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The industry was invited to make comments on the Electricity Commission’s Annual Security Assessment 2009. This is a precise of a submission by consulting engineer Bryan Leyland who argues that the Electricity Commission has over-estimated our capacity.
In fact, the situation is even more serious. The review has over-estimated the thermal and wind power generation expected to be available in a dry year. More realistic estimates could take as much as 2000GWh off the winter energy margins given in the report. The winter energy margins should be recalculated as a matter of urgency using realistic estimates of probable maximum generation from thermal power stations and wind farms and a revised report issued. Over-estimating wind capacityFrom the EC Annual Security Assessment table, the available winter energy has been overestimated by something like 1600GWh. If the same adjustments were made to future generation and to South Island wind generation, the adjustment would be even larger. As 2000GWh represents about 10 percent of the total demand over a six-month period, this is very significant indeed. The output of wind farms needs to allow for a nine percent drop (due to less wind) in output during the autumn/winter period. Also, it appears, the capacity factors assumed by the commission are higher than what has been achieved in practice over recent years. It may well be that no allowance has been made for the fact that, in practice, no wind farm operates at more than about 85 percent of its rated capacity for any significant amount of time. This is because each turbine has a different wind regime and it hardly ever happens that all of them experience the optimum wind regime at the same time. The environment Court decision against project Hayes was based on both the environmental effects and the fact that Meridian was unable to provide evidence that it was ‘an economic use of resources’ as required by the Act. Witnesses acting on behalf of those opposing the scheme demonstrated that the cost at the station gate was in the range of 10-12 cents a kWh, which is well above the cost of gas, coal and other options such as hydropower. As the cost of wind power is largely site independent, it is reasonable to conclude that other wind power projects will have the same problems either at the approval stage or getting them through any rigorous internal financial assessment. I suggest that a scenario without any wind power beyond that already committed for construction be added to those already studied. New generation over-estimatedFuture peaking plants should be regarded as unlikely. The way the market works, peaking plants struggle to earn an acceptable income. Until there is more certainty about gas resources, they should be regarded as being of low probability. The assessment assumes that the new 100MW Stratford gas turbines are each capable of generating 425GWh (97 percent capacity factor) over the six-month critical period. I believe that this is unrealistically high. Given their relatively poor efficiency and hence high cost compared to a CCGT, the lack of certainty over gas supplies, that it is relatively new and untested technology, and the fact that it may not be economic or practical for them to generate during periods of low load – then 200 or 300GWh would appear to be more realistic. The CCGT of 200 MW scheduled for 2014 should be given a low probability because, due to scale effect, any CCGT less than the ‘standard’ 350 to 400 MW is less efficient and more expensive. I would also suggest that the availability and the forced outage rate for thermal generation is adjusted upwards over time to allow for the probable increase in problems with the boilers at the CCGTs. It is well known within the industry that there are serious problems associated with the boilers at the Otahuhu and Taranaki combined cycle stations. Experience indicates that, as they accumulate more hours and as a result of the additional load cycling - due in part to the effect of wind power - these problems are likely become more serious as time goes on. I believe it would be prudent to degrade the expected availability and reliability. Encouraging investmentOne effective way of promoting appropriate generation investment is to abandon the market design that we have in favour of a single buyer market, which would result in genuine competition for building and operating new power stations. With a single buyer market each new station is selected on the basis that it is the best available way of meeting the load. There may well be other better market-based options. If so, they too should be investigated. The fundamental problem with this market is that, in order to make a profit, the generators must keep the system on the edge of a shortage. As both wind power and hydropower are unpredictable, this inevitably means that we will run into problems whenever one or both are below the expected. As we saw in the South Island for virtually the whole of 2009, surplus generation leads to unsustainably low prices from the point of view of a generator. Insufficient generation leads to excessive prices for the consumer and excess profits for the generators. I am sure that it would be worthwhile to investigate the hypothesis that generators make more money as a result of a shortage than they do as the result of a wet year. If it is shown to be true, then no one should expect that the market will provide adequate reserve generation. From the point of view of the consumer, having a safe amount of reserve capacity is preferable to operating the system on the edge of a shortage because it leads to a reliable supply at a lower overall cost. As I pointed out after the 2001 shortage, the cost of the shortage to the economy in that year was probably more than the cost of the power stations that would have eliminated the problem - and continued to do so in the years that followed. Steps also need to be taken to ensure that large hydro development on existing partially developed rivers - such as the Clutha - can proceed at a more rapid rate. The Resource Management Act makes it almost impossible to develop small hydropower schemes because the cost penalty it imposes is a substantial proportion of the total cost of the scheme. It would be worthwhile investigating the security, economic and environmental aspects of conforming the existing uncontrolled storages in lakes Wanaka and Wakatipu. This would add 250GWh - nearly 10 percent - to our existing storage. It has been done successfully at Lake Taupo for more than 50 years. It could also have environmental advantages because it would allow Lake Wakatipu to be drawn down in advance of a flood and so mitigate the risk of flooding to Queenstown. given that there is an existing unused gate structure at the outlet, replacing this with, for instance, a structure with a gate that would normally be partly submerged, may have advantages. Superficially, it seems that many generators benefit from the high prices during a shortage while others are neutral or lose money. Eyeballing the historical price curves indicates that there may be a step change in prices after a shortage year and no sign of a drop in prices after a wet year. As the owner and operator of a 1MW small hydropower plant, I am speaking from experience! The government and the commission have a strong preference for security of supply to be provided by market participants and processes rather than being a result of regulatory intervention. The 2009 security report demonstrates this belief needs to be seriously questioned. The present situation is a direct result of the market participants understandable policy of “you set the rules, and we will play the game”. ConclusionIf, as seems likely, there will be virtually no more significant wind power, then the risks for 2012 and beyond are even more serious than it appears. As it takes many years to build power stations - and many more years to get regulatory approval - I believe that immediate action is needed to assess what could, and should, be done to remove the risk of severe shortages in the near future and beyond. Someone needs to identify the problems that have led to this situation and devise a solution that actually solves these problems. Considerations of the “market” should be secondary to this objective. The Electricity Commission should take steps to ensure that the hydro storage on April 1 is well above the 2750GWh (which is less than the historical average level) assumed for its study. In the days when the system was centrally coordinated, the objective was to have storage lakes full, or close to full, on that date. I understand that the commission has the authority to manage storage if necessary. Perhaps it should do just that. The commission should also ensure that, to the maximum extent possible, existing ripple control systems are fully utilised during peak demand periods or when the system is at risk, or does not have sufficient reserves, or when massive price spikes are appearing due to slow starting problems. It should also consider changing the rules so that, when the system is at risk, generators are obliged to offer plant that is actually available and ready to run. Unless, of course, the present recession continues and the emissions trading scheme generates electricity prices that are high enough to force some of our productive energy intensive industries to shut down or to move overseas.
Energy NZ Vol.4 No.3 May-June 2010 |
Taking the EC Annual Security Assessment at face value, it is hard to see how the power system can be other than at serious risk beyond 2011.