Grid Upgrade Plan 2009 Instalment 1 - Part III: Wanganui-Stratford Transmission Investment Proposal
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SEPTEMBER 2009 Grid Upgrade Plan 2009 Instalment 1 Part III: Wanganui-Stratford Transmission Investment Proposal
Wanganui-Stratford Investment Proposal
Document Revision Control
Document Description Date
Number/Version
001/Rev A Wanganui-Stratford Transmission Investment July 2009
Proposal
001/Rev B Wanganui-Stratford Transmission Investment September 2009
Proposal
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reservedWanganui-Stratford Investment Proposal
Executive Summary
The purpose of this Wanganui-Stratford Transmission Investment Proposal is to obtain
Electricity Commission (the Commission) approval to recover the full costs (up to $44.1
million) associated with reconductoring the Wanganui–Stratford A 110 kV line.
Proposal at a Glance
What: Reconductor and upgrade of the Wanganui–Stratford A 110 kV line
When: Commencing in 2009 and commissioning in 2011
How much: Transpower is seeking approval for up to $44.1 million
Background
At present, Hawera, Waverley and some of the Wanganui load are served from the
single circuit Wanganui-Stratford A 110 kV transmission line.
The Wanganui–Stratford A line was originally built in 1931 and condition assessment
indicates that the copper conductor and many of the wooden pi-pole structures are at the
end of their useful lives and should be replaced as soon as possible. Failure or removal
of the Wanganui–Stratford A line would leave existing customers at Waverley unserved
and would reduce the reliability of supply to customers at both Wanganui and Hawera.
The Hawera load includes the Fonterra dairy factory.
In addition, the Kiwi co-generation plant and Trustpower’s Patea hydro generation inject
into the grid at Hawera.
Technical studies have shown that the capacity of the existing line is adequate to meet
forecast load requirements. However, the Wanganui–Stratford A line is an important
through link between Taranaki generation and Wellington/HVDC and several wind farm
developers are considering new generation between Hawera and Wanganui.
Reconductoring with the existing capacity would constrain the south power flow along
the parallel 220 kV circuits for an outage of one of the 220 kV circuits and the amount of
new generation that could connect to the grid.
Process to date
In October 2008, Transpower issued a consultation document outlining the assumptions
and approach to be used in the investigation into the preferred solution for the
Wanganui-Stratford line as well as the long list of options under consideration. The
consultation document also acted as a Request for Information (RFI) on any other
options.
This was followed by a stakeholder forum on 28 November 2008, held in New Plymouth,
to further elaborate on the consultation document and provide an opportunity for
stakeholders to discuss related issues directly.
Feedback was received at the forum and three written submissions were received.
The feedback and submissions all supported the need for investment. The main points
raised related to the need to maintain n-1 security at both Hawera and Wanganui and
allowing for future wind generation development in the area.
The long list for the Wanganui–Stratford A line investigation was then refined to a short
list, as set out in this document.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved IWanganui-Stratford Investment Proposal
Options considered
The long list comprised twelve options including dismantling options, reconductoring
options and new line build options.
The new line build options were not considered feasible given that these may take
between 5-7 years, given the need for a solution in the next 1-2 years and given their
high expected cost, but the other nine options were taken forward to the short list for
further analysis.
Two replacement conductors were considered - a “like-for-like capacity” conductor and a
higher capacity conductor. Given the basis for considering a higher capacity conductor is
maximising use of the existing corridor and is related to the connection of new
generation, it was decided to consider the highest capacity which could be strung without
having to effectively re-build the line.
The “like-for-like capacity” conductor was chosen to be Coyote, operating at 50° C, which
would provide 57.1 MVA summer capacity.
The higher capacity conductor was chosen to be Nobelium, operating at 90°C, which
would provide 153.6 MVA summer capacity.
The table below shows the short-list options to which the Grid Investment Test (GIT) has
been applied. A reference case is required for the purposes of the GIT and this was
chosen to be the minimum cost option, which was to dismantle the Wanganui-Hawera
section of the line, reconductor the Stratford-Hawera section with a like-for-like conductor
and connect Waverley to the nearby Stratford-Brunswick 220 kV lines.
