Last Thursday, the MBIE released a report called Energy in New Zealand 2013, which replaces the old Energy Data File series. It’s chock full of energy-related goodies, which is very relevant to us here at the ATB; transport requires energy, after all. In the next week or so I’ll look at different bits of the report, starting today with electricity.
As Patrick and others have pointed out many times on this blog, New Zealand is damn good at making electricity. Mr Reynolds notes that we’d have a much better chance of tackling the issues of the 21st century “if only we understood our wealth in electrons and our relative poverty in hydrocarbons”.
According to the MBIE, “New Zealand’s share of electricity generation from renewable energy sources rates consistently in the top three nations in the OECD (behind Iceland and Norway)”. Yay us! This is driven by our strong hydro resources, with geothermal playing a part, and wind a fairly recent addition to the mix.
In a typical year, more than 70% of our electricity comes from renewable sources. Incidentally, research suggests that we can get to 100% renewable electricity production in the future (for non-‘dry years’) – it’s feasible and won’t cost a packet. I’ll look at that another time.
Electricity Demand and Development
Electricity demand fell 1% in 2012, and “a flat demand outlook means it is unlikely that major new investment (not already committed) will occur until 2020”. Power companies have identified plenty of opportunities where they can build new plant – wind, geothermal etc – but not much will be happening unless there’s a lift in demand.
For the time being, though, there are some projects already underway: “over 270 MW of geothermal generation, 60 MW of wind generation and 6 MW of hydro generation [are] currently under construction”. These figures refer to generation ‘capacity’, and wind in particular never gets near its theoretical capacity. The 60 MW of wind generation will probably produce 10-20 MW a year, so essentially most of the new electricity that is produced will be geothermal.
Electricity Prices
Another interesting graph shows electricity prices for residential, commercial, and industrial users over the last 40 years. Without getting too political, you can see why graphs like this cause some people to feel like they’re getting ripped off. For starters, though, I’ll note that if you strip the GST off the residential prices, part of the price gap disappears; and commercial and industrial sectors use larger quantities of electricity per customer, and usually during off-peak times, which means that it costs less per unit to supply them.
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1.) Residential users are the only ones that pay GST and so it can’t be stripped off for them and thus the gap remains
2.) But, overall, have near equivalent use and so the price per unit should remain the same
What you’re describing is actually false economy. Lowering prices on the users who use much more power individually is encouraging them to use more rather than what we actually need – for them to use less of our scarce resources. The correct pricing model would be that pricing went up as you used more giving incentive to use less and thus encouragement for them to bring about innovative ways to do the same thing using less power. What we actually have is a massive subsidy from the residential sector to the industrial sector.
The prices charged should be the same across the board. Sure, use pricing to encourage time shifting so that the grid doesn’t become over loaded at peak times but that would be the only time you would use differential pricing. This, BTW, is one of the reasons why power generation and distribution is a natural monopoly and should be a) a single entity and b) a state monopoly.
Draco, I’m neither an economist nor an energy trader so happy to be shot down in a spectacular ball of flames (preferably blue to keep with the theme) but I understood that when generated electricity when can’t be ‘stored’ somewhere for use later, like oil or gas can. There is no giant national battery service. It is generated and appears at your wall socket in the same blink of an eye. So peak and off-peak usage becomes very relevant to pricing when electricity is bought and sold on an open market. That’s where you hear stories that power supplies crank up the power being generated during Coronation Street ad breaks or half times during sports matches because suddenly several hundred thousand people suddenly put their kettles on to make tea. So I don’t think price per unit can be the same across all users at all times.
Well, there actually could be. China is definitely looking into such a service for their solar generation. That said, the more power we use the less water there is left in the lakes to generate power and then there is an absolute limit to how much can be generated we can generate at any one time which is an absolute limit to how much can be used at any one time.
I specifically said to use different pricing for peak and off-peak times.
Sorry Draco, I disagree with most of that. GST is important, and unless you allow for that you could say that companies get pretty much everything 15% cheaper than households.
Electricity supply is an industry with substantial fixed costs, and which generally has economies of scale, barring the odd transmission constraint. So the average price per unit should naturally fall as a customer uses more – as does happen in NZ, and for households as well.
Using figures from the link you provide, the average commercial/ transport customer uses 8 times as much electricity as the average household, and the average industrial customer uses 54 times as much. It’s clearly going to be cheaper to supply one large customer than 54 small ones.
