GNE - Genesis Energy

[xafalcon]

xaf, show me one project in the last 30 years that has come in on time and on budget, CRL, Marsden Point, Clyde, Sky City, the BNZ building in Wellington, N Z Steel, CH CH rebuild, Waterview Tunnel, Mangere Bridge , Dunedin Hospital, Wellington Museum, the Puhoi to Warkworth motorway to name a few, the Lake Onslow pipe dream will cost $30 Billion minimum, the only way any builder on shore or off shore will build a contract of this nature would be on a cost plus ( charge up ) contract, the very very low productivity of N Z workers is something else.
Just today the CEO of Wellington Water resigned as she forgot to submit a $51 million costing item to her employer.

It just goes on and on.

You said the estimated cost was $30B. This is incorrect, the last estimated cost was $16B

Cost overrun is a separate issue, and you suggested this was additive to your $30B, which was misleading

Cost overrun can be eliminated with a fixed price contract. This is basic procurement. The penalty is a higher initial quoted price as the supplier/contractor must factor in future price movements. The effect is a lower IRR so fewer projects will proceed to construction, but those that do will come in on-budget (and generally at lower total cost than when the purchaser agrees to cover cost escalations)

The idea that the purchaser should cover future price movements was introduced to stop supplier/contractor including fat allowances which killed projects through low financial returns. Now the suppliers/contractors are gaming the system by providing unrealistically low quotes (which get projects approved) and passing any and all cost escalations back to the purchaser. The risk should sit with the supplier/contractor as they know their market much much better than the purchaser

Incumbency breeds contempt. NZ should invite the Chinese to tender a few projects (materials and imported labour), under their belt & Road program. Sharp Chinese pricing will quickly bring the NZ suppliers/contractors back into line. The Chinese quotes don't need to be accepted to have a beneficial effect, but accepting one or two would show its not a bluff

I have 25 years procurement experience. I used this disruptive technique many times, bringing in a new vendor to shake up the incumbent. Easily 25% cost reduction every time, and improved service to boot

[kiora]

You said the estimated cost was $30B. This is incorrect, the last estimated cost was $16B

Cost overrun is a separate issue, and you suggested this was additive to your $30B, which was misleading

Cost overrun can be eliminated with a fixed price contract. This is basic procurement. The penalty is a higher initial quoted price as the supplier/contractor must factor in future price movements. The effect is a lower IRR so fewer projects will proceed to construction, but those that do will come in on-budget (and generally at lower total cost than when the purchaser agrees to cover cost escalations)

The idea that the purchaser should cover future price movements was introduced to stop supplier/contractor including fat allowances which killed projects through low financial returns. Now the suppliers/contractors are gaming the system by providing unrealistically low quotes (which get projects approved) and passing any and all cost escalations back to the purchaser. The risk should sit with the supplier/contractor as they know their market much much better than the purchaser

Incumbency breeds contempt. NZ should invite the Chinese to tender a few projects (materials and imported labour), under their belt & Road program. Sharp Chinese pricing will quickly bring the NZ suppliers/contractors back into line. The Chinese quotes don't need to be accepted to have a beneficial effect, but accepting one or two would show its not a bluff

I have 25 years procurement experience. I used this disruptive technique many times, bringing in a new vendor to shake up the incumbent. Easily 25% cost reduction every time, and improved service to boot

The electricity market is working as expected?
Electricity price is high because of its scarcity?
A major issue at the moment is the water level in the hydro's particularly the south island hydro?

What IF
The hydro storage is not used so much for base load but held back to such levels, where it is not spilled,but is fully utilised during times of scarcity?
Then the existing hydro storage could be better utilised as the battery without building chemical batteries ,pumped hydro or nuclear power?
Then the new solar & wind power could be used to cover the electricity required for base load?

Does that make sense???

Does the existing market allow for this scenario?

[xafalcon]

The electricity market is working as expected?
Electricity price is high because of its scarcity?
A major issue at the moment is the water level in the hydro's particularly the south island hydro?

What IF
The hydro storage is not used so much for base load but held back to such levels, where it is not spilled,but is fully utilised during times of scarcity?
Then the existing hydro storage could be better utilised as the battery without building chemical batteries ,pumped hydro or nuclear power?
Then the new solar & wind power could be used to cover the electricity required for base load?

Does that make sense???

Does the existing market allow for this scenario?

