nelson malborough health board: ‘talking heads’
DESCRIPTION
Nelson Malborough Health Board: ‘Talking Heads’. Tony Baldwin 23 May 2005. Overview of Electricity Industry. Outline. Energy overall Electricity – current industry structure Hydrology risk Issues Review of reforms. Caveat. Some graphs and data is four years old. - PowerPoint PPT PresentationTRANSCRIPT
1
Nelson Malborough Health Board:‘Talking Heads’
Tony Baldwin
23 May 2005
Overview of Electricity Industry
2
Outline
• Energy overall
• Electricity – current industry structure
• Hydrology risk
• Issues
• Review of reforms
3
Caveat
Some graphs and data is four years old.
Shows trends, but is not up to date
4
Energy overall
5
Energy by fuel type – 2003
Electricity 25.4%
Oil48.8%
Gas8.2%
Coal9.2%
Other renewables5.7%
Geothermal (direct use)2.7%
Source: MED
6
Energy by sector – 2003
Domestic transport 41.6%
Residential 11.5%
Commercial9.4%
Industrial 33.0%
Agriculture4.5%
Source: MED
7
Primary Energy Supply of Gas by Use 2000-2025
0
50
100
150
200
250
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Gas
Use
(PJ
pa)
Reticulation Cogeneration Electricity Gen Petrochemicals
Source: MED 2002
8
Outlook for gas
Gas Supply and Demand Projections
0
20
40
60
80
100
120
140
160
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Gas
Qu
anti
ties
(P
J p
a)
Required
Kupe
Pohokura
Rimu
Mangahewa
McKee
TAWN
Kapuni
Maui
Total Demand
Source: MED 2002
9
Energy Intensity in the Economy
Source: MED 2001
10
Electricity – Current structure
11
Special characteristics
• Governed by laws of physics
• Once injected to grid, cannot identify who owns electron
• Flows not dedicated from station to consumer (except for Comalco)
• Amount generated must always equal amount consumed
• Demand is relatively inelastic in short term. Spot prices are volatile
• Shortages (lack of fuel or mechanical outages) create high prices
12
Wholesale Market:This is where generators sell and retailers buy electricity.
Retailers:NZ has five main electricity retailers.
Direct usersLarge industrials like Comalco (15% of total production)
13
Consumer costs
Monopoly
Potentially Competitive
Potentially Competitive
4.32
1.79
4.9
3.1 Retail – 22%
Distribution – 35%
Transmission – 13%
Generation – 30%
Source: MED
14
Hydro
Fossil fuels
Geothermal
Other3%
3 SOEs+ Contact
Other generators
On-site co-gen
Largeindustry
Residential
Commerical,Incl transport
Other industry
Losses
26%
7%
64%
80%
17%
24%
35%
21%
18%
TYPE OF FUEL GENERATOR CONSUMER
Electricity flows – 2001
Source: MED
15
Generation + customer shares
0%
5%
10%
15%
20%
25%
30%
Contact Genesis Meridian MightyRiver
Power
TrustPower
Other
Generation capacity
Customer share
Source: MED + Transpower, as at 2001
16
Transmission network
© Transpower 2002
Major loads in North(Auckland)
Major generationin South
(hydro, run-of-river)
HVAC systemin each island
220kV backbone(yellow )
350kV HVDCinter-island link
110kV and low er(red)
17
Transmission constraints
South Island Situation – Future
Transfer to West Coast
Transfer from Canterbury to Nelson, Marlborough
Transfer between Clutha and Waitaki Valley
Transfer between Waitaki Valley and Canterbury
Transfer between Clutha and Southland
Potential Constraints
18
Ownership of Distribution Companies
Ownership No of companies 100% trust or co-operatively owned
22
100% owned by local body
5
Mixed ownership - majority owned by local body or trust
3
Mixed ownership - majority owned privately
1
Source: MED 2000
19
Line company charges
20
Government Ownership
• Generation:– Govt SOEs = 63%
• Transmission:– Govt SOE = 100%
• Lines:– Trust/Local Govt = 98%
21
Pricing process
22
Demand
23
0
2
4
6
8
10
12
