Power struggles shadowed by US election

By NZPA

Friday 5th November 2004

While the electrifying US election battle went down to the wire this week, much smaller power struggles continued to play out in New Zealand.

Hours before Americans went to the polls on Tuesday, Australia's Prime Infrastructure announced it had snagged 94.6% of Powerco, triggering compulsory acquisition of the balance of the company.

The passing of a profitable publicly owned asset into private foreign ownership was enough of a hot button issue with many for perceptive populist Winston Peters to capitalise on it.

The messy sale of the community-owned majority stake in the company drew a lot of static from the New Zealand First leader. It was, no doubt, a factor behind his plan, revealed at last week's party conference, to use the Cullen superannuation fund to buy back privatised strategic assets.

But the sector's big news for the week were reports of the three big state-owned power companies' hearty profits and their promotion of their differing solutions to the country's recent electricity "crises".

Genesis had its best-ever net profit - $80.1 million for the June 2004 year. Mighty River Power also had a strong profit of nearly $100m. Meridian's profit rose over 20% to $132.9m in the year to June, despite a $31m write down on Project Aqua.

These corpulent bottom lines will leave many consumers with a sour aftertaste. They've seen all five major power companies including privately owned TrustPower and Contact Energy hike retail charges way beyond the inflation rate in the last 18 months.

Both Genesis and Mighty River increased retail prices about 9% in the June 2004 year to all customers. Meridian raised charges by about 15% over the period and announced further increases of 10% effective from September. Those increases have been more or less matched by TrustPower and Contact.

In fact, New Zealand's climate of rising retail electricity tariffs recently had Contact's new majority owner, Australia's Origin Energy, practically licking its lips over the prospect of further hikes it believed Contact could get away with.

The power companies have defended the hefty increases, saying charges had to rise in response to dwindling local gas reserves and to fund investment in new generation.

As the companies have been keen to point out, in some cases through expensive advertising campaigns, New Zealand faces the prospect of a shortage of reliable electricity generation capacity.

Our reliance on hydro leaves us at the mercy of the occasional dry spell down south, the downward revision of estimates of Maui gas reserves has seen gas prices rise and our surging economy has seen growth in electricity demand outstrip expectations.

But just exactly how much price rises are justified is debatable. Consumer groups and the lines industry believe the power companies are overcooking it. Electricity Networks Association chief executive Alan Jenkins said earlier this year consumers were now on average paying $143 a year more than their Australian counterparts for the same amount of electricity.

Jenkins said wholesale price increases would account for some of the recent increases. But given the integrated structure of the big power companies and the complexity of the wholesale electricity market which makes the US electoral system look like child's play, it's difficult to tell.

Although the size of power companies' profits may cause consumers to wonder whether much of the extra they are paying is going towards new generation, the companies are now making noises about building power stations.

But there are differing opinions among the industry as to how much further prices need to rise to fund the extra generation and exactly what type of power stations should be built.

Meridian chief executive Keith Turner this week indicated his company was finished with big price hikes.

"A presumption has been created in the wider public arena that electricity prices have to keep on rising rapidly. Well, our thermal colleagues may have to raise prices to pay for what they are doing, but we do not have to raise prices much beyond the (consumers price index)."

Meridian, which has eight hydro stations on the Waitaki River, and the giant hydro station at Manapouri pulled plug on the controversial Project Aqua scheme this year, is for the timebeing focusing on wind power.

It says wind farms will be cheaper than coal or liquified natural gas (LNG) fired thermal stations.

Turner said the public was being softened up by Genesis and Contact to accept either imported LNG or coal as the fuel for future electricity generation, on the grounds that renewables such as wind were too expensive, too unreliable or too small a resource to deliver the security of supply.

Genesis is building a 385-megawatt (MW) gas-fired plant at Huntly scheduled to produce electricity from early 2007. But the rapid depletion of our gas reserves mean Genesis and Contact, which also has substantial gas fired generation, may look overseas for fuel.

Genesis chief executive Murray Jackson, who this week refused to rule out further price hikes, said that imported liquefied natural gas (LNG) was not that much more expensive than local gas.

Industry players say imported LNG may be about $9 a gigajoule compared to $7 a gigajoule for New Zealand gas, which they say would translate into generation at a cost of about 10c per kilowatt hour (kWh).

But Meridian argues electricity prices would rise more slowly if wind power is developed and it would avoid the costs and risks of emitting greenhouse gases in a world increasingly inclined to put a price on doing so.

Turner says New Zealand could potentially generate 2500-3000 gigawatt hours [GWh] of electricity through wind power the equivalent of three or four years' growth in electricity demand
- at prices of 6c/kWh or lower.

If that wind power generation was added to the 3000GWh Genesis' new gas-fired plant at Huntly would provide, the much-touted "looming electricity crisis" was looking less likely, Turner said.

Christchurch company Windflow Technology said this week it is selling more than 100 of its turbines to spin off company New Zealand Windfarms in a deal worth $80 million.

Windfarms plans to establish a 104 turbine wind farm at Te Rere Hau near Palmerston North.

But wind and hydro are not the only renewable energy options available to New Zealand.

Niwa and Industrial Research Ltd scientists have predicted a New Zealand wave energy device could potentially deliver 40 times the country's current capacity at between 10c and 20c/kWh (inclusive of project financing costs) by 2012 or 2013 - just about the time New Zealand taxpayers may have to face up to a big jump in carbon taxes and other higher costs for greenhouse gas emissions.

But if renewable energy depends on the application of carbon taxes and other measures to make it economic, this week's US election outcome is not encouraging news.

The Kyoto protocol relies on as many countries as possible coming to the party. Although the treaty got a boost when Russia recently ratified Kyoto, the US, which currently emits about 36% of the world's greenhouse gases, is not about to sign up.

US President George Bush rejected the Kyoto Protocol in 2001 as too burdensome on American industry and with his producer friendly energy policies, all indications are he is not likely to move on the issue in the future.

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