Govt playing chicken with NZ power supply

Bryan Leyland, Consulting Engineer, warns of blackouts

Electricity wholesale prices on the spot market have averaged 25 cents/kWh (four times the normal 7 cents) for the last three weeks because the New Zealand power system is in an appalling state, with severe shortages of water, gas, coal and generating plant.


The generator managers failed to conserve hydro storage, the Pohokura offshore gas field shut down because of a technical problem, wind output has been low, not enough generators paid Genesis to hold sufficient coal on its stockpile and several key thermal generators are scheduled for overhaul.

The fuel shortage killed competition so the price has been a trade-off between greed and guilt.

Only a few weeks ago, the government received a report that said everything in the garden was lovely. It isn’t. If it doesn’t rain soon, we’ll face rotating blackouts.

Most consumers won’t take any action to reduce load because they are on a fixed price contract—there’s no incentive for them. But they still can’t escape the effects of the high prices. Next year electricity contract prices will probably increase by something like 2 cents/kWh because, in the long run, contract prices must always be greater than the average of spot prices. (A contract is an insurance policy for which you pay a premium over the average spot price.) Two cents is a major increase and the public will (correctly) conclude that the generators are profiting from the shortage that they largely caused.

Failure of the market

What should be happening right now is a public call for savings. But the politicians won’t want to do this because it would leave egg on their faces. So they continue to pray for rain. If it rains, they might emerge relatively unscathed. If it doesn’t they will probably lose the next election.

What all this reveals is the failure of the market to provide a reliable and economic supply. The reviewers got it wrong. We need a comprehensive review of all aspects of the system by people independent of the current (failed) market structure.

If you look at the thermal generation you will see how little gas is being burned. We are even running Whirinaki on diesel—it is our station of last resort.

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17 Thoughts on “Govt playing chicken with NZ power supply

  1. Andy on 26/10/2018 at 12:13 pm said:

    I’m in Tekapo (start of the main NZ Waitaki Hydro scheme) and can report that the lake is very low indeed. This is odd as the lake levels were so high over the winter that they were shedding water for several weeks

    I don’t know what they were doing but this report isn’t good news.

  2. Andy on 26/10/2018 at 12:38 pm said:

    The other bad news is that last winter was a low snow season and we aren’t going to get the big snow melts needed to refill the hydro lakes. It would take a lot of NW rain to make a difference at this stage

    Also I note that is reporting even higher spot prices than the screenshot presented here.

  3. Richard Treadgold on 26/10/2018 at 12:46 pm said:

    Bad news indeed. Thanks for your comments, Andy.

    Also I note that is reporting even higher spot prices than the screenshot presented here.

    That’s right. As the bottom-right graph shows, time has moved on and the prices have changed.

  4. Andy on 26/10/2018 at 2:57 pm said:

    This Stuff article corroborates what Bryan has written here

    Those on spot price contracts are getting hit now.

  5. Ian Cooper on 26/10/2018 at 4:13 pm said:

    Early days as we head into El Nino territory recently but this event isn’t shaping up to be comparable with those El Nino events we experienced from the early 1970’s through to the end of the first decade in this century. By this I mean that the winters and springs had a higher proportion of Nor’ Westers which would give us the double wammy of plenty of rain/snow into the feeder rivers of the Southern Alps (hence the advancing twin glaciers on the West Coast throughout that period), and plenty of consistent wind, the type that attracted wind farms to the Manawatu back in the mid 90’s. Funny thing, despite our windy reputation in the past 50 years it wasn’t always so. Wind run was first measured here at the end of WWII. The data shows that the 1950’s were quite benign with regards to wind compared to later decades. The decadal mean of the daily mean wind-runs for Palmerston North are as follows (this current decade is measured up to the end of 2016 BTW); 1950’s 155; 1960’s 275; 1970’s 255; 1980’s 306; 1990’s 205; 2000’s 293; & the 2010’s 294.

    Many people are commenting on the number of calm days or low wind this current spring. Too early to tell if this is a return to the 1950’s regime. Other factors like volcanic activity and the SAM have played their part in exacerbating the wind element over New Zealand in the past 60 years. The combined effects of Mt Mayon & El Chichon in 1982 gave this area the worst year, month & day for wind on record (Nov 20th 1982, a wind run 20km short of 1,000km for the day!). Those thinking of relying on this intermittent power source should study these figures more carefully. Even in the Mighty Windy Manawatu it doesn’t always blow the way you might expect!

  6. Richard Treadgold on 26/10/2018 at 5:32 pm said:


    Very interesting, I must say. When you say:

    The combined effects of Mt Mayon & El Chichon in 1982 gave this area the worst year, month & day for wind on record (Nov 20th 1982, a wind run 20km short of 1,000km for the day!).

    What, please, is “this area”?

  7. Ian Cooper on 26/10/2018 at 9:18 pm said:

    I mentioned Manawatu and Palmerston North in there somewhere Richard. It isn’t something we want to skite about, but it did happen. in 1992, as a result of the Pinatubo eruption the year before, both Invercargill & Palmerston North acquired the worst sunshine hour record respectively for each Island. Pinatubo was the main perpetrator in each case!

  8. Brett Keane on 29/10/2018 at 8:39 pm said:

    Our Engineers have known for years that in NZ’s comparitively superior windrun conditions, at 6% of total capacity being windmills, there is least strain on the Grid. It rises from there to some 16%, where above that, instability becomes dangerous. Subsidies are ending now in many lands, and the collapse of renewable growth may not last longer than the climate slush fund of the UN. Roll on the day!

  9. Bulaman on 29/10/2018 at 9:04 pm said:

    ENSO has ticked back into positive territory so in a very minor way you could say the recent trend is La Nina!

  10. KillerBean on 29/10/2018 at 9:44 pm said:

    During our long hot summer in the UK, there where 6 consecutive days that there was no wind generated power.

  11. Ian Cooper on 30/10/2018 at 2:45 pm said:

    Bulaman, you may also try this from the same web site.

    If you make the selection from the drop down tab “nino3.4 ” you will see that for most of the past two years we were in “neutral.” Last austral summer we were in very weak La Nina territory, and still had the expected very hot summer because of that. Despite a lot of media hype about the emerging El Nino, the hype being about how hot this summer will be, don’t expect that result if you live in NZ. El Nino events don’t deliver hot summers to NZ, La Nina events do.

  12. Barry Brill on 31/10/2018 at 12:33 pm said:

    And now New Zealand is going to start importing coal – to keep the lights on.

  13. Andy on 31/10/2018 at 1:33 pm said:

    Importing coal to displace NZ produced natural gas.

    AKA “Transitioning to a high carbon economy”

  14. Andy on 01/11/2018 at 11:57 am said:

    Spot prices are reaching $460 a kWh today on EM6Live

  15. Andy on 05/11/2018 at 10:11 am said:

    Here is an article on Stuff that suggests that electricity retailers are gaming the system

  16. Bill Treuren on 19/11/2018 at 1:37 pm said:

    Very easy to fix this gaming. Simply reform the four main generators by splitting their retail section into a separate company.
    The ability of the big gentailers to kill the small emerging retailers with a price purge is killing competition.

    If they did it the wholesale price would rise and the retail price would fall.

    Simple test: in 2000 electricity was 12c/Kwh retail. At that time wholesale was 5c or 6c/Kwh. We now pay 30c/Kwh and the wholesale price is 7c/Kwh.

    Yes, this will spell the end of wind and solar, but the consumers would likely see prices at 20c/Kwh.

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