14
Supply
Demand
Matching Supply + Demand
Hydros
Oil
Single Gas
Combined Cycle Gas
CoalWind
Clearing price
24
Spot prices
50
55
60
65
70
75
80
$/MWh
48 trading periods during 21 May 05At Haywards grid off-take point240 grid nodes that are priced
Source: Comit
25
Spot price changes
Daily Average NZEM Haywards Reference Price1 October 1996 to 07 October 2002
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
Oct
96
Ap
r 97
Oct
97
Ap
r 98
Oct
98
Ap
r 99
Oct
99
Ap
r 00
Oct
00
Ap
r 01
Oct
01
Ap
r 02
Oct
02
En
erg
y P
rice
($/
MW
h)
Daily Average
Yearly Average
26
Hedging
Price
Purchaser paysGenerator
Generator paysPurchaser
Hedgeprice
Time
Spot price
27
Contract prices
May-04
Jun-04
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
5
6
7
8
9
10
11
12
13
14
1 Year
2 Years
3 Years
Cents/kWh
Source: Comit
28
Hydrology risk
29
Hydro Storage Capacity
Source: MED
30
Hydrology – inflow monitoring
31
Hydrology – storage monitoring
32
Hydrology riskNZ Total Cumulative Inflows as at 24 April 2003
0
5,000
10,000
15,000
20,000
25,000
3-Ja
n
17-J
an
31-J
an
14-F
eb
28-F
eb
14-M
ar
28-M
ar
11-A
pr
25-A
pr
9-M
ay
23-M
ay
6-Ju
n
20-J
un4-
Jul
18-J
ul
1-Aug
15-A
ug
29-A
ug
12-S
ep
26-S
ep
10-O
ct
24-O
ct
7-Nov
21-N
ov
Tota
l Cu
mu
lati
ve In
flo
ws
(GW
h)
Mean 19762001 20031 in 20 Dry 1 in 20 Wet
1 in 20 Wet
Mean Inflows
1976 Inflow Year
2001 Inflow
1 in 20 Dry
Total GWh inflows to date from 1 January: - 1976: 5,348 GWh 2001: 5,170 GWh - Mean: 7,228 GWh 2003: 5,035 GWh
33
Spot price + hydrology risk
0
500
1000
1500
2000
2500
3000
3500
1/01
/03
15/0
1/03
29/0
1/03
12/0
2/03
26/0
2/03
12/0
3/03
26/0
3/03
9/04
/03
23/0
4/03
7/05
/03
21/0
5/03
4/06
/03
18/0
6/03
2/07
/03
16/0
7/03
30/0
7/03
13/0
8/03
Sto
rag
e (
GW
h)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$/M
Wh
Storage Price
34
Issues
35
How to deal with hydro shortages?
• Who is responsible for ‘insuring’ against risk of shortage?
• Should prices be allowed to rise to reflect scarcity?
• Cope with shortages by reducing demand or building back-up stations?
36
Role of Government?
• Should Govt pay for or underwrite new generation investment?
• Should Govt manage prices?
• Should the Commission ensure security of supply?
37
What new supply?
• No to wind – Wgn and AK projects declined
• No to using water – Waitaki and Wanganui rights limited
• No to new transmission lines – Waikato farmers
• No to coal – Kyoto Accord + carbon tax
• No to gas – lack of new supply
• And no to price rises!
So what new supply?
38
Impact of CO2 charge
39
Review of reforms
40
Pre-1987
Generation Transmission Distribution Retail
Government-owned(NZED)Centrally planned + operatedBulk suppy tariff
Electricity Supply Authorities + Councils
41
1987 - 1994
ECNZ Transpower Distribution Retail
1987 corporatised into an SOE
1992 corporatised into Electricty Companies
Internal ‘spot’ price
1993 stand-alone SOE
Generation Transmission
42
1996 – 98
ECNZ (SOE)
Transpower Distribution Retail
Electricty Companies
External ‘spot’ price
NZ wholesale market
Contact Energy (SOE)
TransmissionGeneration
43
1998 – 2004
Meridian (SOE)
Transpower
Electricity Companies
(mainly trusts)External ‘spot’ price
NZ wholesale market
Contact Energy (sold to investors)
Mighty River Power (SOE)
Genesis (SOE)
Trustpower + others (private)
Generation Transmission Distribution Retail
Meridian
Contact
MRP
Genesis
Others
44
2004 –
Meridian (SOE)
Transpower
Electricity Companies
(mainly trusts)
Market rules
Contact Energy (private)
Mighty River Power (SOE)
Genesis (SOE)
Trustpower + others (private)
Generation Transmission Distribution Retail
Meridian
Contact
MRP
Genesis
Others
Commission
45
46
47
Why reforms?
