Power cuts: what went wrong and is it over?

Energy Minister Megan Woods responds to the power cuts in August, 2021,ahead of the subsequent inquiries into the incident.

ANALYSIS: The electricity industry is in the dog house with consumers and the Government after power cuts on Monday evening.

While there is hope the immediate crisis may be over, the power cuts did not come out of the blue.

More embarrassment is likely to be heaped on the industry on Wednesday when Stats NZ will release figures that should show carbon emissions from power generation surging in the first quarter of this year.

Just like the housing crisis, the supply and demand problem in the power industry isn’t one that the Government is going to be able to solve overnight, but the pressure to show it has a convincing plan has just ratcheted up a couple of notches.

What went wrong on Monday?

The shorter answer

Firstly, there was a cold snap caused by a passing polar storm that sent temperatures plunging across the country and pushed up demand for heating.

Secondly, it appears the storm stirred up weeds preventing electricity generation at Genesis Energy’s 240 megawatt Tokaanu hydro power station on the Tongariro River.

As bad luck had it, wind speeds also dropped during the evening, reducing the contribution of wind generation.

Transpower sent out an advisory to generators at 6.42am on Monday noting it had concerns about meeting peak evening demand and followed that up shortly after 1pm with a warning advising them put more generation into the market.

It was not until 5.10pm that it advised of a grid emergency.

Transpower issued an emergency warning at 5.10pm on Monday asking generators to make more power available
Tom Pullar-Strecker/Stuff
Transpower issued an emergency warning at 5.10pm on Monday asking generators to make more power available

Genesis said that by then it was too late for the company to fire-up the third Rankine coal-fired turbine at its Huntly power station in time for it to help meet the peak evening demand.

That third Rankine unit was pressed back into service in February because of probably temporary issues with gas supply and concerns a drought might impact hydro generation.

Since then, the turbine has been helping burn up hundreds of thousands of tons of Indonesian coal.

Genesis said other generators might also have had issues affecting their ability to generate at capacity, but did not elaborate.

On top of that, Transpower admitted it had asked some power companies to cut twice as much demand as was needed, due to an error.

About 20,000 homes in the central and eastern North Island lost power.

But chief executive Alison Andrew believed some power cuts would have been inevitable even had that mistake not been made.

Prime Minister Jacinda Ardern and Energy Minister Megan Woods made clear on Tuesday they had lots of questions over whether generators had done all they should.

Questions are also inevitable over the timing of warnings from Transpower.

The longer answer

All of the above, plus a lack of investment in new renewable generation during most of the past 10 years.

The fact gentailers have been wondering for much of that time whether the Tiwai Point aluminium smelter might close, releasing 572 megawatts of excess generating capacity on to the market, hasn’t helped.

Weeds stirred up by the storm impeded generation at the Tokaanu power station, Genesis Energy said.
Steph Rangi/Stuff
Weeds stirred up by the storm impeded generation at the Tokaanu power station, Genesis Energy said.

But the electricity market model provides strong disincentives against power companies bringing on extra capacity until they are sure it will be fully absorbed.

The International Energy Authority noted arguments that the kind of market model New Zealand has adopted could result in underinvestment in new generation as far back as in 2001.

Major Electricity Users Group chairman John Harbord warned in April that generators were incentivised to keep the market on the “precipice of shortage”.

He said on Tuesday that he couldn't yet comment on whether that was an underlying cause of Monday’s power cuts.

But a fall off the precipice there was.

Enerlytica analyst John Kidd repeatedly pointed out this year that gas shortages and low lake levels earlier in the year meant power supplies would be vulnerable if there were any unexpected power plant outages.

So it has proved.

Is the crisis over?

For now, it seems to be.

Transpower issued an emergency notice on Tuesday morning warning again of insufficient generation.

But its worries eased after the country squeaked through the morning rush shortly before 9am without power cuts.

Woods said she was seeking assurances from power companies about the situation during the next period of peak demand on Tuesday evening.

But Metservice is advising that by then the polar storm will have moved further away from the coast.

With southerly wind speeds dropping and temperatures forecast to be higher than last night, the risk of an immediate repeat of Monday’s night power crisis seems low.

An encouraging sign is that spot market electricity prices settled down to about 17 cents a kilowatt-hour by lunchtime on Tuesday, after spiking at above $110/kWh on Tuesday morning and $200/kWh on Monday evening.

But the underlying problems that led to power cuts on what was arguably just a somewhat nippy winter’s day remain.

Who pays?

People who had their power cut off and spent the night freezing.

ElectricKiwi chief executive Luke Blincoe doesn’t believe anyone will have to pay the quoted price of $200/kWh for spot power.

That is just as well given that, at that the price, the cost of running a typical electric column heater for an hour would be about $400.

Blincoe says he believes those astonishing spot prices were “infeasible prices generated by the system operator”.

“When the market does actually close, those infeasible prices drop back down.”

But there is little doubt incidents like Monday’s power shortage do push up wholesale prices, and hence ultimately to some degree the price paid for power by all consumers.

The real loser from Monday may be the big gentailers themselves, however.

They have been defending the current electricity market model, under which they have made large profits.

A 2 kilowatt electric column heater would have cost $400 to run for an hour based on spot market prices quoted at one point on Monday night.
A 2 kilowatt electric column heater would have cost $400 to run for an hour based on spot market prices quoted at one point on Monday night.

One task the market is supposed to do better than a more planned system is to match supply and demand without resulting in huge extremes in pricing or excesses or shortages of generation.

Clearly, it did not achieve that outcome on Monday.

The Electricity Authority is due to wrap up a review of the electricity market early next month.

In April, the authority described the market as “well-regarded internationally” and said it was “doing the job it is designed to do”.

In the cold winter light of Tuesday morning, that is looking even tougher to defend.

Blincoe says he’d like to think it wouldn’t take “such a failure” to create the right regulatory outcomes, but says the power cuts can’t help but focus minds.

“Consumers are over-paying for an unreliable service now; it just gets worse.”