NWF - NZ Windfarms

[Jantar]

.... and yes Jantar if you are around could you please explain. ....

I shall do my best, but may take more than one post. I am on the road this week and have just arrived in Picton, so have plenty of time before my ferry crossing tomorrow morning.

The NZ Electricity market is a bit different to other electricity markets around the world. We operate in a single time zone, and unlike almost all other markets we cannot share generation with other time zones. Here most people arise each morning within a short period of time, say 6:00 am to 8:00 am; the work day begins between 7:30 and 9:00; lunch is between 12:00 and 2:00; most finish work between 430 and 6:00; Dinner is anywhere between 5:00 and 8:00; and people start drifting of to bed around 10:00 to 11:00 pm.

Overnight national demand may be as low as 3000 MW, over the morning peak it may rise as high as 6000 MW with most of this demand coming on within a 2 hr window. Mid afternoon it can drop down to 4500 MW, climbing again to 5000 in summer or 7000 in winter. This pattern is well known and understood, and as a result demand can usually be covered with existing generation. Because we are in a single time zone the electricity supply has to follow that same pattern. Whereas in a larger market such as USA, the overnight trough on the west coast is balanced by morning peak in the mid west, while the eastern time zones are in the afternoon trough. Thus USA does not see a 100 - 120% swing from times of low demand to times of high demand, but barely a 25% swing. Europe is even better and hardly sees any peaks at all.

Because of this volatility in NZ, our market works on 48 half hour trading periods with all generators offering their generation into the market in up to 5 tranches. These tranches are at a price for X MW, a higher price for the Y MW etc. for each half hour throughout the day
Demand at some nodes is estimated by Transpower, but at some nodes with large loads, called non conforming nodes, the demand is bid for. At the point that offered generation quantity meets demand quantity, the price is set by that offered generation for that half hour. All generation offered at prices below the discovered final price receive that price. Actual prices are calculated every 5 minutes to enable Transpower to dispatch changes to generation in a dynamic fashion, and this is where wind generation gets treated differently to other forms of generation. Once dispatched All generators, except for wind, must comply with that dispatch to within 5 MW or 5% of their dispatch, whichever is lower, and generators that fail to comply are likely to be penalised by the EA. Wind has a dispensation from that requirement, and only has to offer their best estimate, but with no penalty for failing to meet it. Wind also gets to offer all of their generation at $0.01, so will be dispatched in preference to other forms of generation.

Different types of generation have different characteristics that helps to determine their offer price and where they will fall in the stack.

Geothermal, is NZ's equivilent to nuclear. It is brought on load, raised to maximum output, and left there. Trying to reduce generation on geothermal plant is not just a matter of reducing the steam going through the turbine, The wells in the steamfield also have to be reduced in flow, and this results in silica and other solids blocking the pores of the well, and means that a well that has been reduced kn steam flow, will not come back up to full production. Geothermal is offered at either $0.00 or at $0.01, so it is always first dispatched.

Run of river Hydro is next. Usually RoR hydro has a small amount of storage in its head ponds, but if not utilised in a short time it will be spilt, so this is usually offered at a low price in 2 tranches. First tranche at a few cents as this is water that will be spilt if not used now, and the second tranche at around the SRMC.

Gas fired Generation has to nominate its gas requirements to the gas market a week ahead, then confirm that requirement with adjustments a day ahead. That gas then effectively becomes take or pay. There are huge penalties for not using it, but at times more gas can be purchased at a higher price at short notice, 4 or more hours ahead. Therefore committed gas generation is offered at a low price, while that extra gas is offered at either SRMC if a company is short in its generation book or at a higher price if long.

Stored Hydro generation, or hydro that uses water from storage lakes, is usually priced in such a way to make a company neutral in its portfolio, with additional water from headponds being priced at its scarcity value. Often this water must be released from lakes into canals or rivers many hours before it is needed. In the case of Hawea water it is 12 - 24 hours lead time before the water can be used at Clyde. For the Pukaki Canals it is around 4 hours lead time. Water from Taupo can be used at Aratiatia within 3 hours, but it is another 12 hours before it is available at Ohakuri, and almost 24 hours later before it finally passes through Karapiro.

Then there is wind. Cheap to generate, and unpredictable. At times we have seen wind differ from its offered amount by over 200 MW. When it is down by that amount where do we get the extra generation from? It is unlikely to be from Gas as that gas had to nominated and bought the day before. So that leaves hydro headponds at whatever that scarcity value is. When the wind ends up stronger than forecast then once again gas cannot back off without risking penalties, so it is hydro that has to accommodate that wind generation. This is OK for short periods and small amounts, but if it is a large amount and headponds are full then hydro will spill water. This has happened a number of times in recent years.

