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Technically Speaking: Nightmare for power utilities - miniature home power plants

Friday 25th August 2000

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Contact Energy

Horizon Energy Distributors

TransAlta

TrustPower

UnitedNetworks

A recent edition of the Economist gave a tip on the next hot industry after telecommunications and the internet. The surprise is the industry is very much old economy - it was a 19th century addition to the Industrial Revolution - and the technology required for its impending renaissance has been around for a long time. What was missing was sufficient development capital, which has recently started to flood in from savvy investors.

The mystery industry is electricity generation. Welcome to the world of "micropower" or miniaturised electricity generation in which small is definitely beautiful. Just as miniaturisation of telecommunications devices and personal computers has changed the world completely, so too will downsized power plants that people will be able to operate in their own homes or businesses. Micropower will be generated by small-scale fuel cells and microturbines, with energy sources such as hydrogen or natural gas.

Commercially, micropower promises to set off a chain reaction that will affect electricity generators, retail suppliers and line companies in far-reaching ways. The micropower revolution threatens to rewrite the rules for large-scale generators and suppliers. People will be able to produce their own electricity for their specific needs and sell surpluses to commercial suppliers, affecting demand for electricity at the wholesale and retail levels.

Vast, often publicly funded generators like hydroelectric dams, nuclear power plants and coal-fired smokestacks could become a thing of the past, certainly in terms of building any new ones. Existing macrogenerators have sunk their costs in many cases and usually have low marginal costs. However, they lose their economies-of-scale advantage over long-distance power transmission losses when people generate electricity in their own backyards.

Power grid companies - supposedly natural monopolies - will also get a shock when their consumers become independent of external electricity supply. Instead of piping line company-delivered power into their homes and offices, microgenerators will possibly only plug in to the network to pump excess voltage out into the wider world. The Economist picks micro-power will enable developing countries to skip over macro-power generation and transmission - giant hydro schemes and nationwide power grids - in the same way they are jumping straight to wireless telephony.

China's vaunted Three Gorges dam may be the last of such environmentally disastrous monuments to obsolete technology. Events like the great Auckland power blackout could become ancient history. "Power to the people" is the operative slogan. It is no exaggeration to call the micropower phenomenon the "electric revolution."

New Zealand has had its own electric revolution of sorts with its messy and quarrelsome privatisation of electricity companies. These firms have been hit repeatedly by politically driven changes in regulatory regimes. Much capital has been thrown away in the process.

Another round of regulatory change may miss the boat if micropower is the future of the electricity industry in New Zealand. Micropower firms could prove to be far more effective at chopping electricity costs than any amount of red tape applied by zealous bureaucrats.

The electricity assets retained by the state when Contact Energy was sold off may be severely eroded in eventual value if micropower leapfrogs over them and becomes a widespread, if not dominant, way of producing electricity. A new twist is given to the ideological debate over whether to retain power assets in public ownership or pass the risk on by sale to the private sector. Risk could increase greatly for a state reluctant to privatise as micropower took off.

So, should we be selling our power company shares in a hurry? Not necessarily, according to the Economist, which is picking decades for micropower's potential to unfold. But things can move fast under the right circumstances. New Zealand has been swift in its uptake of mobile telephones and the internet. Micropower might be the next best thing since sliced bread in the land of DIY. Rather than dumping our conventional power company shares, a number of which are rising in their charts (shown with 40-day averages) or chasing after ambulances speeding away from the dotbomb explosion, we should perhaps be hunting out micropower startups or funds that invest in them.

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