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(Last updated: 31 Jul 2007)
Trends and opportunities
The market
The energy and utilities industry contributes around three per cent to New Zealand’s Gross Domestic Product (GDP) and employs around 9000 people. Total yearly electricity production is approximately 9500 gigawatt hours. New Zealand 's energy consumption is growing by about two per cent a year. In comparison, energy demand is growing by 2.5 per cent per annum in Australia and at over four per cent in the overall Asia-Pacific region.
Beginning in the 1990s, the New Zealand Government instituted policies to bring competition, deregulation and private enterprise to the electricity industry.
The New Zealand Government separated the energy industry into distinct areas:
- generation
- transmission
- wholesale electricity market
- distribution
- retail
The government divided the state-owned electricity generation and gas assets between the Electricity Corporation of New Zealand (ECNZ) and a new competitive entity, Contact Energy. The government legislated for power companies to separate their distribution (lines) and energy retail businesses, and restricted cross-ownership.
The company, M-co – established in 1993 as a joint venture company by the electricity industry – was set-up to design, implement and operate a wholesale electricity market in New Zealand. M-co continues to act as the administrator of the market.
The New Zealand electricity market went live on 1 October 1996.
Contact Energy acquired nine retail energy businesses in 1998. Contact Energy is largest supplier of energy to business and consumers in New Zealand with over 620,000 customers in New Zealand. The government privatised Contact Energy in 1998 via a public and private share float.
E CNZ was separated into three competing state-owned enterprises: Genesis Energy, Mighty River Power and Meridian Energy Limited. These businesses remain state-owned.
The transmission system remains a state monopoly. Transpower, as a state-owned enterprise, is the grid operator, scheduler and dispatcher for the wholesale market. A number of public and trust-owned distributors (line companies) are responsible for connecting premises to the grid system.
Renewable resources, mainly hydro (over 60 per cent) and geothermal (over 6 per cent), meet around 75 per cent of New Zealand’s electricity demand. South Island hydroelectricity generation accounts for two-thirds of total hydro-generated power while the North Island accounts of all the geothermal electricity generation.
Natural gas (over 20 per cent), coal, wind and landfill gas are the other methods of power generation.
With more than 60 per cent of electricity generated by hydro stations, New Zealand is extremely vulnerable to adverse weather conditions for electricity supply. Low inflow rates into the South Island’s hydro lakes threatened supply security in 2001 and 2003.
In response, the New Zealand Government amended the Electricity Act in 2004 to have the Electricity Commission take control of the New Zealand electricity market from the self-regulating bodies, the MARIA Governance Board (MGB) and the Rules Committee of the NZEM.
The government strengthened the Electricity Commission and made it responsible for ensuring excess generation capacity to compensate for dry periods. A levy on all electricity use financed the cost of building the excess capacity. The events of this period caused a rationalisation of the generators and retailers of energy supplies.
New Zealand’s gas reserves are depleting rapidly, with the main Maui gas field due to be depleted by 2007.
There have been some recent successful oil finds in New Zealand, but, with the existing known gas supplies in NZ due to run out in 2015, NZ will be forced either to prospect for new gas or import supplies.
Opportunities
The general areas in the New Zealand energy and utilities industry which can provide opportunity for Australian suppliers include:
- Renewable energy technology, including wind
- Electricity co-generation, such as biomass
- Electricity network system augmentation
- Distributed electricity generation
- Small water and waste water reticulation systems
In respect to water and wastewater, the major trend is small reticulation systems for small communities, particularly in the case for wastewater. New, inventive and economical systems for this type of application are always of interest.
Specific New Zealand projects in development include:
- Genesis Energy E3P Project (400 MW)
- Transpower upgrade to the core NZ national grid
- Watercare, Project Hobson, sub-marine sewerage pipeline
Competitive environment
The New Zealand market has a sophisticated energy trading market conducted through M-co’s Internet-based system, COMIT. This system is primarily used by the seven main generator/retailers trading at 244 nodes across the transmission grid. Up to 80,000 orders are placed each day.
Competition for retail customers varies across the country but since 1999, when full retail competition was introduced, customers have switched at a rate of about 12 per cent per annum.
The largest electricity-using sector is industry including aluminium smelters, iron and steel works, several pulp and paper mills and large dairy factories.
The New Zealand market will require new generation capacity to meet future demand and replace depleted resources and energy generation companies are looking at alternatives such as distributed generation, micro hydro-stations, co-generation and other renewable resources.
Changes in regulatory environment and the competitive structure are being considered to ensure that private investment continues to develop the energy capacity. Government decisions on supply security, delays in project approvals, carbon-tax, water rights, environmental impacts and consumer protection are some factors affecting investment decisions.
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