Positive outlook for electricity supply

The government is confident that New Zealand can continue to meet electricity demand in dry years without serious disruption, says Energy Minister Pete Hodgson.

“We have been looking closely at modelling of electricity supply and demand over the next few years and it is clear that New Zealand will need significant additions to current generation capacity within the next few years,” Mr Hodgson said. “Information from generators about plans for new capacity, some of it public and some of it commercially confidential, gives me confidence that New Zealand’s electricity generation capacity will remain adequate for the foreseeable future.” Mr Hodgson said dry year risk was an inescapable fact of life for New Zealand, because of the nation’s heavy reliance on hydroelectrity. Electricity generation capacity was expected to be adequate to cope with dry years, but extreme droughts such as that in 2001 – the worst in 70 years of records – would always create difficulties.

“New Zealand faces additional challenges in managing dry year risk as a result of the depletion of the Maui gas field, which has been a very flexible source of cheap fuel for electricity generation for more than twenty years. The smaller fields that will replace Maui will be more expensive and will not have the same ability to increase supply at short notice.

“New Zealand’s response to dry years after Maui will have to be more complex and sophisticated than simply turning up the gas. Our use of hydro storage will probably have to be more flexible, coal is likely to become a more significant reserve fuel for dry winters and wholesale electricity price increases during periods of tight supply are likely to prompt more active load management by industrial and commercial consumers.

“None of this means that the government will be asking industry to shut down in the next dry year or that New Zealand faces an electricity ‘crunch’ in 2005-06, as unfortunately reported in The Dominion Post today. Electricity supply will be adequate to meet demand and businesses will make their own decisions on how they respond to the wholesale price impact of dry years. Their choice is between cheaper power with an element of dry-year price risk and more expensive contracts with greater price stability.”

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