HVDC upgrade must proceed

MAJOR ELECTRICITY USERS' GROUP

Sunday, 21st September 2008

HVDC upgrade must proceed

“The Major Electricity Users’ Group (MEUG) fully support Transpower’s proposed upgrade of the HVDC and re-affirm our support for the Electricity Commission’s intention to approve the expected cost of up to $672m,” said Ralph Matthes, Executive Director of MEUG.

“Tomorrow the Electricity Commission is holding a conference to hear final submissions from parties on the notice of intention by the Commission to approve the HVDC upgrade. The conference was requested by South Island generators, not because they oppose an upgrade, but because they wish to use the conference as a platform for complaining about who should pay.

“This is a poor reason for requesting a conference as they know that the ‘who pays?’ question and ‘should the work be approved?’ question have been and are subject to separate processes.

“South Island generators have had two attempts at trying to convince the Electricity Commission that their version of who should pay is correct. Others, such as MEUG put forward strongly opposing views. The whole process took over three years for the Commission to reach a final decision. It’s time for the South Island generators to move on.

“Meridian Energy reportedly said they will lose $1 billion if the HVDC upgrade is approved and the pricing methodology is not changed.

“What Meridian fails to explain is that if they gain $1 billion by changing the policy on who pays for the HVDC, then consumers will pay. This is illustrated as follows for the HVDC upgrade cost:

• Using the proposal by South Island generators that the $672m cost should be spread across all consumers through charges passed on by local distributors; then all consumers (including South Island consumers) bear a share of the cost.

• With the Electricity Commission decision to allocate HVDC costs to South Island generators, then those generators have to absorb the $672m cost as a fixed cost. Consumers in both Islands are better off because they have no automatically passed through HVDC costs.

“Charging South Island generators for HVDC costs also gives the correct economic signal to investors in new generation. For example take two identical new generation proposals, one in the South and the other in the North Island. From a New Zealand Inc. viewpoint the North Island proposal should be built first because that is where demand is highest. The way the Commission has decided who should pay HVDC charges ensure generation investors get the correct investment signal.

“The approval for the HVDC upgrade needs to be concluded ASAP and the Electricity Commission should treat with scepticism the calls by South Island generators to reopen again the question of ‘who should pay for the HVDC?’” concluded Mr Matthes.

ENDS

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