I also don’t think there’s evidence that power generation is a natural monopoly; the current structure has four major generators and a number of smaller ones, and I can’t see any issue with that.
Companies don’t pay GST, households do. So, yes, companies get everything 15% cheaper.
Nope, as I said, that’s false economy. We don’t want power to be cheaper as more is used as that encourages use even more and there really are physical limits to how much power we can generate.
Last time I looked at the power bill there was a line charge which has nothing to do with the generating charge.
It increases costs unnecessarily by increasing the bureaucracy and most of it is pure duplication. It also adds the costs of advertising.
Slight correction. Companies do pay GST. How much they pay depends on how much they spent vs recieved in income in that GST period.
“So the average price per unit should naturally fall as a customer uses more – as does happen in NZ, and for households as well.”
Actually no , with residential power there is actually incentives to use less power , ie special prices for users that use less than 8Kw per year (or whatever it currently is), the current model actually incentivise’s business’s to use more however and prices for commercial and industrial power over the last 30 years have dropped but residential has massively increase
Hi Lynden, the *marginal* cost you pay for each additional unit is higher if you’re above 8,000 kWh a year, but the *average* cost keeps falling the more you use, because there are fixed costs which are getting spread out over more units.
It’s true that prices for residential have risen relatively more over the last couple of decades, not sure whether that is still the case (I’ll check out the stats and work it into a future post – Energy In New Zealand 2015 has just come out). But I’m not sure to what extent that captures things like promotions, discounts etc. For example, I moved place recently, and Meridian gave me $150 credit, which is actually a fair whack off my power bill (I think I have to stay with them for the next 12 months – maybe it’s 24 – but at any rate that credit is better than any small difference in price per kWh I might get from other companies). That kind of thing may not be picked up in the data.
There are many fixed costs associated with electricity distribution (lines, metering), so the cost to supply 1 high industrial user will be less than many low residential users that use the same amount of electricity.
The way they are metered and charged is also completely different. High using industrial users will have Time of Use metering and this means that their half hourly prices will change and they will be incentivised to use electricity when it is the cheapest. Residential users have a simpler metering and billing setup and removes all of the pricing risk for the user. Every half hour the electricity price changes, so the retailer has to take this pricing risk.
Yes, there are many fixed costs and the way you bring those fixed costs down per individual entity is to spread it across as many such entities as possible which the lines companies do. That said, they’ll probably charge the industrial users more as the gear needed to supply a factory is far heavier than that needed to supply a household.
What you’re doing is confusing price per unit of power generation which comes down as more is generated and the supply of the lines which is fixed and seperate.
We used to have that for households as well – it’s why water cylinders used to be, and still are in some places, turned on and off by the local power retailer. There’s no reason why we can’t do so again. In fact, with modern technology, it’s be even easier.
“The correct pricing model would be that pricing went up as you used more giving incentive to use less and thus encouragement for them to bring about innovative ways to do the same thing using less power.”
That would mean Auckland’s new electrified rail system paying a LOT more per unit than residential users. We couldn’t subsidise the increase because that would defeat the point of encouraging them to use less power. So I guess that leaves running fewer trains. I don’t see why anyone would see that as a good outcome.
Our electricity is cheap and reasonably clean. I don’t see why we’d want to actually conserve it. Why not use as much as we can to make our lives better by owning computers and enormous televisions, by electrifying trains and running them frequently, and by encouraging industry to do business and employ people?
Yes, ideally, we’d have clean and plentiful energy. However, our share of renewables has been steadily dropping, so we need to either conserve more, or build more hydro, geothermal etc… to keep up with demand. Just increasing demand isn’t going to work.
And for the record, I am a “greenie” who supports more hydro dams and tidal power stations etc… – sadly, I am a bit alone in my particular political circle on that. I believe it could be done in a fashion that clearly outweighs the downsides though.
First, prior to the 90s, commercial users were grossly overcharged for electricity vis a vis residential users on the basis that they “could tax-deduct it” – a bizarre argument that was finally seen through. I’m not qualified to comment on whether the ratio is correct now.
Secondly, DTB is right to say that the it’s the end-user who pays GST regardless of any intermediate parties, so figure F.5b is a nonsense – MBIE needs to get their act together on that one. GST didn’t even exist before 1987 and has increased twice since then.