Table 0-1: Short-list of options
Short List Options
Reference Reconductor Stratford–Hawera with Coyote at 50°C.
case Dismantle Hawera–Waverley and Waverley–Wanganui.
Connect Waverley to 220 kV.
Option 1 Reconductor Stratford–Wanganui with Coyote at 50°C.
Option 2 Reconductor Stratford–Wanganui with Nobelium at 90°C.
Option 3 Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Reconductor Waverley–Wanganui with Coyote at 50°C.
Option 4 Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Reconductor Hawera–Waverley with Coyote at 50°C.
Dismantle Waverley–Wanganui.
Option 5 Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Dismantle Waverley–Wanganui.
Connect Waverley to 220 kV.
Option 6 Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Reconductor Waverley–Wanganui with Nobelium at 90°C.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved IIWanganui-Stratford Investment Proposal
Short List Options
Option 7 Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Stratford–Hawera.
Reconductor Hawera–Waverley with Nobelium at 90°C.
Dismantle Waverley–Wanganui.
Option 8 Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Hawera–Stratford.
Dismantle Hawera–Waverley.
Dismantle Waverley–Wanganui.
Connect Waverley to 220 kV.
Option costs
The costs have been estimated at a level of accuracy commensurate with the capital
expenditure for the various investment options.
Application of the GIT
The GIT assessment shows that the preferred option from an economic perspective is
Option 2 – upgrading the line with a higher capacity conductor. This option maximises
the expected net market benefit.
Table 0-2: Grid Investment Test Results
Option 1 New conductor
Option 2 New conductor
Waverley–Wanganui
Waverley–Wanganui
Option 3 Dismantle
Option 4 Dismantle
Option 5 Dismantle
Option 6 Dismantle
Option 7 Dismantle
Option 8 Dismantle
Hawera–Wanganui
Wanganui–Hawera
Hawera–Waverley
Hawera–Waverley
Reference Case
Coyote @50°C
Coyote @50°C
Coyote @50°C
Coyote @50°C
Nb @90°C
Nb @90°C
Nb @90°C
Nb @90°C
Present
Value,
$million,
Capital
31.8 31.9 39.3 37.5 35.1 44.4 42.4 39.3 46.2
costs
O&M costs 1.6 6.4 6.4 4.4 3.6 1.6 4.4 3.6 1.6
Reliability
-12.3 0.0 0.0 -2.6 -5.9 -0.6 -2.6 -5.9 -0.6
benefit
Dispatch
0.0 9.8 15.5 -2.9 -1.1 0.0 9.7 12.6 16.5
cost benefit
Terminal
-3.5 -4.3 -1.9 -10.3 -9.7 -0.6 -5.0 -3.5 -0.5
benefit
TOTAL =
Costs- 49.1 32.8 32.1 57.7 55.5 47.1 44.7 39.7 32.4
Benefits
Expected
Net Market - 16.3 17.0 -8.6 -6.4 1.9 4.4 9.4 16.7
Benefit
It was observed that three options – Option 1, Option 2 and Option 8 produced virtually
the same Expected Net Market Benefit, within the accuracy of the input assumptions and
formulation of the GIT analysis.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved IIIWanganui-Stratford Investment Proposal
Sensitivity analysis demonstrated that the results are sensitive to the input assumptions,
namely discount rate, capital cost, operating and maintenance costs and the particular
choice of market development scenario. Option 2 (reconductoring the entire line with
Nobelium at 90°C) satisfies the GIT in the base results and eight of the sixteen
sensitivities. Option 8, dismantling the Hawera to Wanganui section of the line, building a
new single circuit line between Stratford and Hawera and connecting Waverley to the
nearby Stratford-Brunswick 220 kV lines, is the most economic option in seven of the
sixteen sensitivities.
The sensitivity analysis was conducted over all five market development scenarios, but it
was also observed that Option 2 is more clearly favoured in market development
scenarios which include new wind generation connecting at Waverley.
Given the closeness of the results however, Transpower also considered other non-
quantified differences, as a means of helping to differentiate between the options. A
qualitative assessment of these benefits against each of the options is described in
Table 5-3 below. The benefit for each option has been qualitatively ranked between 9
and 999.
