Economic and Environmental Constraints on Use of South Island Resources for Power Generation

Since the early 1990s it has been evident that electricity demand has outstripped investment in generation and transmission. At the same time, concerns were being expressed about the risks associated with the run down of the Maui gas field. It is axiomatic that the necessary investments firstly require a stable and supportive regulatory and fiscal environment, and secondly that such investments have long lead times. A unwillingness by successive Governments to fund the necessary infrastructure, however, lead to the profound restructuring of the electricity with the ultimate objective of transferring the investment risk from Government to the private sector. Successive power crises since 1992 result from a failure to put in place a regulatory framework necessary to provide the environment to allow the private sector to make the needed investments within the necessary timeframe. The electricity sector has now stabilised to the extent that the regulatory risks associated with generation investment have been reduced. This does not mean that risk has been eliminated, however, and both economic and environmental issues will continue to constrain investment in some power proposals particularly those in the South Island and especially any South Island coal or gas thermal proposal. This is firstly because of several very simple economic issues:  1. while the South Island may have significant coal resources it lacks a significant electricity market; 2. except for a six to ten week period in a dry year, low cost hydro will price any large-scale South Island thermal out of the market which will restrict any large scale thermal station to a dry year and/or peaking load; 3. except for a six to ten week period in a dry year, export capacity on the HVDC link to the North Island is constrained to around 964 MWe (and 482 MWe from North to South in dry years); and 4. construction of any new thermal plant in the northern half of the North Island will price any South Island thermal station out of the market. There are also significant environmental issues associated with the establishment of a large scale thermally based power station in the South Island. Because the South Island lacks any large scale economically proven gas reserves, the environmental constraints considered are those associated with coal production. A coal mine dedicated to power generation will have significant on-site impacts associated, in particular those associated with disposal of opencast overburden and visual impacts. These will, however, be partially offset by the relative remoteness of such sites to population centres. What cannot be offset, however, is the off-site impacts, in particular, CO2, SOx and NOx emissions, water disposal and acid mine drainage.