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3 March 2005

Keith Turner, Meridian Energy

 Minister, Distinguished Guests, Ladies and Gentlemen – Good morning and it is a pleasure to address this conference.

 It was almost a year ago that I last stood in this spot having the day before announced the decision to cancel Project Aqua.

 A dramatic moment maybe and not one that was easy for anyone but it was a decision made early in the interests of security of supply going forward.

 A decision that surprised. E3P and Aqua was going to fix security of supply for some time.

 In the meantime, economic growth is booming along even despite the setbacks of the 2003 energy shortage.

 Some year-on-year comparisons show growth approaching 5% this summer on last summer.

 On an annual basis electricity consumption appears to be growing at more than 3% per annum and that is 1000 GWh to 1250 GWh per annum.

 At this rate and with very little new energy supply coming on other than Te Apiti in the last 12 months, demand for electricity will have moved ahead of E3P by the time E3P is commissioned!!

 Let’s hope it keeps raining!

 There is no doubt that security of supply is a complex question.

 For that matter this is a very complex industry. There are so many elements that have to work together if consumers are to get the electricity they need when they need and at an affordable price.

 The complexity makes it hard for people outside the industry to understand what is going on and how security of supply is going to be achieved.

 Some say the Electricity Commission will fix everything. But the Electricity Commission doesn’t make the investment decisions - it can only create incentives.

 The trouble with incentives is that it takes a while to find out whether they work or not.

 And what’s more, it’s easy for anybody to oppose one component by arguing that it can be fixed elsewhere in the system.

 Don’t like hydro – coal’s the answer.

 Don’t like coal – wind is the answer.

 Don’t like wind – gas is the answer.

 Not enough gas – hydro is the answer.

 Don’t like transmission pylons – build power stations in cities.

 Can’t consent power stations next to cities – don’t like environmental effects.

 Don’t like the price – energy efficiency is the answer.

 Woops – don’t like blackouts either!

 It would be easy to say there was a golden age when all these complexities and tradeoffs were managed by only one organisation – I’m not advocating a return to the NZED, for those who might remember it.

 Then there was ECNZ, maybe some more of you will remember ECNZ in the late 1980’s.

 At least those organisations had the ability to balance all the variables and come up with an integrated solution that optimised the mix of assets to achieve the least cost but secure supply of electricity that the country could afford.

 What’s more, everyone knew who to blame for shortages in December 1992.

 As somebody who came through those ranks I have many affectionate memories of those days but would I return to them – well I’m certain that ECNZ was a great advance over the NZED.

 Let me pick on a very topical issue close to the hearts of Aucklanders – transmission.

 It is very easy to say – don’t want pylons – solve the problem some other way.

 But that ignores some very basic facts of life and it is about time some of these facts were brought to life.

 We all know that transmission is a natural monopoly – it is not economic to build a duplicate system and as a natural monopoly it provides a multitude of services to a multitude of users.

 It’s like roading - it serves the public interest.

 It is a network – what a simple concept – a network.

 But we hear much talk of alternatives to transmission lines. My view is that talk is just simply ill-informed.

 If there were alternatives to transmission lines, transmission networks would not be natural monopolies.

 The whole world has developed high voltage transmission lines in order to get electricity to consumers at the lowest possible cost.

 If there were alternatives, why would they have done this?

 If we could locate power stations close to load centres - why not?

 If the public wanted no transmission lines, how could developed nations have got away with them?

 Why has the industry spent so much research and development on being able to get more capacity down single way leaves or rights of way?

 The fact of life is that there are no alternatives to transmission lines that are economic or can deliver electricity at the cost that the consumer, currently enjoys.

 Of course there are alternative technologies. We could put it underground if we wanted to increase the price 5 to 10 times.

 We could build a DC link from the South Island to Auckland but at what cost.

 The fact is, transmission is a critical element of an efficient electricity system and it is absolutely fundamental to security of supply.

 I have been in this industry 37 years and I still remember as a young boy the stories of transmission being built across the Dessert Road and how those pylons were the pylons of progress marching across the country.

 The excitement of a country developing electricity supply to get to all homes, not just a few, and to supply electricity at what was then one of the lowest costs in the developed world.

 I support Transpower in revitalising the National Grid. It has been under-maintained, it is over-loaded, it is full of constraints and it is not serving New Zealand’s needs to the best of its ability today.

 It is 50 years old and it needs upgrading.

 And we need to upgrade it for the next 50 years, not the next 2 or 3 years.

