Electricity companies are scrambling to secure sufficient supply for the rest of winter to avoid potential blackouts. Hydro lakes have fallen to record low levels, forcing the sector to turn to fossil fuels for energy, pushing wholesale prices to record highs.
On Tuesday, Transpower hosted its regular fortnightly discussion on power grid operations and potential market issues, aiming to ensure enough generation is activated to meet forecast demand.
During the meeting, generators were reminded to notify the system operator if they could provide additional fuel or storage, as energy supplies remained extremely tight.
An unusually dry winter has caused hydro lake storage to fall to the lowest levels since 1992, significantly reducing the electricity output from hydro dams. Wind supply has also been weak, which means thermal power generation has had to step up to fill the gap.
It has been contributing 24% of New Zealand’s power supply, up from a long-term average of 14%. However, the shortage and high cost of natural gas have further strained the market.
Transpower reported that these factors have led to historically high power prices, with daily averages over the past week reaching the highest levels since the market was established in 1996. This has caused some industrial power users to halt operations, resulting in electricity demand dropping below its three-year average.
Hydro dams are legally required to maintain river flows, which limits how much water stored in lakes can be used for electricity generation under normal conditions. However, during critical times, these limits can be temporarily relaxed to prevent an electricity shortage.
Emergency settings
Transpower is consulting on raising the trigger for emergency settings, allowing hydro dams to generate more electricity during peak times if blackouts become likely.
The operator said that if one of the major South Island hydro schemes reaches its minimum water level without accessing emergency storage, between 2% and 6% of energy peaks could be at risk of not being met. If two major schemes were to reach their minimum levels, 20% to 30% of energy peaks in the coming months could be at risk of causing blackouts.
Transpower is consulting on temporarily allowing hydro lakes to access contingent storage, and will make a decision on August 26. If approved, this emergency storage could be tapped starting in October.
In the meantime, the system operator is preparing an advertising campaign that would encourage households to conserve energy during peak times. While this is not yet necessary, the situation could deteriorate quickly if any power plant experiences a failure and must shut down.
Under normal circumstances, New Zealand’s electricity grid is managed to handle two simultaneous failures. However, given the current constraints, maintaining this standard is becoming increasingly difficult.
An unexpected cold snap in May, which coincided with several power plants being offline for maintenance or repairs, already prompted an emergency request for households to conserve electricity this year.
Methanex deal
But Transpower’s Tuesday estimates did not factor in a new agreement with ethanol producer Methanex. The company has agreed to pause operations until the end of October and sell its gas supply to Genesis and Contact.
Methanex said the deal, which was announced on the Toronto Stock Exchange, will boost its annual earnings, as the margin on those gas sales was higher than that of methanol.
This gas will support the electricity market through winter and into spring, though it is unlikely to significantly reduce wholesale prices due to the high cost.
Genesis Energy has also secured extra shipments of coal for the Huntly Power Station, which usually operates below potential capacity due to its high cost and emissions.
Despite the Methanex deal and other energy supply work, First Union said it has been bracing for more bad news this week. High energy prices were continuing to impact the manufacturing sector and potentially putting more jobs at risk.
There was a production pause at Winstone’s pulp and wood mills in Ruapehu and it was possible Oji Fibre would close its Penrose recycling pulp mill due to high prices.
General Secretary Dennis Maga called for urgent Government intervention and inquiry into energy prices to prevent further job losses.
31 Comments
In your world, what should they have done?
- Subsidise new generation? Hopefully not gas as the explorers found bugger all over the last 5 years.
- Regulate the generators such that they had to build more generation?
- Paid Tiwai Pt to shut down?
- Increased insulation standards to reduce demand - oh wait they did that
- Something else?
Around 1983 my mother, and her numerous cousins, were contacted by the then relevant government department to sign some document to agree to sell the coal ownership rights under a West Huntly lake which had been acquired by her grandfather at some stage earlier in the 20 century. My mother and her cousins were pleasantly surprised as I don't think any of them knew about the existence of the ownership rights but nevertheless they had automatically been 'passed down' down to future descendants and by this stage all the second generation (including my mother's parents) had died.
So my mother eventually received a sum of something over $6000 being her share of the sale. This was a tidy sum of money that certainly came in handy at the time.
I have always wondered whether the government ever mined that coal.
