The announcement today that Genesis will retain the strategic electricity reserve at Huntly may not please everyone, but the importance of ensuring a stable electricity supply close to demand centres is paramount, says Stephen Selwood of the New Zealand Council for Infrastructure Development.
The Genesis decision gives the market a further four years to achieve an economically sustainable balance of peak and base load capacity to ensure the security of supply.
Theres no doubt that the overwhelming majority of New Zealanders including those who sit in the decision-making rooms of the Beehive, Genesis HQ and the generation and electricity network companies would love to substitute coal for a renewable electricity source.
However, this aspiration must be balanced against the practical realities of supplying critical electricity to homes and businesses when required.
Renewable sources are often difficult to turn on and off to meet peaks and troughs in demand.
Unless we want to regulate when people can turn on the lights, heat water, cook a meal or earn a living, we must have a reliable backup and coal and gas do this well.
Providing sufficient peak generation is a critical objective of an efficient and lower cost electricity system. The alternative is to overbuild less reliable sources, pass the cost onto consumers and still expose the country to the vagaries of wind, rain and sun.
Its worth noting that the decision to keep Huntly operational for a further four years does not necessarily mean the units will be turned on for the majority of this period. In fact, most of the time theyll be turned off.
Yet they will still contribute to a more resilient and flexible system in the face of uncertainty.
Up until a few years ago, electricity grew in a fairly constant trend with economic growth, but innovations led by heat pumps, solar panels and technology are changing this relationship.
Add to the mix the emergence of electric vehicles combined with the risk that supply will increase by 12 percent almost overnight should Tiwai Pt be closed and the next decade of electricity demand becomes impossible to predict.
If the extension of the Huntly reserve can help insulate the country against supply constraints and high wholesale electricity prices, which the market clearly thinks it can, then four more years of intermittent coal generation is the best all round option, Selwood says.