Therefore the best mix for wind is where it can be closely matched with hydro generation that has lots of storage, and no or little lead time. A perfect example is White Hill wind with Manapouri generation, or Mahinerangi wind with Waipori generation.

[Elles]

Very interesting overview, thanks Jantar!

[garfy]

Many thanks for that Jantar. The best explanation I have had of the rather convoluted power supply position in NZ.

[blackcap]

Thanks a lot for the detailed reply Jantar. That has been very enlightening and educational. I will re-read this morning and continue to do research but this has helped a lot explaining the system in aggregate rather than from an individual generator perspective.

[Well Endowed]

https://www.nbr.co.nz/article/vector...oint-jr-213190

Vector Underperforming, might well have prompted rationalisation of noncore assets?

[blackcap]

Cant complain really, just went and bought some more today...

NWF
28/02/2018 13:27
GENERAL
NOT PRICE SENSITIVE
REL: 1327 HRS NZ Windfarms Limited

GENERAL: NWF: NZ Windfarms announces strong half year result

NZ Windfarms announces strong half year result on the back of successful 2017
strategic initiatives

28 February 2018

NZ Windfarms released half year results today. Total revenues for the
Palmerston North based merchant wind generator were $4.3m yielding an EBITDA
of $2.0m for the half year to 31 December 2017. The result follows the
successful implementation of a number of key strategic initiatives for the
company through 2017. In October, the organisation paid a $2.45m full
imputed maiden dividend.

Over the last twelve months the company has embarked upon an ambitious
cost-out programme, focussed around curtailing turbines in aggressive wind
conditions. This has dramatically reduced the level of turbine mechanical
wear and failure, reducing direct and labour costs. Regulatory relief was
obtained permitting the company to respond to market pricing, and the hedging
of forward revenues has proven successful in baselining income. In
September, the company successfully purchased electrical assets that were the
subject of a costly finance lease, yielding savings of c$700k/annum and
introducing long term debt into the business, building management rigour. A
senior leadership role was also disestablished in late 2017. In December,
the company brought long-standing noise litigation issues to a close through
the adoption of new operating controls on three of the company's 96 turbines.

Board Chairman Rodger Kerr-Newell noted the significant progress made by the
company in the last twelve months. "We promised our shareholders that we
would change this company for the better, and we are now seeing tangible
financial benefits from the initiatives we have put in place." Kerr-Newell
noted that by Christmas the company had completed all its "internal"
reconfiguration objectives. "We can now turn our attention to the critical
external initiatives that will further transform this company," said
Kerr-Newell.

CEO John Worth, who has been with the organisation for just twelve months,
noted that the strong half year outcome was the icing on the cake on a very
busy year. "Our whole team has been working extremely hard in optimising the
performance of our wind farm. To see this work reflected in our financial
results, alongside the improved social outcomes we have achieved with our
resource consents, are great outcomes for the company, our shareholders and
for our community. We sincerely thank all our stakeholders for their faith
in us over the last twelve months."

The company notes that with the 2017 strategic initiatives continuing to bear
fruit and with the current state of the market, all other things being equal
the company is on-track for a good full year result.

For further information contact:

John Worth
Chief Executive Officer
+64 21 800 310
End CA:00314884 For:NWF Type:GENERAL Time:2018-02-28 13:27:23

[blackcap]

This is huge:

We continue to evolve our dynamic curtailment regime that governs how the turbines operate, essentially protecting them
from high-wear turbulent wind conditions. After extensive engagement through 2017, we obtained some operating relief
from the industry regulator, the Electricity Authority, which permits us to curtail in response to wind conditions and price.
In December, we put a multi-axis version of thisin place, and now every turbine on the wind farm “decides” when to operate
based on a range of wind parameters and price. In the first half of the year we have not had a single gearbox failure,
compared to a six-month failure rate of 6 in the previous year; it is clear to us we have really moved the dial on reducing
mechanical costs.

[Well Endowed]

I find this interesting too:

"Our new capital structure eliminates laziness from our balance sheet and prepares usfor further acquisitions."

[jonu]

This has always been a feel good investment that didn't pay.
It looks like they have finally turned that around and another form of environmentally friendly power generator will finally make a dollar.

[fish]

Its difficult not too buy at current prices.
We need more environmentally friendly generation.
However dirty deals are being done.
Meridian have just done a deal with genesis that allows coal to be burnt until 2030.
Clean coal will just never exist despite claims to the contrary.
A bit of green COALition political power needs to be brought into this power game.