Power shares

[Snoopy]

Under current pricing mechanism, all generators are paid the same price, which is based on the most expensive generation bid at the time. This is ridiculous. Some generators get free fuel (hydro, solar, wind, geothermal), so their profit is increased. Some generators have high maintenance costs (geothermal, thermal), so their profit is reduced. Some generators have high fuel costs (gas, coal, diesel), so their profit is reduced. Some generators have emissions costs, etc. It is clear that fuel cost and maintenance cost (as declared in annual audited accounts) must be factored into electricity payment mechanism so that generation returns are independent of these costs, otherwise it's just a profit transfer from the consumer to low cost generators

You missed out a couple of salient facts:
1/ The government still owns 50% of Meridian, Genesis and Mercury.
2/ The government has not had to shell out any money to build new power stations themselves since they built the Clyde dam some 30 years ago, and the current electricity system was implemented.

In fact, all of the incremental power stations added to the national electricity network this century have been built by the 'low cost generators' Meridian, Mercury and Contact. It is the profitability of these three companies that has allowed them to implement their build programs, at no cost to the tax payer.

Why should generators with high running costs and maintenance costs be incentivised?

SNOOPY

[Panda-NZ-]

It comes at a cost to their consumer and industrial customers. The industrial customers who can't get special deals like Rio become uncompetitive in world markets despite hydro being cheap.

I suppose blackouts in NZ creates a PR risk to these businesses but they seem to have determined it can be managed by "blaming something else" like green targets, transpower, weather events rather than their failure to increase supply.

[xafalcon]

You missed out a couple of salient facts:
1/ The government still owns 50% of Meridian, Genesis and Mercury.
2/ The government has not had to shell out any money to build new power stations themselves since they built the Clyde dam some 30 years ago, and the current electricity system was implemented.

In fact, all of the incremental power stations added to the national electricity network this century have been built by the 'low cost generators' Meridian, Mercury and Contact. It is the profitability of these three companies that has allowed them to implement their build programs, at no cost to the tax payer.

Why should generators with high running costs and maintenance costs be incentivised?

SNOOPY

I dont see any relevance in Pt1. The government manages its majority shareholder position at arms length (no input into strategic planning or capex). This was not the situation before privatisation, the government would just build what was needed

Pt2. The new generation is primarily intermittent wind, and soon to be solar. Except for CEN with some additional geothermal. This intermittent doesn't help NZ electricity security. During winter time solar is terrible (I know, I've got 20kw on my workshop roof and I'm lucky to generate 10-20KWh daily vs 120KWh in summer), and wind is low (equinox is windy, solstice is still). So the wrong generation has been built in regards to electricity security

And it is noteworthy that some baseload gas has already been retired without replacement. Ditto some co-gen

But it is baseload thermal capacity that currently gets NZ through winter. Like it or hate it, it's a fact that is inescapable until a step-change in electricity management is made in NZ. And I don't see the blue team being able to understand the situation, let alone manage NZ through it, with their failed market-led strategy. Some things need direct cross-party government control, and electricity strategic planning is in that camp

Perversely, the red team were working on a great idea that would have produced the required outcome - a way to both bridge the shortcomings of intermittent generation and the winter electricity issue in a single project

I am not promoting incentives, but the current market-led situation is not driving the right decisions. The only thing being driven, is businesses shutting up shop due to electricity mismanagement over the past decade or so

If nothing is done, more thermal baseload will be retired, with demand growth of 3-4%pa exacerbating the problem. Then NZ Inc is really up s-creek

The deduction of fuel costs from wholesale electricity prices would promote the right type of generation capacity being built, rather than the highest ESG type, or lowest construction cost, or lowest operating cost

How would you suggest the issue is resolved?

One final comment. "No cost to the tax payer". If you don't consider every household and business electricity cost doubling in a decade, there was indeed no cost to the tax payer..... IMO, the burden has simply shifted (and markedly increased) from general taxation to increased electricity cost, increased general goods cost and increased mortgage rates through higher general inflation

[xafalcon]

Something else to consider

We are told of a hydro storage crisis. But Lake levels are still at 50% of average. Last time I checked, the percentage scale runs from 0-100%, not 50-100%. So only half of the usable water has been used. And now, transpower has agreed to lower lake levels, so the lakes are now more than half full

Those lakes have plenty of water in them (for this time of year, on average), and it should be used to make electricity. There are some funny games being played by MEL in particular

[bull....]

