Transpower cites skills shortages in reduced capex plan

Thursday 25th October 2018

Transpower says it may reduce its future capital spending due to an anticipated shortage of key technical workers.

The national grid operator has signalled a potential $65 million, or 5 percent, reduction in its forecast capital expenditure for the five years starting April 2020 because of an expected shortage of protection technicians and line mechanics.

Increased infrastructure construction here and internationally has lifted demand for skilled workers in many sectors, including electricity, it said. That pressure is being compounded by the ageing New Zealand workforce and the time it takes to train new workers and the challenge of then retaining them.

Transpower says it is working with its contractors on ways to ensure a sustainable labour supply, but has opted to trim its plans in the meantime.

“Reducing this capex forecast reduces the risk that funding levels are set too high but means Transpower still faces challenges in completing the renewal work its modelling indicates as optimal,” the company says in its draft spending plan for the next regulatory control period.

State-owned Transpower operates more than 12,000 kilometres of high-voltage lines linking the country’s power stations with major industry and local network companies. Its revenues are set by the Commerce Commission, which has just laid out the approach it plans to take in assessing the final spending proposal it expects from Transpower in December.

“To operate the national grid Transpower collects almost $1 billion a year from its customers, who pass these costs on to New Zealand consumers and businesses,” deputy chair Sue Begg said.

“We particularly want to hear from gentailers, lines companies, major electricity users and consumer groups on the approach we intend to take in assessing Transpower’s proposals on expenditure and quality. We also want their views on our longer-term vision to encourage Transpower to improve on its asset management and customer engagement practices over time.”

Transpower has been working on ways to use new technology and smarter planning to reduce its spending on building assets that consumers will be left paying for, for 30 or more years. It aimed to reduce capital expenditure by 7.5 percent in the five years through 2020 and says it is on target to meet that target.

But even with the signalled labour constraints, it is forecasting $1.34 billion of capex for the five years from 2020, a 7 percent increase. That could climb to $1.6 billion in the following regulatory period. Those forecasts are in current dollars and exclude major, one-off projects the company has to get separate approvals for.

Among the biggest increases included in the draft budget the firm produced in August is an $80 million jump in capex spending on line replacement, or reconductoring. That increase roughly doubles in the following five years as well.

Transpower said it faces a wave of work to replace lines built through the 1950s and 1980s. During the next 30 years more than half its lines in the North Island and about a third of those in the South Island will need replacing.

Another big spend in the coming period is an extra $85 million earmarked for new control equipment and telecommunications to better manage the grid.

Subject to timing, Transpower said it may spend about $160 million on five reconductoring projects starting in 2020, including one deferred from the current period. They include replacing lines between Bunnythorpe and Wilton, Bombay and Otahuhu, Whakamaru and Otahuhu, and Stratford and Brunswick.

Overall, Transpower is forecasting it will need revenue of $4.67 billion during the five years ended 2025, 1.4 percent less than the current period. That includes the 7 percent increase in capex and a projected 2.5 percent increase in operating expenses to $1.33 billion.

Major projects not covered by Transpower’s proposed budget include $276 million of work to improve voltage management in the Waikato and upper North Island during the next decade. That's to allow for the planned closure of Genesis Energy’s last two Rankine generators at Huntly. Contact Energy and Mercury NZ shut their power stations at Otahuhu and Penrose respectively in late 2015.

Sometime after 2022 Transpower signalled it may spend $70 million building a switching station at Rangitata to improve voltage control in the upper South Island and sometime after 2029 it may spend $310 million replacing cables on pole 2 of the HVDC link to improve reliability in the South Island.

(BusinessDesk)

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