Table 0-3 Qualitative assessment of non-quantified benefits and overall preferred option
Item
Reference
1
2
3
4
5
6
7
8
Case
Option
Option
Option
Option
Option
Option
Option
Option
Expected Net Market
- 16.3 17.0 -8.6 -6.4 1.9 4.4 9.4 16.7
Benefit
Other differences:
o Option benefits 9 999 999 9 9 9 9 9 9
o Consumer benefits
through enhanced 9 99 999 9 9 9 99 99 9
competition
o Wider economic
benefits
9 99 999 99 99 99 99 99 99
o Minimises
disruption 9 9 999 9 9 9 99 99 99
o Diversity benefits 9 99 999 9 9 9 9 9 9
o Operational
benefits 9 999 999 99 99 99 99 99 99
o Aligns long term
grid development
9 9 99 999 999 999 999 999 999
o Aligns NZ govt
environmental 9 99 999 99 99 9 99 99 9
goals
Overall ranking 2 1 3
This qualitative assessment does help, because it demonstrates that Option 2 has
advantages over other options, over and above those included in the GIT analysis.
Based on the overall assessment of quantified and non-quantified benefits, the sensitivity
analysis and the observation that Option 2 is a far clearer favourite in those market
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved IVWanganui-Stratford Investment Proposal
development scenarios which include new wind generation connecting at Waverley,
Transpower considers the option selected by applying the GIT (Option 2) is the
best option and satisfies the requirements for approval under the Rules.
Timing
Given the present and projected condition of the existing line, combined with the
expected time to complete the works, it is proposed that work on the Wanganui-Stratford
line section starts as soon as possible (late 2009), with completion and commissioning
expected in early 2011.
Maximum Approval Costs
This application seeks Commission approval to recover the lesser of actual costs or the
estimated Maximum Approved Cost (MAC) of the Proposal. The Expected End Cost of
the Proposal is estimated to be $42.3 million and the MAC of the Proposal is estimated
to be $44.1 million.
Table 0-4 – Maximum Approval Cost
contingency
rate hedge
Estimated
Exchange
Exchange
variability
Expected
Inflation
TOTAL
$NZ million
Price
Cost
Cost
rate
IDC
Expected Cost 32.8 36.7 36.7
Expected End Cost 32.8 36.7 0.2 0.0 0.0 1.5 3.9 42.3
Maximum Approved Cost 32.8 36.7 1.5 0.1 0.0 1.6 4.2 44.1
This document
The remainder of this document is Transpower’s formal submission to the Commission
for approval of the costs of the Proposal. It is split into two parts:
• Part A sets out the actual proposal for which approval of cost recovery up to
$44.1 million is sought; and
• Part B, together with the attachments, sets out the technical and economic
analysis of the proposal, and justifies the Proposal against the requirements of
the Rules.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved VWanganui-Stratford Investment Proposal
Contents
Executive Summary............................................................................................................I
Part A – Proposal...............................................................................................................8
Part B – Justification .........................................................................................................9
1 Introduction .................................................................................................................9
1.1 Purpose................................................................................................................................ 9
1.2 Document structure.............................................................................................................. 9
1.3 The Proposal as part of the 2009 Grid Upgrade Plan ....................................................... 10
1.4 Type of investment............................................................................................................. 10
1.5 Compliance with the GUIRP .............................................................................................. 10
1.6 Glossary/terminology ......................................................................................................... 10
2 Needs Assessment and Type of Investment ..........................................................11
2.1 Description of assets comprising the Wanganui-Stratford 110 kV line.............................. 11
2.2 Condition assessment of the Wanganui-Stratford line ...................................................... 13
2.3 Type of investment............................................................................................................. 13
2.4 Process to date .................................................................................................................. 14
3 Identification and Consideration of Options ..........................................................15
3.1 Requirements under the Rules .......................................................................................... 15
3.2 Option identification ........................................................................................................... 15
3.3 Reflecting Good Electricity Industry Practice in meeting the Grid Reliability Standards ... 18
4 GIT Methodology and assumptions ........................................................................20
4.1 Modelling approach and market development scenarios .................................................. 20
4.2 Calculating the expected market benefits.......................................................................... 22
