ATS Short Circuit December 2014

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Advice to members

HYDRO SITUATION

Tracey Gordon, ATS Energy Account Manager

“That assumes that you don’t get any price reduction in wind - but, if you talk to the people at Siemens, they have a project going that is going to reduce the cost of wind, considerably.”

Meridian’s total dividend for the year is 13.01 cents per share, 24 per cent higher than forecast. But Chairman Chris Moller told shareholders it will be hard to exceed that performance. Binns also cautioned against expecting continued rapid share value growth.

The Mill Creek wind farm near Wellington, completed in August, will be the firm’s last big project for some years.

While the firm will continue to improve its operational and market performance, Binns says people need to be “realistic” in a time of flat electricity demand.

A reminder: ATS Energy can provide you a free independent energy review looking at options that are in the market. Not all energy consultants understand the industry and consumption profile that the farming community have as it is very unique.

Contact me today on 0800 BUY ATS (289 287) to pick up this free service exclusive to our members.

SHORT CIRCUIT | DECEMBER 2014

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Meridian’s analysis (assuming solar equipment and installation costs fall 5 per cent year-onyear) has found “it will be no earlier than 2035 (and probably 2045) before solar at utilities-scale becomes competitive with other renewable options, at current prices”.

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Meridian has also investigated other new-technology business avenues, but Binns was emphatic that, with no subsidies, grid-scale solar is not competitive with wind in the New Zealand environment. “Wind is three to four times more cost effective,” Binns says.

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Alternatively, Meridian would “need to get a whole bunch of market share,” Binns said.

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Treasury documents released last year suggested that a total Tiwai closure would probably prompt Genesis Energy to shut its remaining two coal units at Huntly.

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In the event of a full shut of the smelter, Binns suggests thermal plant operators might find it is “better to have a wholesale deal with Meridian”.

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Meridian can send 65 per cent of its generation to the North Island with no changes to its infrastructure, and some relatively minor work to the national grid for Transpower.

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Its modelling is for more demand than supply during the next two years.

Binns says Meridian is “firmly in the camp of wanting Tiwai to remain open”. But he says that if the smelter does close, Meridian will not be the worst affected electricity company.

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Tracey Gordon

Speaking at Meridian’s annual shareholder meeting recently, Chief Executive Mark Binns said smelter closures elsewhere have reduced global output.

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Meridian Energy believes recent aluminium forecasts point to better returns from the Tiwai Point aluminium smelter and a higher likelihood that Pacific Aluminium will keep it open.

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A year on from the float, an update on Meridian

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Information taken from NZX Energy DISCLAIMER: The purpose of this information is to outline historic data and is intended for general reference only

Capacity charges keep network assets sound

By Richard Rennie

The growth in irrigation hardware alongside large scale run of river schemes throughout Canterbury has bought its own peculiar pressure upon electricity network companies, and with it a change in how irrigators have been charged.

For the past year irrigators supplied through EA Networks have adjusted to having to pay a capacity charge on deep well pumps being held in reserve on farms for low flow periods that restrict scheme usage. The compulsory capacity charge comes after irrigators have had a choice in the past over opting for either a lower fixed rate capacity charge or a higher daily rated charge.

“We have looked at a number of models to deal with having to be capable of supplying irrigators when restrictions on take is on, and decided the capacity charge was the most efficient reflection of the cost of supplying electricity,” says EA Networks Gordon Guthrie.

He likens the network’s capacity to being similar to building a bridge to the maximum weight of traffic passing over it, rather than the average weight.

“The problem with irrigation is there is little diversity there at the driest period, everyone wants to go with it at the same time, so we have to provide that upstream capacity to do so.”

While run of river schemes in Canterbury may reduce energy consumption for pumping, provide greater opportunity for ground water replenishment, this may offer a challenge to electricity distributors over time.

The risk to network operators is the lower contributions made to capacity charges could see those users effectively being subsidised to hold their bores idle as insurance, while more regular users of deep well pumps shore up the full cost.

The trend around mid-Canterbury is for farmers to hang onto their deep well systems as insurance. While the region has also dodged severe drought conditions in recent years, keeping electricity demand over summer reasonable, networks are still compelled to have a system in place capable of coping with spikes in demand that will occur over a dry irrigation season.

Gordon says EA Networks is nearing the end of its asset upgrading programme, which keeps the system capable of managing the demand those systems could bring over a dry spell.

The Central Plains Water (CPW) scheme, while not as advanced as schemes further south, will also throw up the dilemma for irrigators about retaining deep wells or not.

Orion, the main network provider for the CPW scheme also has a compulsory capacity charge in place.

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An Orion spokesman said the costs for Orion’s delivery service relate to the provision and maintenance of the lines and cable network, and Orion aims to reflect these costs in its charges.

“In rural areas, the vast majority of costs remain the same regardless of whether the system is used or not. Orion must repair snow, wind and earthquake damage, carry out regular asset inspections, meet a wide range of regulatory safety and reporting obligations, provide for replacement, although assets do last for a long time, and provide a return to its owners, the local councils.”

While irrigation customers may not always use the capacity, Orion must reserve the capacity for their use because it regularly reaches situations where almost all irrigation customers decide to operate their plant at the same time.

“Orion has yet to fully work through the impact on its network of the CPW scheme, but where scheme members maintain irrigation connections to the electricity network, capacity charges will apply,” he said.

Irrigation NZ chief executive Andrew Curtis said the organisation is acutely aware of the capacity charges some irrigators now face.

“We have applied for funding through the Sustainable Farming Fund to do some work to better understand options when going down different routes for power supply.” He also hoped the study could develop some tools to enable irrigators to do cost:benefit studies on their options.

There were also steps farmers could take to minimise capacity charges.

The most common mistake was to “over-spec’” their pump, meaning they were incurring a capacity charge based on the kilowatt capacity of a pump that was bigger than necessary.

“It could well be you could get away with a smaller pump on standby.”

Investigating alternative energy sources was also becoming increasingly common, and the options for generating alternative power supplies like wind generation were coming down in price.

Funding for the study will be known by April next year, and it would be wide ranging, also looking at options for irrigators in more remote areas.

ATS Members concerned about their capacity charges should contact ATS Energy Account Manager Tracey Gordon at ATS Energy on 0800 289 287.

SHORT CIRCUIT | DECEMBER 2014