2 Operating Plan
2.1 Background
SISOE's major storage reservoirs comprise Lakes Manapouri and Te Anau, and Lakes Pukaki, Tekapo and Benmore. Lake Benmore is a "headpond" that has substantial storage and flexibility and is worth separate comment.
The Manapouri/Te Anau scheme is unique in that it can fill very rapidly (in one or two days) and empty very rapidly (in about one month), and operation of these lakes is unlikely to change after April 1999.
Of the other storage reservoirs, Lake Pukaki is the largest storage reservoir and is purposely designed for hydro storage. It also has very low recreational usage. Lake Tekapo has a high recreational usage and water flows from it via the Tekapo stations into Lake Pukaki.
Direct impacts from competitors on the operation of SISOE will be via Contact Energy's Clutha operations, and the requirements of the HVDC link. Indirect impacts are via market behaviour, especially where the HVDC requirements from the South Island are determined by competitive market mechanisms.
It is difficult to establish a quantitative Operating Plan in a market environment that is dynamic, and for a company that is yet to establish its own business process. The Operating Plan indicates future goals and directions that will be established during the organisational build of the company, which will in turn influence quantitative measures for future Operating Plans.
2.2 General Categories of Volatility
Volatility in terms of the way storage lakes and reservoirs are used can be categorised on a time basis. At one end of the scale, generation and river flows can change rapidly from hour to hour. At the other end of the scale, storage may be kept lower or higher on average, or lower or higher than is traditional at a particular time of the year. However, with these options there is a higher probability of running out of storage water. In addition, there are other points on this continuum, such as day-to-night, weekday-to-weekend and month-to-month volatility.
Volatility in the New Zealand market has increased since market inception. This is partly due to new market entrants (New Plymouth Power Station operating three units baseload has affected day/night volatility of prices and river flows, as has the Taranaki Combined Cycle Power Station). It is also due to the realisation that significant value is traded on an hour by hour basis, and flexible operation can assist in capturing this.
Figure 1 shows this in a stylised sense.
Figure 1 SISOE3 may take certain courses of action that increase or decrease overall volatility
Volatility may be accentuated by the commissioning of the Waitaki Automated Remote Control ("ARC") project, which will give greater flexibility and speed of response through upgraded control and governing systems.
Market volatility post-April 1999 is unknown. Volatility may increase due to competitive market pressures and significant competition, or it may decrease in an environment where generators do not behave aggressively. Many matters, including the degree of vertical integration of generators and the hedging strategies of energy companies will influence the results.
2.3 Possible Operating Scenarios
Three operating scenarios have been postulated, namely "highly aggressive", "passive" and "competitive".
In the highly aggressive scenario, SISOE uses as much storage as possible, even at the risk of running out of stored water. This may cause price wars, although it is likely that SISOE would take the view that it could outlast its competitors due to its robust balance sheet and assuming sufficient storage, and competitors would yield.
The competitive case is as modelled by ERTU, which provides for each generator acting commercially and reasonably, using its water in an efficient manner, and not entering into price wars (over long periods).
The passive case is where SISOE capitulates and allows other generators to run to keep the market price up. SISOE has much lower generation hence higher lake levels.
2.4 Reservoir/Region Based Comparisons
The following tables and commentary summarise the anticipated changes to river and lake management under the three scenarios mentioned earlier. The anticipated changes in operation are compared to the current manner in which ECNZ operates.
2.4.1 Manapouri Power Station
| | Hour-to-hour | Day/Night | Day-to-day | Seasonal |
| Highly aggressive | No change | No change | No change | Generally no change, but 2MTT may have lakes going down more quickly |
| Competitive | No change | No change | No change | As above |
| Passive | No change | No change | No change | As above |
Lake Manapouri is likely to be run in a "saw-tooth" type pattern where it is run hard at high lake levels then is progressively reduced in generation until a rainfall event fills the lake again. Due to the nature of the hydrology in the region Lake Manapouri and Lake Te Anau may fill even with the Manapouri Power Station operating at maximum generation.