Finally, geothermal is certainly a growth area, albeit still a small player, but is truly renewable as is hydro. Wind generation is not actually a true renewable, even though he wind is “free”, as it requires equal capacity of backup plant, usually coal. And John is right about wind generation capability being nowhere near name-plate rating, although I think it’s much less than the 15-30% he implies (I’m assuming the “a year” is a misprint – that would be energy measured in MWh).
@jonno1: Is hydro not suitable as a backup? i.e. requiring a backup does not make it non renewable.
That’s true lefty, although hydro generally runs as base load (unless it’s being conserved in dry years) but even so, you can’t really sum the two forms of renewables and claim both.
Greenwelly (below) may be right about better wind power performance in some locations, but I’m not so sure of the overall figure. It does get higher as total installed capacity grows of course, provided there is diversity of location.
Quite the reverse Jonno; more wind more opportunity to hold the water back through or in anticipation of dry periods… Wind + Hydo is a great mix, add more Geo for baseload and distributed solar and can use our small gas reserve for more productive purposes and leave the coal in the hole. Requires additional investment however and the cost of stranding existing Thermal gen. Anyone have info on Huntly’s projected life span?
My understanding is that Huntly is quite expensive to run and Genesis wouldn’t mind closing it if it could. With the way the electricity market is at the moment, Genesis is only able to recoup the true cost of the generation when there is an abnormal market event, like a transmission constraint. An example of this was in March 2011 when they priced it at $20,000 MWhr when there was a transmission constraint, when normally the prices are about $100 MWhr.
NZ’s wind generation capacity is actually pretty good, meridian’s west wind runs at 40% of name plate, (143MW vs ~500Gwh generated)
In a good year hydro runs at about 60% of name plate,
http://www.meridianenergy.co.nz/assets/PDF/Company/Investors/Reports-and-presentations/Annual-reports/2012/Meridian-Annual-Report-2012Online.pdf
Wind”s big downside is that you generally can control when it runs, and because most of the large install are in the lower north island they all tend to come on at once, making it more difficult to manage the grid..
jonno1, your third point is incorrect on three counts.
1. Wind does not require “equal capacity” of back-up – This statement is incongruent with how the electricity system actually works, i.e. nodal pricing. The system works where decisions about new generation are primarily dependent on costs versus revenues at the node to which they connect. The fact that wind does not generate all the time will factor into the revenue side of this equation, i.e. it’s already accounted for in the decisions about whether wind stacks up in a particular location.
2. Wind requires back-up capacity that is “usually coal” – Even if “back-up” plant was required (as per my comment above the entire concept of “back-up” for one particvular plant is nonsensical in the concept of our electricity system – there are some system-wide back-ups, but that’s different) coal would be a terrible choice for back-up because it is extremely slow to ramp up in response to variations in demand. CCGT or hydro are much better.
3. The effective capacity of installed wind plant is not “less than 15-30%.” It’s typically more than 40%, with many turbines in the Tararuas generating at circa 50% of their nominal capacity. By way of background geothermal is probably the highest effective capacity with about 95%. The key thing to note is that 1) all forms of electricity generators require down time and 2) the costs of any downtime is factored into the investment decisions made by the affected generator.
NZ is in a perfect position to store electricity by having the majority of the generation being hydro. The answer is to arrange a water storage at the outlet as well as the inlet for the system. Excess electricity generated during off peak is used to pump water from the lower storage back to the upper storage so that at peak times it can generate all over again. I have no idea if this is how your hydro works but it is certainly the way our Snowy Mountains system does. At times of heavy wind then the hydro generation could be reduced. NZ should be promoting re-chargeable electric cars because when they are charged during the off peak that also evens out the loading on the generation network and of couse reduces the need for imported oil.
Yes Hydro is a big battery. Much more flexible than Thermal plants, well coal certainly. Perfect compliment to wind farms. When I worked with MRP years ago they showed me how flexible their Waikato system is, responding directly to Auckland demand, opening the penstocks about half an hour before the evening peak. There are issues around allowable lake levels which limit their ability to really work the storage on that system, however. But there is more flexibility in other lakes.
NZ has the most productive onshore wind farms in the world [what a surprise!] and are unsubsidised. And because the country is long the geographical distribution is another means to address intermittency. In other words it’s rare when it is not blowing somewhere in this exposed country. But Hydro, Geo, and Gas are the baseload back ups for wind. I would love to hear from anyone who knows of any work on what the theoretical maximum proportion of wind generation we could run on? Of course the state of the distribution network is important for this too, and just where the turbines are.