A review of market pricing is long overdue. The current pricing mechanism was designed for a government owned generation and transmission network, where all money flowed back to the government. But that hasn't existed for 10 years, yet the pricing mechanism has never been changed

Under current pricing mechanism, all generators are paid the same price, which is based on the most expensive generation bid at the time. This is ridiculous. Some generators get free fuel (hydro, solar, wind, geothermal), so their profit is increased. Some generators have high maintenance costs (geothermal, thermal), so their profit is reduced. Some generators have high fuel costs (gas, coal, diesel), so their profit is reduced. Some generators have emissions costs, etc. It is clear that fuel cost and maintenance cost (as declared in annual audited accounts) must be factored into electricity payment mechanism so that generation returns are independent of these costs, otherwise it's just a profit transfer from the consumer to low cost generators

The current regulations do not allow the generators to withhold capacity to boost prices. But this is clearly not working, as hydro is being severely withheld under the guise of "national energy supply security", yet hydro storage is still at 50% of typical. Last time I checked, the percent scale goes from 0-100, not 50-100. There is still plenty of water left in storage, so rules are being broken, and consumers are being ripped off

Under a fully commercial pricing mechanism, there needs to be some levelling of the playing field, as without all the generators running, there is not enough power

If there is change I expect MCY and MEL to be adversely affected, CEN to be slightly affected, GNE to be neutral, consumers to get overall lower prices, and PPA's will be used much more widely

But will this government (or anyone) actually do this? Unlikely IMO. The blue team have shown no understanding of the fragility of the current electricity system until it smacked Simone and Christopher between the eyes, like possums blinded by car headlights. Do they understand that electricity demand growth of 3-4%pa compounding is reducing our % hydro storage capacity by 4.5-6%pa compounding? Or to put this differently, that our winter supply risk is increasing by 4.5-6%pa compounding? Not a chance. And the first step in fixing a problem, is recognising there actually is a problem

thx do you think price stabilization mechinisms would be introduced ? stable prices would make revenue streams more predictable for new projects ? but would potentially reduce current gentailer profits at the same time

[Snoopy]

I dont see any relevance in Pt1. The government manages its majority shareholder position at arms length (no input into strategic planning or capex). This was not the situation before privatisation, the government would just build what was needed....

.....or not. There were still rolling blackouts under the old system.

Pt2. The new generation is primarily intermittent wind, and soon to be solar. Except for CEN with some additional geothermal. This intermittent doesn't help NZ electricity security. During winter time solar is terrible (I know, I've got 20kw on my workshop roof and I'm lucky to generate 10-20KWh daily vs 120KWh in summer), and wind is low (equinox is windy, solstice is still). So the wrong generation has been built in regards to electricity security.

I think most of the solar installation you see on rooftops is sub-optimal. As a general rule of thumb you should mount your solar panels at an angle which is the same as the latitude of your location. On average this will provide optimal energy recovery based ion the angle of the sun in the sky. However if you want to maximise your energy generation in the winter, when the sun is lower in the sky, you will need to increase the angle of your panel to well beyond your latitude angle.

There is an interesting BRANZ diagram on this matter here
https://www.level.org.nz/fileadmin/d...lDiagram23.pdf

The diagram shows optimal angle for mounting solar panels in the winter, when incremental power is most needed, ranges from 50 degrees in Whangarei to 60 degrees in Invercargill. Mounting solar panels like that would of course drop their efficiency in the summer. But the summer is generally not when the power shortages are in NZ. Yet almost all solar panels are just mounted to align with the angle of the building roof, which I think is a mistake. You would likely double solar energy production in winter from the same panels if they were mounted with winter energy maximization in mind.

The rate of wind generation from NZ windfarms is I believe very good when compared to internationally located peers: Somewhere around 40% of theoretical generation capacity averaged over time (verses 30% that is more typical in Europe). I haven't studied the seasonal variation of this. But 25% efficiency over summer and winter mixed with 55% efficiency over Spring and Autumn would get you to that 40% annual average. So you could build more windfarms to take advantage of the Spring and Autumn winds, which should leave more hydro capacity to be used over winter. This is what Mercury is doing now, without any specific government directives. They are using those central North Island windfarms they bought from what used to be Trustpower and the Lake Taupo catchment as one integrated power system. And they are building even more central North Island windfarms to boost their wind energy capacity even further. Per MW generated windfarms are getting cheaper to build (which is why NZ Windfarms are looking at upgrading their earlier generation windpower generators). I think there is considerable scope for more windfarms to be built in NZ on land, without venturing into 'offshore windfarms'. Furthermore the cheaper windfarms get, it will become economic to 'overbuild' (when measured in today's costs), but still make a profit when they come on line a few years down the track.

SNOOPY