Meridian ‘very confident’ NZ will avoid conservation campaign

Commentators and power generators don’t expect a Transpower decision to allow key hydro lakes to be drained further will lead to more electricity generation but they say it will take some uncertainty and tension out of the market.
The move by the statutory operator of New Zealand’s power system is the latest in a series of announcements from all corners of the electricity market, which is struggling to cope with low wind, dwindling hydropower lakes and fading gas supply.
Wholesale power prices have now fallen by more than half from their peak of more than $900/MWh in the week of August 5, although they still remain elevated. Nonetheless, Meridian Energy’s head of wholesale Chris Ewers told Newsroom he is “very confident” New Zealand will avoid an energy conservation campaign.
“The design of the market is to incentivise parties to take action before you end up in a regulated action or a conservation campaign or anything else. And that’s exactly what we’ve got,” he said.
“The forecast is looking promising. There’s a lot of energy in the atmosphere, I think was the words Chris Brandolino from Niwa used this morning. That works two ways for us – it gives us rain but it also gives us wind.”
In other words, Ewers is hopeful that New Zealand is out of the worst of the power crunch. He isn’t counting his eggs before they’ve hatched, however.
“I’ve seen these over the last 25 years and they vary in length. They always say that the drought’s over when it starts raining and that’s true to some extent. You do get a change in patterns back and then you start reverting back to normal,” he said.
“Potentially, what we’re stepping into now may be the change. Maybe it won’t be. But as demand comes off as we step into spring and into the summer, that does allow you time to build up storage. The spring around the equinox also tends to be our more windier time so that also helps. We’ve got over 1000 megawatts of wind in New Zealand and that helps conserve storage.”
The two gentailers that run the combined Waitaki Hydro Scheme (Meridian and Genesis Energy) – which provides up to a quarter of New Zealand’s power and represents nearly two thirds of our total hydro storage – say the new rules from Transpower are unlikely to lead to new power being generated.
Those rules allow Meridian and Genesis – as well as Contact for its Roxburgh Dam – to use water in their hydro lakes which is normally required to be withheld as a reserve. It also allows the companies to breach consent conditions about lake levels, if needed.
The new allowances come into effect from September 1 and run for two months.
Neither Genesis nor Meridian, however, say they expect to rely on the rules at this stage.
“With the forecast that we’ve just talked about, I’m expecting that we’re going to get through this period and through spring without needing to use it,” Ewers said.
“The current level of Lake Tekapo / Takapō is 704.8 metres above sea level, against the minimum operating level for this time of year of 702.1 metres above sea level. Genesis will continue to operate Lake Tekapo / Takapō within its consented operating limits for this time of year,” a Genesis spokesperson said.
An added issue is that Genesis is required to keep Lake Takapō at 704.1m from October 1. While it could breach this requirement under the new rule, it would have to be confident that new rain would refill the lake before the rule expires at the end of October.
Then there’s a bigger picture risk. Any contingent storage that the generators use now won’t be available if there’s another dry period next winter.
“There is a tradeoff in accessing contingent storage,” Transpower’s executive general manager for operations Chantelle Bramley told Newsroom.
“We’ve been very careful in the decision. While we have allowed access, we have limited it to September and October, which are the periods where we are most concerned about the security of supply. After that, we start moving into warmer weather and the load goes down significantly. So it is a balance.”
That doesn’t mean the rules are useless. The key affected generators all supported it in their submissions to Transpower and are still welcoming it now.
“Actually knowing that [the contingent storage] is there provides you with much more certainty on operational decisions you can use above it,” Ewers said.
“It’s like a reserve tank on a motorcycle. You know you can use your main tank a little bit more if you need to, knowing you’ve got reserve versus if you don’t.”
And the amount of power in this reserve tank is significant – 560 gigawatt hours, according to Ewers, which works out to nearly four weeks of Meridian’s total hydro generation.
“Buying yourself as much time as possible to get back to average rainfall is what it’s all about, and that’s what we’re seeing,” Ewers said.
“It buys us time,” Bramley said, echoing Ewers. “It buys us time to allow the rain to fall, for the inflows to come over those still quite cold months and then things change in the power system very quickly.”
Then there’s a bigger question about whether Transpower’s risk system is fit for purpose. In theory, generators should have access to contingent storage when there is a risk to security of supply without needing to have the rules changed. The problem here is that Transpower’s modelling still doesn’t indicate there’s a risk right now to security of supply.
In its submission on the original proposal, Contact Energy called for a broader review of the framework.
“The electricity risk curves currently don’t appear to reflect the actual market conditions.Storage and inflows are at near record lows, prices are extremely high, and yet the systemoperator ‘risk-meter’ tells New Zealanders that the electricity market conditions are ‘normal’,” the gentailer wrote in its submission.
“If implemented, the proposed change to the risk curves will not ‘fix’ the underlying problem.Additional substantive work is required to determine why the risk curves are not signalling thelevel of risk and stress currently faced by participants in the market. It is likely that either the riskframework itself is no longer adequate for the evolving market, or the input assumptions are outof date.”
The curve system was last reviewed in 2019. It uses modelling to estimate when hydro storage would fall below certain thresholds, defined as 1, 4, 8 and 10 percent risks of running out of water within the next 12 months.
“This is the first time we’ve had to adjust it for these sort of operational issues. We are at quite unprecedented, historic levels of storage,” Transpower’s Bramley said.
“We are very open to looking at the framework and the assumptions that go into the risk curve. The sector is changing rapidly, the supply mix is changing, the impact of weather and dry year risk is changing things. So we are very open to a review of these settings. Ultimately the Electricity Authority would need to approve any such changes.”
Ewers suggested the assumptions could be looked at again.
“When all this was done, quite a few years ago now, we had different views on thermal fuel availability, gas in particular. We also had different plant in the system. We didn’t have quite as much wind, we didn’t have any solar,” he said.
“It’s always worth reviewing those settings to make sure we’ve got the right framework.”