing that sheer volume of water and we did operate with good intent,” Barclay said.
Meridian faces the possibility of a large charge to unpick wholesale pricing in December based on the authority’s calculation that 41 gigawatt/hours of generating capacity had been wasted in the South Island, and additional penalties if it is also judged to have breached trading conduct standards.
But Barclay said that, using the authority’s methodology, “the volume of spill we could arguably have avoided is around 12GWh or less than 0.5 per cent of the water we had to deal with in December”.
“What is important is that most consumers were not impacted at all by this event,” Barclay said.
“Because most people are on fixed contracts they are insulated from any changes in the spot price.”
The authority appeared to reject that argument in its draft ruling in June, saying all consumers could be affected by the “undesirable trading situation” in the long run.
“There was no immediate effect on consumers due to most consumers being on fixed price contracts.
“However, in the long run if retailers expect there to be high spot prices during times of abundant hydro storage, then retail prices will increase for consumers,' the authority said.
The electricity industry has been plunged into turmoil by the slated closure of the Tiwai Point aluminium smelter next year and the Government’s decision to investigate the construction of a massive pumped hydro scheme at Lake Onslow in the South Island.
Enerlytica analyst John Kidd has forecast the Lake Onslow scheme could lower and smooth out wholesale pricing but said it could tip existing market structures on their head.
England said Genesis supported the investigation of the Lake Onslow scheme as it was “the first time” the Government had acknowledged the “dry year risk” that New Zealand might run of power in a year of low hydro inflows.
”It is a real issue in New Zealand – we have got to solve it.
”So we are supportive of the review albeit we don’t think it should be focused wholly on an Onslow idea.”
England said Genesis had signed off a plan to replace the baseload generation that its Huntly coal and gas plant provided.
”If Tiwai shuts, and I think it is still an ‘if’, then we will get there faster – assuming Meridian or Contact want to sell us renewable power to displace that baseload,” he said.
“But that doesn’t mean Huntly shutting because right now we need elements of Huntly to back up the system through dry year risk or wind volatility,” he said.
Transpower said on Thursday that it intended to complete an upgrade of the South Island transmission network a year earlier than planned, by May 2022.
That will bring forward by a year the time when power from Meridian’s Manapouri hydro scheme could be redirected to other power users in the South Island, in the event that the Tiwai smelter does close.