1 May 2006

New Zealand wind turbine manufacturer Windflow Technology has received more than $30,000 from Orion, the Christchurch-based lines company for generating “both real and reactive” power over the summer period.  Reactive power is important for providing voltage control to keep electricity networks around the country working well, particularly those further from central generation, with increasing loads on their networks, and with capacity constraints.  Windflow’s turbine at Gebbies Pass (near Christchurch) is the only wind turbine in New Zealand that can support grid voltage during periods of high demand, and it supplies this ‘reactive power’ for Orion even when the wind is not blowing.  Typically the turbine outputs 550 kVAr’s (kilovolt-amps reactive).

In previous years Windflow has received about $20,000 for its contribution of mainly reactive power, but this year marks the first summer of full availability to generate real power (typically 200 kW, but up to 500 kW) as well – hence the increased revenue.

Orion rewards customers who supply electricity (real and/or reactive power) to the grid during “control periods” (periods of high demand).  By encouraging “distributed generation” (DG) during periods of high demand, Orion is able to reduce peak loads on its own grid and on Transpower’s transmission system.  This optimises the capacity of Orion’s grid, has delayed costly upgrades and provides a cheaper service to local electricity consumers.

“Orion is the only lines company in the Country to reward its customers in this way,” said Windflow CEO, Geoff Henderson.  “If other lines companies were to follow Orion’s example, wind farms using our technology would earn an extra 30% on top of their revenue from selling wholesale energy, at least some of the unpopular upgrades to Transpower’s transmission system could be postponed due to the diversity provided by embedded wind farms and other forms of DG, and we would conserve our precious hydro-electricity resources.  If the Government wants to encourage DG with all the security, competition and sustainability benefits it can bring, then they need to look closely at the Orion model of providing transparent, rational and consistent incentives for DG since the 1990’s.”  [See also the attached fact sheet and commentary on government reforms since 1990.]

In addition to the Orion payment, Windflow has an agreement with the Christchurch City Council to buy the power generated by the Gebbies Pass turbine.  “So we are being paid twice during periods of high demand,” said Mr Henderson,  “and that is a tribute to the farsighted policies of Orion and the unique technology of the Windflow 500 turbine.”

ENDS

Further information: Tim Armitage  tim@armi.co.nz  Phone 03 365 8960

Fact Sheet and Commentary:

Government Reforms of the Electricity Sector since 1990

Since 1990 the New Zealand Government has instituted various reforms of the Electricity Sector.  While these reforms have been successful in bringing an end to much of the “government-department” mentality of over-investment and gigantism which prevailed in previous decades, they have not delivered on some of their key objectives.  As an observer of these reforms and a frequent participant in the submissions process, it has been a frustrating to see it repeatedly over-promise and under-deliver.

At every step the key government objectives have been stated as:

a)                  promoting competition especially in the generation sector (since transmission and distribution are basically natural monopolies)

b)                  creating the right pricing signals as regards generation close to load (distributed generation or DG) versus transmission from remote (often large)     generating facilities

c)                  promoting sustainability by encouraging renewable power, energy efficiency and conservation.

Time and again I have found these statements encouraging because they seemed perfectly consistent with the small but competitive decentralised model in which wind power flourishes best, and energy efficiency is given more than just lip-service.  Plus there were some other perfectly rational reasons for New Zealand to embrace DG (whether wind or other forms of power generation).

Chief among these is the lumpy investment problem – New Zealand is simply too small an economy for large power stations of 400-500 MW and above to co-exist with a competitive model.  With each one representing 3-5 years of demand growth, competition becomes a non-starter.  Logically, if the government wants competition in generation (ie competition to build new generators), it needs to create a playing field which works for things like wind power, which can be economically installed in 25 MW increments.  Only then can you have several players building new generation each year, which is necessary for real competition.

But time and again the process has not delivered, or has been subverted in some way.  I won’t attempt to chart in detail the many twists and turns the industry has taken since 1990 but the end result is that we now have:

·        little real competition for new generation, with the lines companies being effectively shut out of generation and retail, and the barriers of entry to retailing too high for small independent power producers.

·        mixed messages in the transmission sector – South Island generators pay for “using” the Cook Strait cable, but lines companies pay for “using” the rest of Transpower’s assets.  Esoteric economic arguments (to which there is no absolutely right answer) have obfuscated the common sense solution that we should be erring in favour of DG by requiring the generators to pay all the costs of getting their product to market.

·        only one lines company (Orion) providing price signals to stimulate DG.  For the last 15 years or so, their innovative approach has demonstrably worked.  They have been able to defer the evil day when they must pay TransPower $500 million to upgrade the link from Benmore.

For me the message to government is simple.  Orion’s price signals work and should be implemented nationwide if the government wants to promote competition, sustainability and the security of supply provided by a diverse range of DG and energy efficiency measures.  Other steps will be needed, but that would be a good start.

Geoff Henderson, 1 May, 2006