Power shares

[Jaa]

There are so many inaccuracies in your opinion piece. To start with Brian Leyland is not a climate denier. He has never denied that climate changes. But his views on climate are completely irrelevant when it come to the power industry. He is a respected electrical engineer and is a participant in the market. He is also correct in his estimate of the value of water that will be spilled. There is no way for that additional energy now available from Manapouri to be transmitted north from Roxburgh. The lines upgrade currently under way only alleviates the present constraint, but does not provide for an additional 600 MW of transmission.

Brian Leyland does not think climate change is man made nor that the planet is even warming despite all the evidence to the contrary (the last 5 years were the hottest years on record). That is the definition of a climate denier. From his own website in his own words:

I am seriously sceptical of claims that global warming is man-made, real and dangerous. These predictions rely upon computer models that failed to predict that there would be no warming for the last 18 years. - http://www.bryanleyland.co.nz

He also continues to suggest nuclear generation for NZ, something no respected electrical engineer does. My own father ruled it out at university in the 50s as the output of any nuclear power station would be too large for NZ's system and thus you would need at least two of them to cover maintenance which would dominate our system even more and lead to huge waste. This was long before all the very serious negative costs of nuclear power were fully understood.

The lines restraint is well understood and been discussed ad infinitum here. The sooner it gets built the better.

[horus1]

You have to look at the strategic review of NZ Steel and NZR to get the full picture. There will be further load reductions in the NI . I sold out of MEL because of that today.

[Snoopy]

You have to look at the strategic review of NZ Steel and NZR to get the full picture. There will be further load reductions in the NI. I sold out of MEL because of that today.

....if I might fill in the dots. NZ Steel to close. NZ Refining to drastically downsize into a fuel depot and turn off the refining plant. => no growth in NI power demand.

Tiwai to close => big fall in SI power demand.

So Meridian will have a lot of spare power generating capacity down south and no obvious market to sell that power into, even if the south to north transmission lines are upgraded. Manapouri looks to be 1/3 of Meridians total generation capacity.

=> a lot of spilling to occur at Manapouri.

Manapouri looks to be producing around 1/3 of Meridian's energy.

https://en.wikipedia.org/wiki/Meridian_Energy

But it wouldn't account for 1/3 of Meridians profits because of low energy prices to the smelter. So maybe Meridian profits will drop to 5/6 (say) of what they were pre the triple shut down?

SNOOPY

[k14]

....if I might fill in the dots. NZ Steel to close. NZ Refining to drastically downsize into a fuel depot and turn off the refining plant. => no growth in NI power demand.

Tiwai to close => big fall in SI power demand.

So Meridian will have a lot of spare power generating capacity down south and no obvious market to sell that power into, even if the south to north transmission lines are upgraded. Manapouri looks to be 1/3 of Meridians total generation capacity.

=> a lot of spilling to occur at Manapouri.

Manapouri looks to be producing around 1/3 of Meridian's energy.

https://en.wikipedia.org/wiki/Meridian_Energy

But it wouldn't account for 1/3 of Meridians profits because of low energy prices to the smelter. So maybe Meridian profits will drop to 5/6 (say) of what they were pre the triple shut down?

SNOOPY

How do you calculate that? At 4800 GWh per annum, Manapouri would generate about $240m of revenue (at $50 per MWh, which is in the ballpark of the Tiwai contract). Year 1 of Tiwai shut, the nodal price at Manapouri will at best average $10 per MWh (probably more like $5). They will also spill a fair chunk of the 4800 GWh, but lets conservatively say only 800 GWh. That leaves new station revenue at 40m. So a reduction in revenue from Manapouri alone of $200m. This is just the first year, you would expect things to gradually improve and possibly even get back to over $200m in year 5-10 post Tiwai. Also remember that O&M costs for hydro stations are fairly fixed, so very little (if any) savings there. Capex could be pushed out, although I would be surprised if they are spending more than $10m a year on that.

Also the remainder of their Waitaki generation will also get a lower price, although it will be cushioned somewhat due to their retail load. However, any retail load in the North Island will not be able to be hedged as well as it is now due to the higher spread between spot prices in the NI/SI compared to now. This will mean they will have to either drop retail load or purchase hedging off the other generators that have stations in the NI.

As I have said previously, I really think the market is under estimating the impact of the current proposed shutdown on the NZ market and gentailer revenue.

[Jay]

Perhaps they could take a few buckets of water out of Manapouri, once they do not need all the power, and tip it into Aucklands dams

[forest]

How do you calculate that? At 4800 GWh per annum, Manapouri would generate about $240m of revenue (at $50 per MWh, which is in the ballpark of the Tiwai contract). Year 1 of Tiwai shut, the nodal price at Manapouri will at best average $10 per MWh (probably more like $5). They will also spill a fair chunk of the 4800 GWh, but lets conservatively say only 800 GWh. That leaves new station revenue at 40m. So a reduction in revenue from Manapouri alone of $200m. This is just the first year, you would expect things to gradually improve and possibly even get back to over $200m in year 5-10 post Tiwai. Also remember that O&M costs for hydro stations are fairly fixed, so very little (if any) savings there. Capex could be pushed out, although I would be surprised if they are spending more than $10m a year on that.