4.3 Market costs....................................................................................................................... 22
4.4 GIT Sensitivities ................................................................................................................. 23
5 Application of the Grid Investment Test .................................................................24
5.1 Compliance with the Grid Investment Test ........................................................................ 24
5.2 Timing of the Proposal ....................................................................................................... 29
6 Compliance with the processes set out in the Rules ............................................30
6.1 Submission of a Grid Upgrade Plan .................................................................................. 30
6.2 Provision of information ..................................................................................................... 30
6.3 Compliance with the timetable and process ...................................................................... 30
6.4 Requests for further investigation and further information................................................. 31
7 The Proposal meets the Rule requirements ...........................................................32
8 Approval Amount for the Proposal .........................................................................33
8.1 Approval amount sought .................................................................................................... 33
8.2 Approval amount methodology .......................................................................................... 33
Appendix A Glossary .................................................................................................34
Appendix B Assessment of non-quantified differences.........................................36
Appendix C Maximum Approval Cost methodology...............................................38
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 6Wanganui-Stratford Investment Proposal Attachment Title A GIT results B Costing report C Technical needs analysis D Covec demand forecast Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009. All rights reserved 7
Wanganui-Stratford Investment Proposal
Part A – Proposal
This part describes Transpower’s Stratford–Wanganui Transmission Investment Proposal
(the Proposal).
Components of the Proposal
• Procuring, installing and commissioning Nobelium AAAC conductor on the
Stratford–Waverley–Wanganui 110 kV transmission line.
• Procuring, constructing and commissioning substation facilities to facilitate the
above connections and equipment.
• Obtaining property rights and environmental approvals required for these works.
• Any additional minor works and activities required to facilitate the above.
Timing
Transpower will work towards commissioning of the Proposal in 2011.
Costs
Transpower is seeking Commission approval to recover the full costs associated with the
Proposal upon commissioning up to a total amount of $44.1 million. This amount is the
estimated Maximum Approval Cost (MAC) to implement the Proposal, expressed in New
Zealand dollars exclusive of GST. Appendix B sets out how Transpower has estimated the
MAC.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 8Wanganui-Stratford Investment Proposal
Part B – Justification
1 Introduction
This section outlines the purpose and structure of Part B
1.1 Purpose
This document is Transpower’s request for Commission approval to recover the costs of
the Proposal.
The purpose of Part B of this document is to provide information for the Commission to
assess compliance of this Proposal with the Rules.
In the course of assessing the options presented in this document, Transpower has sought
feedback from interested parties so as to be able to incorporate their views into the
decision-making.
1.2 Document structure
The document consists of this paper and several attachments as follows:
STRATFORD-WANGANUI INVESTMENT PROPOSAL
GRID UPGRADE PLAN
* Describes proposal
* Summarises need and application of the GIT
ATTACHMENT A
GIT RESULTS
* Describes the results of Transpower’s application of the GIT
ATTACHMENT B
COSTING REPORT
* Describes the costs used in applying the GIT and developing the MAC
ATTACHMENT C
NEEDS ANALYSIS
* Describes the technical needs analysis
ATTACHMENT D
COVEC DEMANDS
* Copy of the report prepared by Covec describing proposed demands to be used for the
investigation project, based on Electricity Commission forecasts and consultation feedback
The attachments provide the detail of the analysis presented in this document.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 9Wanganui-Stratford Investment Proposal
1.3 The Proposal as part of the 2009 Grid Upgrade Plan
This document forms Part III of the 2009 Grid Upgrade Plan.
Transpower has already submitted the following parts of the 2009 GUP to the Commission:
• Part I: Comprehensive Plan for Asset Management and Operation of the Grid; and
• Part II: Investment Contracts.
1.4 Type of investment
The Proposal is a “reliability investment”, in that:
• the Proposal is an investment by Transpower in the grid;
• the primary effect of the Proposal is to reduce expected unserved energy on the
grid; and
• the expected unserved energy will result from likely planned or unplanned outages
of primary transmission equipment (namely the Wanganui-Stratford 110 kV
transmission line).
