Parting shots

On the eve of his departure from the top job at Genesis Energy, Murray Jackson talks to HUGH DE LACY in an exclusive interview with Energy NZ magazine.

Over-sensitivity to droughts, and too many generators who ‘wholesale long’ and ‘retail short’ are the core reasons for the instability of the electricity market, says departing Genesis Energy chief executive Murray Jackson.

In an exclusive interview with Energy NZ, Jackson says these generators, “can declare a drought and make significant profits because they don’t have to worry about hedging against commercial, industrial and household loads.”

“The deficiency in the first instance is because of greater dependence on hydro, which means every time we get a dry weekend we sneeze and get a drought.

“The second problem is that we don’t have adequate back-up capacity for those that are pure hydro generators,” he says.

“A ‘long’ generator is one that’s got huge volume in the wholesale market amounting to as much as 10,000 gigawatt hours, but if they’ve only got a retail base of, say, 2000GWH they are free to discharge their water in any way they may desire, because they don’t have to maintain reserves for protecting their retail market,” says Jackson.

These factors were the cause of the wild fluctuations on the New Zealand wholesale electricity market, which saw prices exceed $280 per megawatt hour early this winter, when South Island hydro storage lake levels were at historic lows. Prices then crashed to $80/MW when a series of midwinter weather-bombs replenished the lakes.

Australian-born Jackson has been at the helm of state-owned Genesis Energy since it was created by the National Government in 1999 as the runt of the litter of generators created by the electricity market reforms of that year.

In much the same way that Rubicon became the repository of all the old Fletcher Challenge businesses that didn’t fit into obvious market niches when the parent company was broken up, Genesis was loaded with the odds‘n’sods of the electricity industry.

Its main assets were the Huntly thermal plant and a couple of hydro stations, but under Jackson it has blossomed to become the country’s third largest generator behind state-owned Meridian Energy and listed privateer Contact Energy, and the largest retailer with 700,000 Installed Controlled Points (ICPs) and 500,000 customers.

Genesis has also invested heavily in upstream oil and gas projects despite its sole shareholder, the Labour-led Government, signalling a 10-year ban on new thermal-powered generation plants under the emissions trading legislation currently before parliament.

The proposed ban – and to some extent the emissions trading scheme (ETS) itself - now looks increasingly untenable, with the opposition National Party vowing to dump if it wins the forthcoming general election.

Apparently, because his vision for the market has turned out to be more realistic than theirs, Jackson has been mildly vilified by government ministers, especially Finance Minister Michael Cullen and Energy Minister David Parker – but he gets the last laugh.

Genesis now generates 2000 megawatts of electricity a year, 75 percent of it thermal and the rest from the Tongariro and Waikaremoana hydro schemes and the Hauwai wind farm in the Wairarapa.

This compares with Meridian and privately-owned Trustpower both generating 100 percent renewable, state-owned Mighty River Power with 90 percent renewables, and Contact with 50 percent.

Jackson said that the wholesale price fluctuations in 2008 were exacerbated by the reserve Whirinaki thermal station near Napier being a diesel-powered open-cycle gas turbine.

Not only is such a plant just 40 percent efficient, compared to the 55 percent efficiency of a combined gas turbine running on natural gas, but the price of diesel rocketed as oil prices reached nearly US$150/barrel ($215/barrel) earlier in the year.

Jackson says he four times urged the government to build peaking plants on the west coast of the North Island rather than on the east, so they could hook into the much more efficient gas bound for Auckland from the Taranaki oil-fields.

But even if generators are allowed to respond to market forces and build new gas-powered thermal plants to ensure security of supply during droughts, Jackson says that would only go part-way to solving the problems caused by the country’s 60 percent dependence on hydro.

Transmission of power from the generation points to the dominant North Island market is just as big a problem.

“The limitation on the high-voltage transfer on the DC link from the South Island to the North is 500MW, and the work required to replace that will take three-and-a-half to four years.

“A submission’s been put by [state-owned transmitter] Transpower to the Electricity Commission seeking a special hearing in September, so it’ll now be 2012 before the HBDC upgrade will be complete – and at that point the HBDC will take 1400MW,” says Jackson.

“The other part of the transmission upgrade problem involves the 400kv upgrade in the North Island from Whakamaru to Auckland.

“The indications this winter are that more constraints occur in the Wellington region and that the need to extend that 400KV line back to Haywards is emerging.

“So something needs to go on the drawing board now, particularly as we propose to develop in the vicinity of 1000MW of windpower in the lower North Island.

“Every plan for wind is therefore beset by constraints in transmission,” he says.

There seemed little chance of the 400KV upgrade being hastened because of a supply problem with critical components for the AC/DC converter.

Jackson says he had observed much the same problem in Europe where plans to install wind generators on the North Sea are frustrated by the inadequacies of the transmission grids in getting power to the capital cities to the south.

Whatever the problems with the New Zealand electricity market, Jackson departs Genesis with the company in excellent heart, its assets valued at $1.2 billion and its annual turnover above a billion dollars.

Before his appointment to lead Genesis, Jackson had a utilities engineering career in Australia that included the Latrobe and Hunter Valley projects, and a term as commissioner of the Snowy Mountains hydro-electric scheme.

He now returns to Australia to head the Victorian utility Westernport Water, which manages water supply, effluent treatment and re-use, and gas reticulation in southwest Gippsland, one of the state’s fastest-growing rural communities.

Jackson will be succeeded at Genesis by Albert Brantley, who comes from a predominantly mining background that includes managing the former OceanaGold’s (now Oceana Gold Corporation) New Zealand operations.