• Achieve better new investment:– Investors, not tax or rate payers, taking risk;– Right size, type and timing of new stations
• Achieve more pressure on costs and prices
48
Why split lines?
• Cross-subsidies from lines to new generation – – AK was a bad offender – Three new stations – uneconomic – propped up by
lines charges– ‘Empire building’
• Some also obstructing retail competiton
49
New investment
50
Forecast Accuracy Over Time
Forecast made in year
Fore
cast
Erro
r
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1956 1961 1966 1971 1976 1981 1986
2 Years 5 Years 10 Years
Track record in planning
51
Electricity Consumption Growth and Restrictions
Year End March
% p
er a
nnum
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
1946 1951 1956 1961 1966 1971 1976 1981 1986 1991
Per Capita Consumption
Restrictions
History of shortages
52
POWER STATION CONSTRUCTION COSTS March 1990 $
Capital Standardised Estimated
Comm Cost Power Cost1 Overrun
Year $Million $/Kw c/kWh Cost Delay
Hydro Schemes
Roxburgh 1956 737 2,303 5.2
Whakamaru 1957 418 4,184 9.3
Atiamuri 1958 291 3,461 10.2 60%
Ohakuri 1962 322 2,874 8.7
Aratiatia 1965 227 2,707 8.9
Benmore 1966 943 1,746 4.6 -20%
Aviemore 1968 454 2,063 5.3 -30%
Manapouri 1970 4.6 80%
Tongariro Scheme 1975 13.7 60% 5yr
Upper Waitaki 1979 8.4 0%
Clyde 1992 1,573 11.3
New investment record
Source: John Culy, NZIER
53
Costs of poor investment
• If too soon or wrong size or wrong location or costly fuel – often made invisible
• If too late or too little, very visible – becomes major political issue – but not necessarily more costly than too much too soon
54
New Stations Since 1996
• Not due to lack of investment appetite:– over $1 billion of generation installed since market began in
1996
New generation capacity by status
0
100
200
300
400
500
600
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MW
Under consideration
Committed
Onstream
new investment.xls
Average capacity growth needed to
meet demand
Wholesale marketbegan operation
55
Prices
56
Objectives
• Prices to reflect costs
• Downward pressure on costs
• Test of success if not whether prices went down – but lower than would have been under old system
57
International price comparison
Japan* 31.9 45.1
Italy* 20.8 35.6
Turkey 19.2 20.3
Austria * 18.9 40.5
Germany * 16.3 38.5
Switzerland 16.2 25.4
Portugal 15.5 27.8
Netherlands* 14.0 39.6
Australia * 13.6 19.4
Spain * 13.5 34.6
Belgium * 13.3 40.5
UK* 12.6 23.9
Hungary 12.1 16.0
Ireland 12.0 24.8
Greece* 11.9 21.7
Mexico 11.3 17.2
France * 11.3 31.2
USA 11.1 21.3
Norway 10.2 16.9
Canada* 9.3 14.4
Denmark 9.2 46.9
Finland 8.9 17.9
Sweden * 8.3 24.5New Zealand 6.5 13.7
Country Industry Residential
Source: MED – 2000 [?]
Aim is to protect our competitive position
58
Pre-reform price plans
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
$ M
Wh
Actual (96$)
ESANZ Proposal
ECNZ Proposed Tender ReservePrice 1996
NZIER ECNZ Intact
59
Real Electricity Prices for Consumers1990 - 2002
800
900
1000
1100
1200
1300
1400
Dec-
90
Dec-
91
Dec-
92
Dec-
93
Dec-
94
Dec-
95
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Ind
ex o
f P
rices
Farm Electricity Prices
Household Electricity Prices
Commercial Electricity Prices
Retail Reforms Announced
Wholesale Market Introduced
Post-reform prices
60
Price components
Source: MED
61
Average consumer prices