1.5 Compliance with the GUIRP
Transpower notes that the development of this Proposal and alternative options, and the
analysis of those options, has not followed in a number of respects the processes and
policies set out in the Grid Upgrade and Investment and Review Policy (GUIRP).
However, for smaller projects where the estimated capital expenditure required for the
proposed investment is not as high, the GUIRP includes a principle that commensurate
analysis and a commensurate process should be used1. The approach used for developing
this GUP is consistent with that principle.
1.6 Glossary/terminology
A glossary of terms and acronyms used in this document is included in Appendix A.
All references to Rules in this document refer to those in section III of Part F of the
Electricity Governance Rules 2003 unless otherwise specified.
1
Grid Upgrade Investment and Review Policy, June 2008, para 2.1.1(h).
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 10Wanganui-Stratford Investment Proposal
2 Needs Assessment and Type of Investment
This section provides background on the Wanganui-Stratford project
2.1 Description of assets comprising the Wanganui-Stratford 110 kV line
The 110 kV Wanganui-Stratford transmission line is located in the Taranaki and
Wanganui regions and runs from Stratford in the north to Wanganui in the south.
There are grid exit points located part way along the line at Hawera and Waverley.
The transmission links comprising the Wanganui-Stratford line do not form part of the
core grid as defined under Schedule F3A of the Rules.
Figure 2-1: Map of the Taranaki-Wanganui region
The Wanganui-Stratford 110 kV line supplies grid exit point loads at Hawera,
Waverley and some load at Wanganui. Trustpower’s Patea hydro generation and the
Kiwi cogeneration plants are both connected at Hawera.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 11Wanganui-Stratford Investment Proposal
Significantly, the Kiwi cogeneration is sited at Fonterra’s dairy plant in Hawera. The
Fonterra plant is the largest dairy plant in the southern hemisphere and is a major
contributor to both the Taranaki and New Zealand economy.
Power transfer from the Taranaki region to the south on the parallel 220 kV circuits
between Stratford and Bunnythorpe is limited by the need to avoid the 110 kV circuits
between Stratford and Bunnythorpe overloading following the loss of the 220 kV
circuits. The critical 110 kV circuit is the circuit between Stratford and Hawera. The
rating of this circuit effectively determines how much power can be transferred on the
220 kV circuits before already installed additional measures need to be utilised. The
additional measures include a series reactor in the Hawera-Waverly circuit and the
arming of an Automatic Bus Splitting Scheme (ABSS) at Hawera which, following the
loss of a parallel 220 kV circuit, will split the 110 kV bus at Hawera thus relieving the
loading on the Hawera-Stratford circuit.
Provided the ABSS and Hawera reactor are available, the capacity of the existing
110 kV circuits between Stratford and Bunnythorpe is sufficient to meet the 20 year
load forecast. Coordination with Hawera generation and load management at the grid
exit points will be required under certain outage conditions.
Future development in the Taranaki region such as duplexing the 220 kV Brunswick-
Stratford circuits and significant wind farm connections at Waverley would require a
larger capacity 110kV conductor from Hawera to Wanganui and increasing conductor
capacity between Wanganui to Bunnythorpe to:
• enable maximum power transfer; and
• enable unconstrained dispatch of possible wind generation and Hawera
generation.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 12Wanganui-Stratford Investment Proposal
Figure 2-2: Existing transmission circuits in the Wanganui-Stratford region
Moturoa 11 kV Waikato
Huntly Te Kowhai
New 33 kV
Plymouth 110 kV
55 kV
Carrington Street Huirangi
33 kV
220 kV 33 kV 220 kV
Taumarunui
33 kV Motunui
110 kV
110 kV
110 kV
33 kV 33 kV Stratford
110 kV 220 kV
Opunake
110 kV Taranaki
Combined
220 kV
Cycle
Patea Whareroa
110 kV 110 kV
Brunswick
33 kV
Kapuni Hawera 33 kV
KEY
110 kV
220kV CIRCUIT
110kV CIRCUIT 11 kV Wanganui
50/66kV CIRCUIT Waverley
33 kV
SUBSTATION BUS
TRANSFORMER 110 kV
TEE POINT Mataroa
LOAD Bunnythorpe
CAPACITOR
220 kV
33 kV
33 kV 55 kV
(NZR)
110 kV
Marton 110 kV
Whakamaru
Tangawai
Wilton/Linton
Mangahao Haywards
2.2 Condition assessment of the Wanganui-Stratford line
Condition assessment of the Wanganui-Stratford line indicates that the conductor is
at the end of its useful life and that several of the towers/poles require either
replacement or refurbishment to extend their useful lives. Failure of the Wanganui-
Stratford line would leave existing customers at Hawera and Waverley unserved and
presents a potential public safety issue.
