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• 9. Security of Supply

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In a parallel study we have explored the likely impact of Project Aqua on security of supply in the period 2008 - 2012.²⁹

The following summary is an extract from the report on that study.

Initially, Project Aqua (as proposed) could enhance security in the short term through:

• Higher average South Island storage leading into winter:

  1. Due to extra South Island supply over spring/summer relative to demand/ HVDC constraints.
  2. Note that our analysis assumes the same April start storage in water terms for with and without Aqua scenarios but modelling suggests disproportionately higher GWh end storage levels in the with Aqua scenario
  3. In hindsight, based on the scenarios modelled, it would appear reasonable to increase the start storage level in the with Aqua scenario relative to the without Aqua scenario. The hydro risk profile analysis discussed in Section 8.3 would then more clearly show the initial security benefits described in Section 8.1.
• Lower rate of storage decline in winter due to extra Aqua supply.

Without further analysis of different scenarios, especially different transmission scenarios, it is difficult to say how the above benefits would alter over time. However, it is possible that:

• The initial effects described above could diminish as demand grows and the mix of non hydro and hydro supply continues to alter (earlier with transmission investments).
• Project Aqua is unlikely to alter the underlying hydro variability risk profile during the relevant April to September period in 2011. However, minimum storage benefits are suggested in relation to the proportionally greater generation that can be produced from a nominal storage level.
• Insufficient winter storage to ensure Aqua minimum flows, albeit unlikely, would increase security of supply risks. This possibility needs to be confirmed one way or another with Meridian Energy although our modelling indicates it is unlikely to be a problem.

The report is therefore suggesting that, for the period 2008-2012, Project Aqua is unlikely to have a significant impact on security of supply, but may enhance it slightly in the short term. The question of Project Aqua's longer term contribution to security of supply has not been addressed in this analysis. It has been suggested³⁰ that Aqua may reduce security of supply relative to other alternatives because of the inherent variability of hydro production. Further detailed analysis, extending beyond the 2008-2012 period, would be necessary to gain a full insight into Aqua's longer-term impact on security of supply.

In developing the two scenarios for the economic evaluation, we have sought to establish similar levels of security of supply. We have achieved this by commissioning new power stations and by observing the pattern of dry year operation of New Plymouth and Whirinaki. The power station commissioning schedules have been tuned to achieve similar dry year running patterns at New Plymouth and Whirinaki throughout the simulated period to 2020. This approach suggests that there should be no explicit penalty against Aqua in the economic evaluation, purely on security of supply grounds.

Our central case economic evaluation therefore contains no explicit penalty against Aqua related to security of supply. However, as a result of unresolved concerns that Aqua could lead to reduced security of supply, and that the Electricity Commission may feel obliged to consider investing in more reserves to cover Aqua, we have tested the sensitivity of our analysis to the need for additional reserve capacity. The approach is outlined in Appendix 2.

²⁹Project Aqua: Potential Security of Supply contribution in 2011/12.

³⁰Project Aqua: Security of Supply and Cost Impacts; Covec, January 2004.