Lake Hawea resource consent
Contact Energy Limited (Contact) holds a resource consent to use water from Lake Hawea for electricity generation provided the lake level does not fall below 338m.
A condition within the consent enables the water level to be lowered from 338m to 336m when:
the Electricity Commission (or any statutory body exercising like powers and functions to the Electricity Commission) determines that reserve generation capacity (such as that currently located at Whirinaki) should generate electricity.
In 2009, Contact sought clarification from the Commission about the link between that consent provision and the 4% hydro risk curve used by the Commission to monitor water available for electricity generation. This was clarified in the “Reserve generation and Hawea consent” letter sent by the Commission on 21 July 2009 (see Appendix A), which noted:
…the Commission accepts that Contact Energy's resource consent allows use of Hawea "emergency storage" when the Commission determines that reserve generation should generate electricity (i.e. when hydro storage falls below the 4% hydro risk curve).
This clarification enables Contact to have access under the resource consent to approximately 65 GWh of additional generation at Hawea when hydro storage falls below 4% on the hydro risk curve.
Section 127 of the Electricity Industry Act 2010 (Act) provides that the Minister may terminate the Whirinaki agreement at any time before its termination date. Until the Whirinaki agreement is terminated, the reserve generation scheme continues as if the Electricity Authority (Authority) was the Commission and the Act had not been passed.
Once Whirinaki is sold and/or the Whirinaki agreement* terminated, without further intervention, the Contact consent condition would be rendered inoperable and Contact could not access the additional two metres of water. The Act contains transitional provisions which provide a mechanism for accessing this “emergency” storage when security of supply is at risk.
Section 136 of the Act provides that:
- conditions in resource consents that refer to a determination by the Commission regarding reserve generation capacity must be read as if they referred to the Authority making a reserve supply determination;
- the Authority sets the criteria for making and rescinding a reserve supply determination;
- the Authority may make or rescind a reserve supply determination but only in accordance with criteria that are publicly available; and
- the Authority may delegate the power to make and rescind reserve supply determinations, in accordance with the criteria, to the system operator, but may not delegate the power to set the criteria.
A key recommendation of the Winter Review** was that “the Electricity Commission consider whether there are any steps that it can take to provide more certainty around the terms of resource consent access to ‘emergency’ generation resources where consents directly or indirectly make reference to the Electricity Commission.”
If reserve supply determination criteria are not published, Contact and the market will be uncertain as to whether storage is available and the quantity of this storage. This is precisely the situation that occurred in 2008 and that the Winter Review recommended needed to be addressed.
It is, therefore, important the Authority set and publish criteria, which are set out below for making reserve supply determinations prior to the sale of the Whirinaki power station, or termination of the Whirinaki agreement, so that Contact and the market are clear when additional storage capacity is able to be accessed.
The Authority has used this opportunity to create a standing reserve supply determination which will allow Contact to access the additional storage once the appropriate trigger event occurs.
Criteria for reserve supply determinations
In accordance with section 136(3) of the Electricity Industry Act 2010, the following are the criteria for making and rescinding a reserve supply determination applicable from the date of termination of the Whirinaki Agreement (Reserve Generation Capacity Agreement) between the Authority and the Crown:
(a) for making a reserve supply determination:
- The System Operator has published its analysis of hydro storage showing that the risk of storage being insufficient to meet future electricity supply needs is at or greater than 4% in either the South Island or New Zealand as a whole; or
- The System Operator has published information to indicate that in its opinion, the electricity system supply situation has reached the Security Alert phase, or higher.
(b) for rescinding a reserve supply determination:
- The System Operator has published its analysis of hydro storage showing that the risk of storage being insufficient to meet future electricity supply needs is less than 4% in both the South Island or New Zealand as a whole; and
- The System Operator has published information to indicate that in its opinion, the electricity system supply situation is no longer in the Security Alert phase, or higher.
Standing Reserve Supply Determination
In accordance with section 136(3) of the Electricity Industry Act 2010, the Authority makes the following standing reserve supply determination applicable from the date of termination of the Whirinaki Agreement (Reserve Generation Capacity Agreement) between the Authority and the Crown:
A reserve supply determination is made when:
- The System Operator has published its analysis of hydro storage showing that the risk of storage being insufficient to meet future electricity supply needs is at or greater than 4% in either the South Island or New Zealand as a whole; or
- The System Operator has published information to indicate that in its opinion, the electricity system supply situation has reached the Security Alert phase, or higher.
A reserve supply determination is rescinded when:
- The System Operator has published its analysis of hydro storage showing that the risk of storage being insufficient to meet future electricity supply needs is less than 4% in both the South Island or New Zealand as a whole; and
- The System Operator has published information to indicate that in its opinion, the electricity system supply situation is no longer in or above the Security Alert phase.
*Whirinaki agreement means the reserve generation capacity agreement entered into between the Electricity Commission and the Crown.
**An external review requested by the Commission of the performance of the electricity market during the winter of 2008 and the period leading into winter. The review examined dry year risk management during 2008, and identified options to improve the security of supply policy.