Wednesday, August 27, 2008

When Will the Electricity Shortage become a Crisis?

The updated reports on lake levels suggest the crisis was not averted - merely delayed.

The only reason the lights have not gone out so far this winter is because the electricity retailers have implored their commercial customers to turn off their machines. What sort of economic system is that? Some would say it is the market at work. Commercial customers are reacting to high spot prices and shedding turning off their machines. The market at work...

That is a overly simplistic. Those high spot prices are not being paid by domestic users who are insulated from the spikes so they are ignorant of the market forces. More importantly the high prices are a result of the addition of the "emergency" Whirinaki diesel generation to the cost curve.

The reason for the sustained high prices is the shortage of supply of electricity, not a sudden excess of demand. The prohibition on new baseload thermal generation by the Labour Government is at the root of this.

The lost productivity by having the commercial sector reduce demand is massive. Tiwai Point smelter is apparently 3,000 tonnes down because they have shut down some lines - prices for their commodity are more than adequate.

I have colleagues who have seen their spot prices double in the past 8 months - yet their demand has lowered! In the period Jan 06 - Jan 08 their spot prices were below contract. They are now 3 times contract. Meridian has been calling every day suggesting they shut down and offering to buy back the contract...

If asking major commercial users to significantly reduce demand is not a crisis what is?

There is plenty of demand at the long run marginal costs of new thermal generation. That the Government will not allow that generation to arise is the crisis.

Feel like you're living in the first world?

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