 Of course Marsden B might defer the need for transmission into Auckland. But for how long – maybe a few years and that’s if Marsden B can be consented.

 I am an advocate of a strong and reliable National Grid and I believe it is only with a strong and reliable National Grid that New Zealanders will enjoy the security of supply that they need.

 It’s not long ago that we had the central business district of Auckland blacked out because of transmission failure. Well that was only local distribution cables.

 Imagine what it would be like if the High Voltage Grid into Auckland failed. Not just the CBD but the whole city could be in strife. What sort of reputation would New Zealand have? How on earth would we attract investment, commerce, growth and provide jobs for all those who live in this city.

 It is time for action and it is time for the industry to pull together to support what it knows must be done.

 I now want to turn to security of energy supply.

 The message here is to every New Zealander.

 Because it’s time for a wake up call to everyone.

 It’s time we made some decisions.

 Plans for a major overhaul of our transmission lifeline and a coal-fired plant in Northland are provoking a reaction that comes close to violence in the street.

 Nuclear’s off the agenda.

 Gas supply is declining.

 Existing hydro is being constrained.

 And at the same time as we’re ruling options out, our demand for electricity continues to increase.

 There’s only one way consequence if we let this continue.

 Security of supply will decline, not improve.

 We can’t keep ruling things out. We can’t keep sitting on the fence. The day of reckoning is drawing ever-nearer.

 While we’re happy to see the progress on E3P it’s only going to buy us a little time, especially the way demand has been fired up by a growing economy.

 So my message from this conference to all New Zealanders is that we have to start ruling some things in.

 We have to start making some choices and in my view the first choice has to be for renewables.

 We are an energy constrained power system.

 A large portion of our energy arrives in rain.

 This time last year, I remember one of the headlines – “Keith Turner looks into the energy future and it’s all black.”

 Yes – we may well need coal in this country to fuel power stations, but it won’t be needed in a hurry!!

 This country is blessed with extraordinary natural resources.

 We have been extraordinarily well off with our hydro power.

 And we are extraordinarily well off for wind.

 Our Project Te Apiti was commissioned last year in less than 12 months.

 We have an unappealed consent for our wind project in Mossburn.

 Meridian can identify over 700 MW of wind capacity in some of the best wind sites in the world that could supply in excess of 2500 GWh at costs around 6c per kWh and below.

 It is an extraordinary resource.

 New Zealand’s wind is probably the best in the world and there are remote landscapes that represent fantastic sites for its development.

 Not only that, but wind is a perfect complement to hydro.

 Believe it or not, wind on an annual energy production basis is nearly half as variable as hydro.

 Our data suggests that wind energy variability over a year is less than 7%, while hydro, as we all know, is around 15% and maybe even 20% in the very extreme.

 Wind is not the only possible source of renewable energy in this country for the future.

 We firmly believe that new hydro will continue to have its place.

 We have already identified a number of hydro sites that are environmentally benign and would represent excellent energy security for both the region where they might be developed and bring economic growth with them.

 So, I am delighted to say that renewable energy will form a major part of our future energy security of supply.

 If you put together what we can see for renewable energy, some of the possible geothermal developments, and the commissioning of E3P, then it is my view that we do not need to even consider building coal-fired power stations, or importing LNG for 10 or 15 years.

 Of course, we need to push for the discovery of more natural gas to fuel our existing gas plants.

 I believe strongly that New Zealand needs to be self-sufficient in electricity.

 We should absolutely not rely on importing energy for our electricity system.

 Many of you will have heard my comments on LNG last year.

 To make New Zealand’s electricity supply dependent on imported LNG - the major importers of LNG are China, Japan and the USA – will make New Zealand a pawn in what is going to be a global contest of the biggest economies in the world.

 Security of supply is a critical issue. You should not be surprised that I make comments about New Zealand’s transmission and about renewable energy because they both go together.

 There always appears to be clouds on the horizon in this industry.

 One cloud is the Electricity Commission’s decision on transmission pricing and the uncertainty that they have created on future pricing methodology.

 Another is the effect of the Waitaki Allocation Board on future output from the Waitaki system.

 A third is the time it may take to strengthen the National Grid.

 There is one simple conclusion. We will not maintain security of supply if we do nothing.

 For our part, Meridian has spent more than the cost of E3P on new energy supply.

 And we intend to bring to market some of the best wind and hydro resources in the world over the next 5 to 10 years.

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