The electricity generators are following the market rules

No well run business would build more capacity when the largest customer threatens to close their business. Rio Tinto uses about 15% of all electricity generated in NZ. If this was released into the market, there is abundant electricity for everyone now that the transmission lines have been upgraded. If the lines hadn't have been upgraded, I have no doubt that RT would still be playing games

The government should have stepped in a decade ago, rather than giving RT a tax payer handout and allowing a decade to be lost to ongoing gamesmanship (that the government resoundingly lost, over and over)

Not all hydro has storage lakes, some capacity is "run of the river", so is entirely dependent on current hydrology conditions

All storage lakes have minimum and maximum levels (above sea level). Historically and currently they have been operated to preserve water and minimise spill - a tricky balancing act that is never perfect

Wind is always the first to dispatch, solar will be the same. But both have issues with intermittency and unpredictability. Both are at their annual minimum in winter (wind has minimums in winter and summer). So these levers are already pulled

Meanwhile, demand grows at 4%pa compounding. But firming generation is not growing, and will be decreasing when the rankines are retired and NZ gas supply continues to decline. So when the wind doesn't blow, there will be less capacity to simply keep the lights on

The current situation has seen the rankines pumping 700MW (750MW capacity) and gas pumping 850MW (1250MW capacity) and diesel generating 100MW (capacity 160MW). And RT has been scaled back considerably (can only do this 4 times in the 20 year contract period, so 3 months into the contract and one has already been used). So the generators are almost at peak now, and struggle to meet reduced demand even with RT being heavily scaled back

NZ doesn't have high quality sun levels like Australia. Solar is marginal in NZ. Wind is much better as NZ is in the roaring 40's. But massive storage is needed, or wind and solar will need to be significantly over-built across the entire country to get geographical separation. This is a recipe for high future electricity costs, and doesn't entirely overcome the growing winter issues

A huge investment in storage needs to be made to avoid an entirely predictable problem in the near future. Businesses will not embrace electrification technology if there are questions over future supply - coal boilers are predictable, you buy coal, burn it, and get process heat to run your business. But how do you process milk 24/7 if electricity supply to your electric boiler isn't guaranteed? This will hold back electrification, and cost NZ ghg emissions penalties for years

But the blue team can't think further ahead than 3 years. And that is a major problem for a political party on the right. NZ really needs to "think big", once again

[Snoopy]

The electricity market is working as expected?
Electricity price is high because of its scarcity?
A major issue at the moment is the water level in the hydro's particularly the south island hydro?

What IF
The hydro storage is not used so much for base load but held back to such levels, where it is not spilled,but is fully utilised during times of scarcity?
Then the existing hydro storage could be better utilised as the battery without building chemical batteries ,pumped hydro or nuclear power?
Then the new solar & wind power could be used to cover the electricity required for base load?

Does that make sense???

Does the existing market allow for this scenario?

Superficially what you say makes sense kiora. However the problem is the storage capacity of our lakes is not as great as most people assume it is. Here is some information on the Waikato river system (headed by Lake Taupo) and the power being generated from it

https://www.taupodc.govt.nz/reposito...%20Mercury.pdf

"17. While the storage within Lake Taupo may seem large, the mean outflow through Taupo Gates of 156.2 m³/s (January 1980 to June 2018, Mercury Hydrometric Database) equates to 4,926 million m³ in one year, which is 5.8 times more than available storage. This in turn equates to a turning over of the storage volume of Lake Taupo approximately six times annually."

Remember these are average figures. Taupo would be run over the summer to make sure that maximum storage was available for winter, when wholesale power prices would traditionally be expected to rise. So potentially if you started the winter with Taupo 'full', that lake level might equate to as little as just over a month of winter energy demand. Not nearly enough capacity to see out a 'dry winter'.

SNOOPY

[kiora]

Superficially what you say makes sense kiora. However the problem is the storage capacity of our lakes is not as great as most people assume it is. Here is some information on the Waikato river system (headed by Lake Taupo) and the power being generated from it

https://www.taupodc.govt.nz/reposito...%20Mercury.pdf

"17. While the storage within Lake Taupo may seem large, the mean outflow through Taupo Gates of 156.2 m³/s (January 1980 to June 2018, Mercury Hydrometric Database) equates to 4,926 million m³ in one year, which is 5.8 times more than available storage. This in turn equates to a turning over of the storage volume of Lake Taupo approximately six times annually."

Remember these are average figures. Taupo would be run over the summer to make sure that maximum storage was available for winter, when wholesale power prices would traditionally be expected to rise. So potentially if you started the winter with Taupo 'full', that lake level might equate to as little as just over a month of winter energy demand. Not nearly enough capacity to see out a 'dry winter'.

SNOOPY

Thanks Snoops
What if the other "NZ hydro storage" was full going into winter?