Monday, 9 September 2013

NZ Power

My slides for the EPOC winter workshop are here.

There was a great panel discussion after my gig, much more interesting than the IGPS event in July on the same topic where participants were strangely reluctant to fire up. A possible reason is that the other panel members in Wellington were Lew Evans and Geoff Bertram, a combo that was virtually guaranteed to produce strong and polarising views. By contrast, my fellow panelists at EPOC were Grant Read and Andy Philpott neither of whom seemed committed to a good/bad opinion.

Anyway, my views are crystalising a bit. I still think the short-run operational stuff is not too difficult to sort out: economic dispatch via a spot market can be preserved but generators would only offer volumes with the price component being struck in advance through some kind of regulatory contract. That could support the auctioning of hedge contracts by NZ Power to stand-alone retailers, which I think would increase retail competition.

In effect, NZ Power would break the existing vertical integration of gentailers, which would make it easier for new firms to enter the generation sector (without having retail customers) or the retail sector (without having generation).

The longer-term stuff still looks messy, but this event brought a few particular types of messiness into clearer view including:
  • life-of-plant supply contracts for generators sound good in theory, but there would need to be some flexibility for major refurbishment expenditure, which might make generation regulation look a lot more like standard monopoly regulation - regular resets, capex forecasts and all that stuff;
  • NZ Power would bear the risk of unexpected slumps in demand growth or actual demand, which might encourage it to go looking for new demand (aluminium smelter anyone?); and
  • a de-minimus exemption for small generators (eg micro hydro, small scale solar panels) would make sense but a threshold would need to be defined.
Political promises have a way of turning into reality. I've been comparing this one to John Key's policy on ultra-fast broadband (UFB) prior to the 2008 election. They're both large scale government interventions into an essential service industry. Part of the reason that UFB is now turning into a slow-motion train wreck is that the whole transition it envisages was never fully thought out. There is a fair chance NZPower could meet a similar fate unless it is taken seriously now.

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