The only likely change to operating strategy is due to the Manapouri Second Tailrace Tunnel project that will increase the ability to pass water through the power station (within its current consent limits the station will be able to pass up to 510 cumecs continuously as opposed to the existing flow of up to approximately 460 cumecs).
2.4.2 Upper Waitaki Hydro Scheme Including Pukaki
| | Hour-to-hour | Day/Night | Day-to-day | Seasonal |
| Highly aggressive | Minimal affect on Waitaki, possibly want to use Ruataniwha storage more | Ohau stations shutdown overnight and running hard during the day | No change | Lower Pukaki through the winter, possibly lower through the summer. |
| Competitive | No change | No change | No change | Pukaki has lower average storage |
| Passive | No change | No change | No change | Higher on average level in Pukaki |
Lake Pukaki's size and storage mean that significant changes in market behaviour in the short term are unlikely to have a visible or measurable impact on the lake level. Over the long term the storage profile may change. The lake could be drawn down to lower levels in the winter months, and may remain low for longer periods in anticipation of spring/summer inflows.
Conversely, with a passive operating scenario, depending on how SISOE Manages it generating portfolio, the levels in Lake Pukaki could be higher on average.
2.4.3 Lower Waitaki Hydro Scheme Including Benmore
| | Hour-to-hour | Day/Night | Day-to-day | Seasonal |
| Highly aggressive | Significant changes in generation/ river flow in lower Waitaki. May spill past stations to get as much generation as possible when prices/contracts are favourable | Very low overnight load - absolute minimum with full generation during the day. Large fluctuations in flows and Benmore storage | Possibly large weekday/weekend change in generation | No change |
| Competitive | No change | May not have the periods of high generation during the day for as long | No change | No change |
| Passive | No change | No change | No change | No change |
The likely areas of impact in the lower Waitaki are on the flows in the Waitaki River and in the storage of Lake Benmore.
Lately the Wholesale Market operation has required significant peak/off peak generation differentials with corresponding fluctuations in river flows. This is likely to continue, possibly even more so, as opportunities are taken in the market when prices, generation and contract position are favourable. These opportunities may only be short term and evaporate after a few half-hour periods.
The market generally has a higher degree of uncertainty and other generators' assumptions relating to when they start and stop operating, especially large thermals may have substantial impacts on hydro generators. This volatility was internally damped within ECNZ. SISOE is likely to be impacted significantly, as it will often have the most freeboard in the systems and is best placed to react quickly.
Lake Benmore's storage may be utilised to a significant extent to achieve these operational capabilities and the volatility of the lake level would increase.
Furthermore, there is a tension between recreational uses (e.g. users of boat ramps, campsites and houseboats) and the opportunities that exist via operational flexibility when major outages occur, usually on holiday weekends when system demand is low.
Given that Pukaki may need to spill more, one option is to spill along the lower Waitaki stations to prevent spill in the Pukaki River.
2.4.4 Tekapo
| | Hour-to-hour | Day/Night | Day-to-day | Seasonal |
| Highly aggressive | When Tekapo not at full load may try to pick up load in some periods, changes will be in canal flows only | No Change | No change | Higher chance of not meet Christmas "minimum" level for recreational use. Lake taken through a wider range than previously, but within the resource consents. |
| Competitive | No change | No change | No change | Tekapo may be kept lower on average (although Tekapo could be kept the same and Pukaki could take up the variation) |
| Passive | No change | Would back off to minimum load on weekends or overnight especially in summer | No change | Spill down the Tekapo river more often. Tekapo higher on average, possibly higher flood risk |
Generally, Lake Tekapo has more visible exposure to the public than other lakes, as the Tekapo township is sited on its banks. The lake is used frequently by recreational users. Therefore, the lake is currently operated by ECNZ with this concern in mind, and any necessary compensation in water levels is made at Pukaki.
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