There has been a lot of coal mining around Huntly, so it's quite possible. It's why they put the coal plant there in the first place. There used to be a massive kilometre long conveyer belt that took coal straight from the mine to the power station. Then the plant switched to mostly gas, but now that's in shortly supply they've started importing coal when it's needed.
Genesis Energy has also secured extra shipments of coal for the Huntly Power Station...
And the hypocrisy of the Labour government continues - "let's not dig our own fossil fuel and incur carbon but import from other countries".
New Zealand is a small insignificant island deep in the South pacific, rich in minerals. Let's use these minerals for the benefit of all New Zealanders.
If you look at the other article posted today, despite the ban on new offshore permits being issued, almost $1.3 billion was spent on gas exploration in 2020-2024, and the new result was finding 124 PJ less gas than they expected. It appears there isn't a readily available new source of cheap gas.
There was never a ban on mining coal (just in national parks), and the existing mines closed for economic reasons, or in the case of Pike River an explosion.
This will no doubt be a stupid question, I'm not an expert in mining/gas/electricity generation but how much offshore gas goes towards our electricity generation?
I've read a few comments that the offshore ban is the source of our woes in the electricity sector. It's probably the usual case of people with heavy partisan biases performing mental gymnastics to conflate 2 completely isolated issues for political point scoring.
There's some good data here: https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resourc…
In 2022
Chemical production (including non-energy use): 59.0 PJ
Electricity generation (including cogeneration): 41.9 PJ
Food processing: 15.4 PJ
Other consumption: 15.4 PJ
Residential: 6.8 PJ
So electrical generation is a significant minority use at around 30%, but would only be encountering a shortage because of supply contracts, or that it is deemed less economic to use for electrical generation than the other uses.
Unless gas production has dropped more than 70%, which I don't think is the case, or the amount used for electrical generation has increased significantly my point still holds that there is enough for electrical generation, but other uses are being preferred, which is probably the right thing.
https://www.gasindustry.co.nz/data/gas-production-and-consumption/
Take the bottom slider back to 2018 and the Pohokura output decline is really obvious.
McKee and Turangi are onshore, the rest is offshore. Which gas goes where is hard to define, once it's in the pipelines it's just gas
I have good news! There is no restriction on mining coal for Huntly in New Zealand! If you think there is a business in digging up thermal coal then go for it.
You'll probably find that you'll be entirely uncompetitive in international markets with overseas mines operating at scales impossible here. And supplying all of Huntly will be a non starter because one year their demand could be next to nothing, the next they might be running for 5 months straight.
Yes - this 3-Clown Circus has done a lot of stupid things, mostly for ideological reasons and mostly negative, but dropping the idea of a battery was perhaps the most stupid.
We needed to have a wider discussion, but dropping it out of hand was - ignorant. In the original sense of the word.
As for those who need to blame hated others.....
“Shortfall risk discovered early”? Lol, that’s lala land thinking.
We have less than 2 months’ hydro storage at the best of times. Gas has been on the way down for years, and Huntly has been cannibalised down to 2 functioning boilers.
Can we build new peaking generation or storage within 2 months? Hmmm, I’m thinking no.
So the market solution is to…enjoy higher prices? Ask businesses to curtail production? Enforce brownouts? Yay the market!
Did some folks’ IQs suddenly drop recently?
We need to understand the difference between govt being a shareholder in something and govt managing something.
No one forced Genesis to buy Indonesian coal, that was their management decision.
No one forced Petrobras, Shell and OMV to find no viable gas reserves and leave NZ. That was their management decision. 'Comrade Ardern' was never that powerful.
No one forced Marsden Point to shut down - that was the owners’ management decision.
What is becoming obvious is that the management decisions of fuel companies & the gentailers are often not the same as the national interest. Say what you want about Muldoon and the economy he ran, but today we are utterly reliant on all the energy infrastructure that he built - something the modern private sector is clearly incapable of doing.
Climate change is altering the ability to produce hydro from rain and glacial fed lake.
Has the penny dropped that this is not a one off?
So it would seem the answer is not to burn more climate change influencing fossils (or to increase demand via mass immigration).
Darwin awards to you.
I was promised back in the '80's that the ozone layer would be gone in 10 years, but it seems to still be there.
Because we stopped using ozone depleting gases after the Montreal Protocol. It's the primary example of global cooperation on air pollution working lol.
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