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Power Companies Needed More ‘Commercial Incentive’ To Keep The Lights On


Energy

As a ministerial inquiry criticises electricity generators and the grid operator for communications failings, this week’s Tekapo blackout suggests some lessons have been learned from the cold winter night that the lights went out

Jane Staley at the Greedy Cow café reckons she missed out on about 100 customers when the power blacked out yesterday. None of the signature big breakfasts; no popular eggs benedict, and no coffee on a chilly morning.

“It was a kick in the ass actually,” she says. “We still had people coming in the door not realising that the power was off. Yeah, and most of them wanted coffee, coffee, coffee, coffee….”

But when Transpower’s 110KV line went down, she was told the electricity would be off till after lunch; instead Genesis Energy cranked up its nearby Tekapo A hydro turbines and had the town (population 500) humming again not long after 10am.

Locals hope it shows the national grid operator and the power generators are communicating better, after robust criticism from the Electricity Authority and then, yesterday, a ministerial investigation into the big August 9 power outages. On that night – the coldest in the year in regions like Waikato that were worst affected by the blackouts – power was gut to more than 34,000 households.

Energy Minister Megan Woods said yesterday that she was writing to the chairs of Transpower and the Electricity Authority requesting they consider the investigation’s recommendations, and provide her with quarterly updates on progress.

The inquiry found blackouts on the coldest night of the year should have been entirely avoidable, but for a “shambolic” demand reduction process. Moreover, the big generators, Genesis and Contact didn’t have enough “commercial incentive” to start their big gas and coal generators in the days before.

“I do not want households to be put in this situation again,” Woods said. “Kiwis deserve more.”

The investigation was led by former minister Pete Hodgson with specialist technical advice from Erik Westergaard and secretariat support from MBIE. One of the root causes, they find, was the lack of market pricing signals to provide sufficient commercial incentive to start-up either Contact’s Taranaki Combined Cycle unit (377 MW) or Genesis’ third Huntly Rankine unit (240 MW) in time to help supply the Monday evening peak demand.

“This was rational and sensible as a generator operating in the wholesale market. We don’t think it is realistic to expect generators to disregard their portfolio position and, by extension, disregard maximising renewable generation over thermal generation.”
– Mike Fuge, Contact Energy

In the days afterwards, Genesis chief executive Marc England and Contact boss Mike Fuge insisted they didn’t have sufficient warning to start up those plants, which take hours or even days to warm up. But Transpower said it had been warning for weeks of cold weather, escalating demand and scheduled outages at hydro plants in the South Island.

At the time, Megan Woods criticised the failure to power up those plants; now, Hodgson’s report also raises questions. He says remarks in the immediate aftermath, by England and Fuge, were “unfortunate”.

“Genesis said that they had enough generation to supply their own customers and Contact said they did not run TCC to avoid spillage at Lake Hawea. Both companies must surely have known that in the New Zealand electricity market such remarks were unhelpful, and the swift and adverse reaction from others demonstrated that they were also provocative.

“We do not comment on Contact’s or Genesis’ decision-making on and in the days before 9 August, but at face value it appears the forecast prices provided insufficient incentive for them to offer their slow start plant.”

“There are important learnings from 9 August for our industry, and we look forward to working with Transpower, the EA and other participants to reduce the risk of this happening again.”
– Genesis Energy

Genesis Energy is being perhaps more careful, this time, issuing only a very brief statement in response. “We all want a national electricity system that is reliable and provides security of supply for all,” the statement reads. “Many of the findings in today’s report are consistent with findings from Phase 1 of the Electricity Authority’s review of the 9 August events, and the independent reports commissioned by Transpower.  Today’s report identified demand response, process and communications issues amongst the key contributing factors to the 9 August outages.    

“There are important learnings from 9 August for our industry, and we look forward to working with Transpower, the EA and other participants to reduce the risk of this happening again.”

But at Contact Energy, Mike Fuge was more forthcoming.

Asked the extent to which the electricity market price was a factor in the decision to not crank up TCC, he reiterated that the TCC at Stratford had been shut down since July 30.