Also the remainder of their Waitaki generation will also get a lower price, although it will be cushioned somewhat due to their retail load. However, any retail load in the North Island will not be able to be hedged as well as it is now due to the higher spread between spot prices in the NI/SI compared to now. This will mean they will have to either drop retail load or purchase hedging off the other generators that have stations in the NI.

As I have said previously, I really think the market is under estimating the impact of the current proposed shutdown on the NZ market and gentailer revenue.

Things will balance out in time.
NZ industry has still got many coal fired boilers, when spare electricity come available I think it is more than likely those coal fired boilers are going to be replaced by electric boilers. I can see this happening in both the North island and the South island.

[Panda-NZ-]

Yeah I think values are based on a long term view not one year or so..

[Jantar]

Brian Leyland does not think climate change is man made nor that the planet is even warming despite all the evidence to the contrary (the last 5 years were the hottest years on record). That is the definition of a climate denier. From his own website in his own words:.....

I am just finishing my PhD in climate science, and I have not been able to find any point in time at which natural variation in climate finished and anthropogenic change started. Thus I can say with confidence that climate change is NOT man made. That is not the same as saying that man isn't having an influence. Does that make me a denier as well? His comment on no warming for 18 years was made in 2016, and at that time he was correct. Even the Hadley Research unit in England (the one the IPCC uses for data) admitted that at the time.

Nuclear would be good foe NZ if the units can be made small enough at an economy of scale. Westinghouse were working on a 360 MW unit which would have been a perfect size for us, but although it was supposed to licenced for production in 2010, it just quietly was dropped. You are correct that the modern 1000 MW+ units are not suitable for NZ as we would not be able to provide both the base demand and the spinning reserve they would require.

[Panda-NZ-]

It's probably not needed though given there are no capacity issues now or in the near term future.

[Snoopy]

How do you calculate that? At 4800 GWh per annum, Manapouri would generate about $240m of revenue (at $50 per MWh, which is in the ballpark of the Tiwai contract). Year 1 of Tiwai shut, the nodal price at Manapouri will at best average $10 per MWh (probably more like $5). They will also spill a fair chunk of the 4800 GWh, but lets conservatively say only 800 GWh. That leaves new station revenue at 40m. So a reduction in revenue from Manapouri alone of $200m. This is just the first year,

Hi k14. First I want to reconcile some of these big numbers that do my head in.

If the Tiwai contract energy charge is at a ballpark rate of $50/MWh, that is $50,000/GWh. For 4800GWh of power that adds up to:

$50,000/GWh x 4800GWh = $240m of revenue (your figure)

I buy my power as an ordinary household lot. That means I buy my power by the kWh. $50/MWh is equivalent to 5000c/MWh or 5c/kWh. I am paying 27.6c/kWh for my power. So that really brings home what a good 'energy' deal the Tiwai smelter is on.

Now you say that you expect a post smelter Manapouri power price node $10/MWh which is just 1c/kWh. In consumer retail terms that is pretty close to 'free' power. You are effectively saying that there will be no use for this power. But some that power will be able to be taken north. And in three years maybe all of it. The cost of generation at Manapouri is very low. Sure if the wholesale price is as low as 1c per unit, then Meridian might be making a loss. However Meridian is also a retailer. If the retail arm of Meridian can buy their power at 1c per unit, the gross profit retail margins will be enormous. That should more than make up for any wholesale losses?

The profit margins for Gentailers are ultimately based on the difference between the marginal incremental retail price (which sets the price for new generation being economical) and the historical generation cost from each power station owned. In the case of Manapouri, the big CAPEX spend was done at late 1960s, early 1970s prices. It is those historical prices that sets the generation cost for possibly hundreds of years. Meridian owning Manapouri gives them a huge indefinite long term advantage in the generation space.

you would expect things to gradually improve and possibly even get back to over $200m in year 5-10 post Tiwai.

Isn't it the mooted new thermal generation in the North Island, and the respective gentailers that were talking about building those projects that will now be pushed well down the track by a Tiwai closure the real issue going forwards? Meridian isn't planning on building any new thermal stations, so they should come out of this Tiwai pull out relatively well?

Also remember that O&M costs for hydro stations are fairly fixed, so very little (if any) savings there. Capex could be pushed out, although I would be surprised if they are spending more than $10m a year on that.

I can't see Meridian losing money by operating Manapouri

Also the remainder of their Waitaki generation will also get a lower price, although it will be cushioned somewhat due to their retail load.

What Waitaki generation? Or are you talking about Contact Energy? Do you foresee an energy unit price war in the lower South Island over the next 2-3 years?

However, any retail load in the North Island will not be able to be hedged as well as it is now due to the higher spread between spot prices in the NI/SI compared to now. This will mean they will have to either drop retail load or purchase hedging off the other generators that have stations in the NI.

Not sure what you mean by the bit I have highlighted in bold. Ultimately it has to be the other generators who will fill any supply holes in electricity supply, even if third parties become involved 'trading' the price differences. So really no substantial difference pre and post Tiwai?

SNOOPY