Low cost hydro drives electricity profits

Canterbury Manufacturers’ Association
Media Release
26 March 2007.

Low cost hydro-generation drives electricity profits, not savings to consumers

The Canterbury Manufacturers’ Association says that the increased profits announced by the state-owned electricity companies last week, illustrates that hydro-generation is the cheapest form of generation in New Zealand and clearly indicates where the focus and direction of new electricity generation needs to be.

The CMA has for some time taken the view that hydro-generation offers the lowest cost form of electricity generation in New Zealand, however, Chief Executive John Walley says that the electricity companies, along with the Government’s energy strategy documents, foster the view that hydro-generation costs much the same as fuelled thermal generation. The CMA is calling on the Government to put more effort into developing large-scale, low-cost hydro-generation and confront the issues and politics facing the dams, pylons and industry rules sooner, rather than later.

“Mighty River reports that they made cost savings switching from gas to hydro-generation, and hydrogeology also smiled on Meridian”, says Mr. Walley. “There was stronger consumer demand due to the colder weather last winter but the rains came, generation was increased and wholesale prices fell. However, these savings in the wholesale market did not translate into savings for the retail buyers, whose prices increased. The fact is, the electricity system is supply side biased and consumer needs are secondary, if they are considered at all”.

Mr. Walley says that while the Government is talking about its aspirations for a carbon neutral future, a system structured around hydro-generation will help to ensure a low cost electricity future that is environmentally sustainable.

“We will have to accept that some local impacts are inevitable in the wider interests as dams and pylons need to happen, even with the low 1% growth forecast and a cap on fuelled thermal generation at today’s level, New Zealand will need to almost double every existing watt of renewable generation by 2030”.

“New Zealand’s untapped hydro-generation resources can meet our generation requirement for another decade or so. The electricity companies, along with the Electricity Commission and the Government, are talking of their plans to extend New Zealand’s power capacity and these are positive steps, but growth above the 1% means we will have to do it even sooner and with less time to think.

Under the current system, the consumers will pick-up the tab for the windfalls, and the mistakes, if expansion plans overlook renewable resources and large-scale development. The “just in time” approach will inevitably lead to bad decisions, higher prices, and greater environmental impacts – when will we see the light?”

ENDS

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