We will regret burning so much gas to make electricity. But it will take a different market structure to stimulate the needed investment to build the remaining capacity in renewables although I read that sufficient Geo and Wind is already consented- just that the demand for new generation is not there to make the investment. So it would take either a carbon tax or a government decision to get out of thermal to do it.
There is an especial irony if in the future we burn gas to generate electricity to run electric cars. The current decline in demand is very helpful though, and the if distributed PV installation picks up here like it has in Australia then there will be further declines.
Then of course there is the wild card of Tiwai Point closure- anyone want to run huge data servers in Dunedin to soak up them electrons?
If Tiwai closes we will have to do something to try fill the hole in Demand. We would need to seriously look at something like data banks like you mentioned or another industrial use.
Yes or the two big Thermal generators will be left high and dry: Contact and Genesis.
Tiwai’s power load is so much orders of magnitudes more than any comparable replacement industries.
The article below estimates that it would take over 2000 data centres the size of IBM’s $80 million Auckland data centre to soak up capacity if Tiwai , closed and the cost of that would be over $ 160 billion dollars,
On a $/watt basis data centres are a very expensive way to soak up electrons,
http://www.nbr.co.nz/article/can-we-replace-tiwai-smelter-giant-data-center-cs-138024
“There is an especial irony if in the future we burn gas to generate electricity to run electric cars.”
Especially if we allow those electric cars a cheaper rate, or other incentives, to drive on the roads.
The NZ Wind Energy Association could give you the maximum theoretical limit for wind power into the NZ grid.. they currently forecast 20% by 2030. http://windenergy.org.nz/wind-energy/wind-energy
Even though as an island NZ’s electricity grid is not interconnected to neighbouring ones, like for example Denmark, where very high penetration rates for wind have been achieved, the capacity for wind energy in NZ is relatively high, in part due to all that hydro that can be switched on within seconds
What’s more, if we have a decent amount of wind generation, whenever the wind blows, we can keep the water in the dams.. which is useful given our short run rivers and the ever present risk of a dry year. Similarly, solar PV has a significant part to play here in NZ.. it’s hard to understate the value of our hydro “batteries”.
It’s also hard to see a downside to NZ to becoming more electricity intensive and less oil-intensive.. apart from the obvious parties with vested interests.
In theory something in the order of fifty percent from wind would be possible….. It’s more a case of financial considerations
Unfortunately, I don’t think the lines from Manapouri to here in Dunedin would be able to take the extra load but the lines already go past Invercargill directly to Tiwai Point. Use the smelter buildings for the data centre and use the chilly waters from Foveaux Strait for cooling.
John: Are there any numbers available around the margins on residential electricity for the differing usages bands? i.e. are they similar for the low user and high user groups, or is one group effectively subsidising the other? As things are, there’s a stronger incentive for low users to further reduce their usage than for high users to do so.
I don’t have any such numbers sorry. Within the household sector, I doubt there are any major subsidies occurring. Between sectors, it’s possible, but I’m skeptical.
Where do I sign up with that “National Average” power company for my electricity supplier?
I’d like to get my power at that price please, even with GST added back in its looking way cheaper than I pay now!
You might be kidding, Greg, but the “National Average” is across all sectors – you won’t get that low at home. Might be a weight off your mind to know that we get cheaper power in Auckland than in most other parts of the country though 🙂
Out of curiosity, to what extent is uptake of electric cars in the next ten or twenty years expected to increase electricity demand?
Not very much; various people have calculated that you could replace the entire car fleet with electrics and it would only increase national power demand by around 10% to 15%. In the next 10-20 years, it’d be minimal to low.
You can watch the electricity mix, price and generation here
http://www.em6.co.nz/em6/faces/pages/login.jspx
This is a better link
http://www.em6live.co.nz/Default.aspx
It has a menu at the bottom centre and help buttons on each panel
New Zealand is most expensive country in the field of electricity . people of n.z are looking for another source of electricity
Hi there guys, while it’s certainly brave of you to set up another power price comparison website when whatsmynumber.org.nz already exists, your claim that “New Zealand is most expensive country in the field of electricity” is demonstrably false. As per Figure J.1 of the Excel tables for “Energy in New Zealand 2013” (not shown in the report itself), NZ is roughly middle of the OECD pack for residential power prices.