During the year Meridian published Options, Choices, Decisions – our contribution to the debate on energy options for New Zealand. We compiled the document to provide quality information so that policymakers, industry participants and all New Zealanders can make informed choices and decisions.

Below is a summary overview of some of the issues around energy supply and demand discussed in the document. For a more detailed discussion of these issues and a review of New Zealand's options you can also download the document.

The more we understand what influences electricity supply and demand, the better we can forecast for the future, plan projects and evaluate our ideas for new energy-saving initiatives.

Electricity Demand

New Zealand's demand for electricity has grown at an average rate of 2.2% over the past 20 years, reaching 41.5TWh of total consumption by 2005. (TWh = Terawatt hour = one billion kWh = one thousand GWh).

Our expanding economy is leading this growth. As our heavy energy consumers like dairy farming, forestry, metal smelting and agricultural-based products continue to succeed, their energy requirements continue to grow – even with energy efficiency initiatives. Population growth is also contributing to the demand for energy.

The government's economic growth objectives mean that demand should continue to increase well into the future.

We expect some reductions in the 2.2% demand growth rate though improvements in energy efficiency. Allowing for the impact of energy savings, we expect the average demand growth to be 1.5% per annum between 2007 and 2026. We expect electricity demand in 2030 to lie somewhere between 55,000 and 65,000 gigawatt hour (GWh). This equates to an increase of 30-60 percent in electricity production.

Electricity Supply

Overall, the wholesale market has operated so that additional capacity has been commissioned in response to demand growth. Due to this growing demand a significant amount of generation capacity has been added since the market began operating in 1996.

In recent years a range of new generation proposals has been put forward by both established participants and new entrants to the industry as market conditions have tightened. These proposals are at various stages, from initial pre-feasibility proposals through to committed projects.

The volume of new generation projects publicly known to be under investigation suggests the market signals to investigate and build new generation are being acted upon by a number of companies.

Already-committed projects should meet demand growth until 2009. However, there will be an ongoing need to provide additional generation capacity to match the likely growth in demand of around 500-900 GWh p.a.

Supply and Demand balance

The above graph shows New Zealand's historical generation output across all major sources against demand growth. The demand growth is forecast from 2006 as a potential range. Even with the most conservative demand growth assumptions, which include a high degree of demand side initiatives such as energy efficiency programmes, further generation capacity will be needed over time.

New electricity supply

Decisions on supply options are made based on their generation capability, cost of production, ease of obtaining consents and transport costs of the electricity generated. In general, the economic cost variation between various projects of the same generation technology, whether a coal, gas or renewable generation project, is greater than the cost variation between technologies. We therefore expect that new large scale electricity generation projects will include a mix of technologies. However, some uncertainty exists around gas reserves. If a large, low-cost gas discovery is not made, renewable generation is likely to fill a larger proportion of total new generation capacity.

Renewable generation will be further enhanced by recognition of the environmental costs associated with fossil fuels (through carbon pricing).