New power plant for electricity supply security

A new 155 megawatt power plant will be built before next winter to help provide increased certainty of electricity supply for New Zealand, says Energy Minister Pete Hodgson.

The new oil-fired plant, likely to be situated at Whirinaki, Hawkes Bay, will provide reserve generation for use during very dry periods when hydro lake inflows are abnormally low. It will also provide reserve generation should there be a major breakdown in another generating plant.

“Today’s announcement reflects the Government’s commitment to providing a secure electricity supply for the benefit of all New Zealanders”, Mr Hodgson said. "If required, this plant could supply up to 3% of New Zealand’s average power needs”.

The plant is expected to cost $150 million to build and the cost will be recovered through a levy on the industry, consistent with the Government's electricity supply security policy announced in May. The cost equates to less than $5 a year for the average household.

The Government is entering arrangements with Contact Energy to install and operate the plant at its Whirinaki site. The Government will own the plant and has the option to locate it elsewhere if a preferable site is identified in time to allow the plant to be commissioned by winter 2004. Discussions are under way with the owners of other possible sites with suitable resource consents and a final decision on the location will be made shortly.

“Normally the Government would prefer not to own reserve plant itself”, Mr Hodgson said. “However in this case we are taking advantage of an opportunity to secure an early and valuable increase in electricity supply security. Contact has an appropriate site available, but Crown ownership of the plant gives the Government useful flexibility in choosing the location. Acting now also ensures we will also be able to commission the plant by winter 2004, which the Electricity Commission would not have enough time to achieve."

The Commission, which will govern the electricity industry and have responsibility for supply security, is due to be established in the next two months. Over the next two to three years it will develop a portfolio of reserve generation to insure against the risk of power shortages in very dry years.

"In most dry years the electricity system will cope without having to draw on reserve generation," Mr Hodgson said. The Electricity Commission will be working to ensure that electricity market arrangements for managing dry year risk function more effectively in future. These include careful forecasting of supply and demand, management of thermal fuels and hydro storage, increased opportunities for demand-side responses to wholesale price movements, and improvements to hedging arrangements. Reserve generation is the backstop to such measures."

Mr Hodgson said having the new plant run on distillate, a light fuel oil, meant it could be relied upon to be available when needed. Because it would run infrequently – only in very dry years – it would not have a significant impact on air quality or on New Zealand's total greenhouse gas emissions. New baseload generation, to meet everyday electricity demand, was still expected to be predominantly from renewable resources over the next twenty years.

“New Zealand will need other reserve generation and electricity generators are invited to consider offering plant for reserve duty. The Government urges potential suppliers to advance their plans and take steps to obtain resource consents for projects. The Ministry of Economic Development is actively seeking options for reserve generation in the run-up to the establishment of the Electricity Commission, which will take over this work."

Q&As

What Government company or entity will own the plant?

The plant will be held on an interim basis by the Ministry of Economic Development until longer term ownership arrangements are determined.

When and how will a levy be imposed to recover the cost of the plant?

The Electricity Commission is expected to be operational by spring 2003. The Commission will be able to apply a levy to recover the costs of reserve plant after new legislation has been passed early next year.

Over what period will the cost be recovered?

The actual cost of the plant will be recovered by the levy, probably over a period of around 10 years. Details of the levy arrangements will depend on the final form of the new legislation.

What alternative sites are being explored and why?

The main alternative sites being explored are in the South Island. When inflows to the South Island hydro lakes are particularly low there are advantages in having reserve generation located in the South Island.

When will a final decision be made on the site?

The plant comprises 3 units and it is possible that they could be deployed in different locations. Decisions on location are likely by October 2003.

What will the power cost per unit to produce?

The electricity cost when the plant is operating will depend heavily on the cost of fuel at the time. The anticipated cost is in the range $150/MWh to $200/MWh.

What is the life of the plant?

At least 20 years.

Would this plant have removed the need for a savings campaign this year?

Problems this year stemmed from uncertain thermal fuel supplies and a particularly dry start to the year. This plant would have at least reduced the need for a savings campaign.

Will this plant deliver 1-in-60 dry year security for 2004 and for later years?

No. The 1-in-60 dry year security standard is a new benchmark for the New Zealand electricity system and meeting it will require the acquisition of a portfolio of reserve generation over several years. The commissioning of this plant will be the first step in building up the necessary reserve capacity.

How much more reserve generation do we expect New Zealand will need in the next two to three years?

This has not yet been determined, as the new Electricity Commission will be responsible for assessing the level of reserve generation capacity needed to meet the 1-in-60 dry year security standard.

If the Government decides not to use Contact's site, will Contact remain the project manager?

If the Government decides to locate some or all of the plant away from Contact’s Whirinaki site, alternative project management arrangements may be required.

What will be the role of the Electricity Commission?

The Commission will be responsible for contracting for the availability and output of the plant and for recovering the costs through the reserve generation levy.

How will the extra carbon dioxide emissions from this plant affect New Zealand’s ability to meet its Kyoto target?

As the plant will generate only on a reserve basis, the addition to New Zealand’s greenhouse gas emissions will be minimal.

How will the carbon dioxide emissions compare with those from a gas or coal fired power station?

Carbon dioxide emissions from a distillate-fired plant are greater than from a plant burning natural gas, but less than coal. However, this plant is modern and includes the latest emission reduction combustion technology. All emissions have been modelled as being well within the relevant Ministry for the Environment Ambient Air Quality guideline levels.

Why is the agreement to use the Whirinaki site only for 11 years?

The 11 year term relates to the duration of Contact’s resource consents. The Government and Contact will consider prior to the end of the 11 year term any on-going arrangements.

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