That was based on demand forecasts, and in order to prioritise the use of renewable generation. “We always aim to maximise renewable generation (over thermal generation) to meet demand when there is a renewable option available,” he said.

The company said at the time that the 25-year-old gas-fired TCC was shut down in order to use the water down south to generate at Clyde Dam, and minimise water spill from Lake Hawea. The gas plant required 72 hours to start up, and was poorly suited to filling short-term capacity in a market where electricity supply strongly exceeded demand.

Fuge rejected the report’s criticism of those comments as provocative. “Our comments were straight-up and transparent about our approach,” he told Newsroom this week. “This was rational and sensible as a generator operating in the wholesale market. We don’t think it is realistic to expect generators to disregard their portfolio position and, by extension, disregard maximising renewable generation over thermal generation.”

Small power companies Electric Kiwi and Haast Energy have laid official complaints about Genesis and Contact for allegedly abusing their market position. Those complaints are still being investigated by the Electricity Authority, but Fuge said he strongly refuted them, and any suggestion that Contact had not operated with high standards of conduct.

“The market design is such that no generator ever has absolute certainty in advance about what price they’ll receive for generating – but we believe there were ample signals that the third Huntly unit was required and that the price it received would significantly exceed its costs.”
– Phillip Anderson, Haast Energy 

Electric Kiwi chief executive Luke Blincoe said today the comments in the ministerial inquiry about commercial incentives, “certainly shone a large light on the motivations of Genesis’ trading behaviour”.

And Haast Energy managing director Phillip Anderson said Genesis’ Marc England had articulated on a number of occasions that it didn’t start up the third coal-powered Huntly unit because it didn’t need it to meet its own customers’ demand. “We believe this approach breaches the Code,” he said this morning.

“Transpower was forecasting record demand before 6am on August 9, and a notice was issued at 6.42am alerting the market of a potential shortage. The market design is such that no generator ever has absolute certainty in advance about what price they’ll receive for generating – but we believe there were ample signals that the third Huntly unit was required and that the price it received would significantly exceed its costs.”

That said, the inquiry report reveals that there should have been sufficient generating capacity available to avoid blackouts. The primary problem was in Transpower’s communications, and how the power plant operators interpreted them – and that’s been confirmed by Transpower’s internal inquiries, by the Electricity Authority, and now by the ministerial inquiry.

All the players have confirmed they could do better in the future, and have vowed to do so.

Transpower chief executive Alison Andrew said the company had taken the opportunity to review its communications and improve them. “We will be running industry exercises at least annually in the future to ensure that communication is clear and well understood between Transpower and the rest of the industry,” she told Newsroom.

This week’s Tekapo outage was one of the first tests of that commitment to better communications.

“There’s always going to be some knockouts, for various reasons, but they need to be managed. And that’s what we’re asking for.”
– Graham Smith, Mackenzie District mayor

Andrew said a circuit on the Tekapo line tripped just before 8am, resulting in the loss of supply to approximately 700 connections in Tekapo Village. “We immediately got a crew out to inspect the line,” she said. “We were able to reconnect all consumers in Tekapo within approximately 2 hours through some reconfiguration while we continued to work with Genesis to find and fix the fault.

“After inspection, no fault was found. Given the time of day and the season, it is likely the issue was caused by birds. The line was then returned to service. 

“As soon as we were made aware there was an issue we contacted key stakeholders to advise them of the issue. We continued to keep them updated until the issue was resolved.”

Alpine Energy boss Andrew Tombs and Mackenzie District mayor Graham Smith have been looking into what went wrong yesterday, and what went right. After the 110KV line tripped at 7.55am, the prognosis was bad. 

But Genesis Energy was quick to step up with a “black start” to its Tekapo A turbine, Tombs tells Newsroom.

Smith agrees. He has read an inquiry report on the August 9 outages, and says there have been communications failings between Transpower and the gentailers.

“They need to communicate between each other – this is about supply and the Government needs to make sure that happens,” he said.

“This time, Genesis made the call to put in some extra power to Tekapo. Genesis are local and own that Tekapo power station, so maybe they realised the issue and and got straight onto it. There’s always going to be some knockouts, for various reasons, but they need to be managed. And that’s what we’re asking for.”



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