Electricity regulator pats itself on back for reducing risk of winter power cuts

Wednesday, 14 June 2023

The Electricity Authority has warned that power cuts remain a risk this winter.

ANALYSIS: The Electricity Authority has appeared to applaud itself, Transpower and electricity companies for – probably – keeping the lights on this winter.

Ironically, it did so just three days before the fourth slight scare in the past two months, on Monday morning, when generating capacity dropped below Transpower’s comfort zone of having a buffer of 200 megawatts on hand, which saw spot market electricity prices jump above $1 a kilowatt/hour.

Anyone who thought it was the Electricity Authority’s job to ensure they didn’t need to worry at all about power cuts might be less than bowled over by its heavily-hedged reassurance.

“The authority responded quickly to warnings late last year that tight supply situations could be prevalent this winter and has, with the cooperation of the system operator and the support of the industry, put in place four initiatives to assist the management of such situations,” its chairperson, Nicki Crauford, said.

But she went on to caution that power cuts remained a possibility.

“To be clear, we have enough generation capacity to meet peak demand, but for short durations, such as morning or evening peaks, there may not be enough supply offered to meet forecast demand because of unexpected circumstances such as equipment failure or wind dropping away.”

So should we be satisfied with the job the regulator is doing, or not?

Transpower’s forecasts suggest this winter is most likely to shape up as another season of many fairly close shaves, much like last winter when there were also warnings of possible power cuts but none actually eventuated.

Electricity demand is growing, the construction of new generation has been lagging, weather patterns threaten to get more extreme, and ageing thermal plants are likely to become increasing unreliable as the case for further investment in them becomes harder ahead of their expected closure.

Energy Minister Megan Woods says relying on coal won't cut it.

But it should be a couple more years before this threatens to come to a real crunch.

Complicating matters this winter, though, the hydro lakes that provide most of the country’s electricity are much fuller than average – more than 95% full in fact.

Perversely, as Alison Andrew, chief executive of electricity system operator Transpower, has highlighted, full lakes can make it harder to cope with the morning and evening peaks in electricity demand.

That’s because abundant hydro crashes spot market prices outside those peak periods, making it uneconomic for Genesis Energy to fire up the coal turbines at its Huntly power station.

Those turbines have often seen the market through critical periods of short supply, but they take up to 12 hours to fire up fully, meaning it doesn’t make sense for Genesis to use them just for the peak morning and evening loads.

If there are power cuts this winter, they will be most likely to occur during a cold snap in Auckland, a lull in the wind, and with Huntly’s coal turbines largely idle, as was the circumstance on Monday morning.

So far the Electricity Authority has avoided giving Transpower the power to demand that Genesis, or any other power company for that matter, turn on generation if a power shortage appears to be looming.

The regulator has also shied away from putting in place financial incentives for power companies to keep thermal generation on standby on the off chance it might need to kick in.

Instead, the “four initiatives” it referred to as reducing the risk of winter outages were simply designed to formalise or build on steps to improve the flow of information in the industry about demand and supply.

That’s not necessarily the wrong call, as for one thing there is the trade-off to be managed with minimising carbon emissions.

But it means that the buck is now likely to go first to the authority’s doorstep, if its relatively hands-off approach to safeguarding the electricity supply proves insufficient.

Transpower chief executive Alison Andrew says lakes that are either very empty or very full can pose problems under the current market structure.

It is also the case that the authority has been doggedly supportive of the current market model for the electricity market, which many argue is the root cause of the industry’s flaws.

The more encouraging development is that while the Electricity Authority is arguably allowing the risk of power cuts to increase in the medium term through relative inaction, power generators and their customers have been making some steps to build in greater resilience.

Those steps include NZ Steel agreeing to shave up to about 30 megawatts, or about enough power to supply 25,000 homes, from its own demand in times of shortage.

The aluminium smelter in Bluff this month also formalised an agreement that would see it cut back its electricity usage by 50MW to help out in such situations.

Electricity retailers including Genesis and Octopus have, meanwhile, been trialling new hi-tech system to remotely control heat pumps and hot-water cylinders, to switch demand away from peak periods, and potentially save their customers’ money.

Only time will tell if such initiatives might prove enough to fully offset the growing medium-term risks to electricity security; probably not, but they are still a help.