Tuesday 26th February 2019
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New generation development will get underway in New Zealand, but whether it is built within three years or five years is “relatively moot,” Mercury NZ chief executive Fraser Whineray says.
All the major generators hold development options and wouldn’t have maintained consents for them if they hadn’t believed new generation would be required during the next five to 10 years, Whineray told journalists and analysts today.
“It’s only a matter of time,” he said. “It’s actually `when’, not `if’” it will be developed.
Last week, Meridian Energy said it believed economic growth and decarbonisation efforts would underpin modest on-going electricity demand growth. Longer-dated futures had risen and the company was re-working consents for an up to 140 MW wind project it has north of Napier to ensure the option is available when the time is right.
Mercury has consents to develop wind farms at Turitea south-east of Palmerston North and on the Puketoi Range east of Pahiatua. It also has a 20 percent stake in Tilt Renewables, which is looking to develop a 100 MW wind farm at Waverley on the southern Taranaki coast.
Chief financial officer William Meek told analysts on a conference call that the company is keeping a “watching brief” on generation development, noting that Tilt and Genesis Energy may be ready to make a decision on the Waverley development later this year.
He said wind is the country’s lowest-cost generation option and has a “long, bright future”. But commitments to 20-plus year generation developments take a lot of work with counterparties.
Recent high spot prices are now being reflected in longer-term electricity futures, with ASX contracts for 2020 and 2021 typically $15-20 a megawatt-hour higher than they were in October.
But Whineray suggested some of that increase may be reflecting short-term risks rather than more permanent trends in the market.
Liquidity in the futures market was still “seriously” low and that was increasing volatility during times of stress, he said. There were also increased risks around gas supplies, the electricity price review and the pending outcome of the Electricity Authority’s investigation into high prices in October and November.
He also noted that generation developers are working to much longer timeframes than the three years of pricing available in the ASX market.
A developer also has to understand how a wind farm will affect local spot prices, how its production may be correlated with other wind farms and how its output can be optimised with other generation to ensure its output can be packaged into a reliable offer.
“Nobody actually buys wind power at the end-user level,” Whineray said.
Mercury makes most of its power at nine hydro stations on the Waikato River. It also has interests in five geothermal power stations around Taupo.
The company is currently upgrading its Whakamaru and Aratiatia hydro plants. Earlier this year it committed to a $75 million refurbishment of its 70-year-old Karapiro station which is expected to lift peak capacity by as much as 17 percent. That work is scheduled from 2022-24.
Whineray said the firm will now consider how best to address the four remaining stations in the Waikato chain.
All the country’s generators are benefitting from efficiency upgrades to the country’s hydro assets, as well as new technology that improves their responsiveness and the management of the catchment resources they rely on.
Homes and businesses are adding about 20 MW of solar a year and some of the more remote lines companies are also developing hydro and geothermal resources to improve supply resilience.
In Mercury's half-year report today, Whineray said New Zealand has enough commercially feasible renewable electricity development options to supply every car, truck, ferry, train, domestic plane, bike and scooter.
He urged all political parties to “abandon” renewable electricity targets and instead focus on developing a low-carbon policy for the entire economy so the country can meet its climate change goals.
And he urged businesses, lobby groups and politicians not to pursue activities and technologies – such as hydrogen – just because of the pressure to be “seen to be doing something.”
“This leads to activities which sound logical but could well be irrelevant at best and in many instances likely drive a perverse outcome. This is greenwashing. And it is the fastest way to a hot planet,” he said.
“Saying that ‘every bit helps’ can be an excuse for mis-allocating resources. Leadership should be about helping the population understand what will make a real difference beyond the endless soundbites and silver bullets, so that New Zealanders can, indeed, be a meaningful part of the solution.
“The electricity opportunity in an absolute sense, and also relative to the competing opportunities, is blindingly obvious. The open door is right in front of the country and available to walk through. What, apart from courage, is preventing clear multi-partisan long-term policies being established which are in New Zealand’s, and her citizens’, interests?”
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