Transpower therefore considers an immediate solution be identified and implemented
to ensure reliable electricity supply to the area supplied by the Wanganui-Stratford
line.
2.3 Type of investment
The primary aim of further investment is to ensure the continuing supply of electricity
to customers currently served by the Wanganui-Stratford transmission line.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 13Wanganui-Stratford Investment Proposal
Transpower considers that the Proposal is a “reliability investment” under the Rules
as:
• the Proposal is an investment by Transpower in the grid;
• the primary effect of the Proposal is to reduce expected unserved energy on
the grid (caused by the failure of the Wanganui-Stratford line, which is at the
end of its useful life); and
• the expected unserved energy will result from likely planned or unplanned
outages of primary transmission equipment (namely the Wanganui-Stratford
line).
2.4 Process to date
During October 2008, Transpower consulted with, and sought feedback from,
interested parties on the various assumptions, methodologies and the long list of
options for the Wanganui-Stratford investigation.
More information can be found on the Grid New Zealand website:
http://www.gridnewzealand.co.nz/conductor-Wanganui-Stratford-publications
Submissions were received from three parties. The submissions all supported the
need for investment. The main points raised related to the need to maintain n-1
security at both Hawera and Wanganui and allowing for future wind generation
development in the area.
Following that process, Transpower was made aware of wider regional developments
in the Taranaki region which may have an influence on the Wanganui-Stratford
investigation. A stakeholder forum was held in New Plymouth in November 2008 to
discuss the Wanganui-Stratford investigation and seek input on the regional issues. A
broad range of parties attended the forum, including representatives form Federated
Farmers and Venture Taranaki. Detailed feedback on potential load growth in the
Taranaki region was received at that forum.
Following receipt of feedback from stakeholders in November 2008, Transpower:
• considered and incorporated the feedback received;
• further developed the options (as presented in this paper);
• developed the economic approach, as set out in Attachment A; and
• analysed the results.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 14Wanganui-Stratford Investment Proposal
3 Identification and Consideration of Options
This section outlines how Transpower has identified alternative projects to be
considered in applying the Grid Investment Test
3.1 Requirements under the Rules
The application of the GIT requires an analysis and comparison of the market benefits
and costs of a proposed investment and those of a number of alternative projects2.
Therefore, Transpower must first identify those options that fall within the definition of
“alternative projects” under the Rules.
3.2 Option identification
3.2.1 Long list of options
The long list aimed to canvas a broad range of viable investment options, while
balancing Transpower’s preference to invest resources, the condition of the existing
conductor and time in the options that are likely to be progressed to the short list.
The long list of options considered, reflecting feedback received during the
consultation, was:
a) Reconductor Stratford–Hawera with Coyote at 50°C.
Dismantle Hawera–Waverley and Waverley–Wanganui.
Connect Waverley to the nearby Stratford-Brunswick 220 kV lines.
b) Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley and Waverley–Wanganui.
Connect Waverley to the nearby Stratford-Brunswick 220 kV lines.
c) Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Hawera–Stratford.
Dismantle Hawera–Waverley and Waverley–Wanganui.
Connect Waverley to the nearby Stratford-Brunswick 220 kV lines.
d) Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Reconductor Waverley–Wanganui with Coyote at 50°C.
e) Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Reconductor Waverley–Wanganui with Nobelium at 90°C.
f) Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Reconductor Hawera–Waverley with Coyote at 50°C.
Dismantle Waverley–Wanganui.
g) Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Stratford–Hawera.
2
Schedule F4, clause 4 of the Rules.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 15Wanganui-Stratford Investment Proposal
Reconductor Hawera–Waverley with Nobelium at 90°C.
Dismantle Waverley–Wanganui.
h) New double circuit line between Stratford-Hawera.
New double circuit line Waverley-Wanganui.
Dismantle Hawera-Waverley.
i) Reconductor Stratford–Wanganui with Coyote at 50°C.
j) Reconductor Stratford–Wanganui with Nobelium at 90°C.
k) Dismantle Wanganui–Stratford line and build a new higher capacity line.
l) Dismantle Wanganui–Stratford line and connect to the 220 kV network.
3.2.2 Short-listing approach
The purpose of the short-listing analysis was to reduce the long list of options to a
more manageable short list, for further development and analysis to select a
proposed investment. The short-listed options that are not selected as the proposed
investment comprise the alternative projects against which the proposed investment
is compared under the GIT.
In summary, Transpower’s short-listing approach was to screen its long list to
formulate a short list, based on the following criteria:
i. fitness for purpose;
ii. technical feasibility;
iii. practicality of implementation;
iv. Good Electricity Industry Practice (GEIP);
v. system security (additional benefits resulting from an economic investment);
vi. whether an option will clearly be more expensive than another option with
similar or greater benefits; and
vii. feedback from consultation.
In addition, the Rules require that the alternative projects used in applying the GIT
must be limited to those appropriate in number and technology given the cost
magnitude of the proposed investment, the complexity of the modelling and the
urgency of the proposed investment.3
Given that the condition of the line is such that a solution needs to be in place within
the next 1-2 years, all new build options were deemed to be impractical to implement
within such a short timeframe. In addition, the new build options did not meet criteria
vi and would clearly have been more expensive, for little extra benefit. The exception
was building a new Hawera–Stratford single circuit, as this would be to supplement
the existing circuit which is assumed to remain.
Options [h, k and l] in paragraph 4.2.1 above were also ruled out on the basis of
criteria vi, as it would also clearly have been more expensive, for little extra benefit.
It was not possible to differentiate the remaining long list options on the basis of the
short-listing criteria listed above, so although there were eight remaining options they
were all carried through to the short list. This is unusual, especially given the
expected project spend.
3
Schedule F4 clause 11.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
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3.2.3 Conductor selection
Some pre-work was undertaken to determine what both a “like-for-like capacity”
conductor would be and what a “higher capacity” conductor should be.
The rationale for a higher capacity conductor in this project is not to meet load growth,
but to save losses and enable potential new generation to connect to the line. On this
basis, it was decided to consider the biggest conductor, running at the maximum
temperature, that could be strung without having to re-build the entire line.
As a result, the conductors considered were:
• Like-for-like capacity – Coyote @ 50°C – 57.1 MVA summer capacity
• Highest capacity – Nobelium @ 90°C - 153.6 MVA summer capacity
3.2.4 Short list of options
The short-listing and conductor selection processes resulted in the following short list
of options to which the GIT has been applied:
Table 3-1: Short list of options
Short List Options
Reference Reconductor Stratford–Hawera with Coyote at 50°C.
case Dismantle Hawera–Waverley and Waverley–Wanganui.
Connect Waverley to 220 kV.
Option 1 Reconductor Stratford–Wanganui with Coyote at 50°C.
Option 2 Reconductor Stratford–Wanganui with Nobelium at 90°C.
Option 3 Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Reconductor Waverley–Wanganui with Coyote at 50°C.
Option 4 Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Reconductor Hawera–Waverley with Coyote at 50°C.
Dismantle Waverley–Wanganui.
Option 5 Reconductor Stratford–Hawera with Coyote at 50°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Dismantle Waverley–Wanganui.
Connect Waverley to 220 kV.
Option 6 Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Stratford–Hawera.
Dismantle Hawera–Waverley.
Reconductor Waverley–Wanganui with Nobelium at 90°C.
Option 7 Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Stratford–Hawera.
Reconductor Hawera–Waverley with Nobelium at 90°C.
Dismantle Waverley–Wanganui.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
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Short List Options
Option 8 Reconductor Stratford–Hawera with Nobelium at 90°C.
New single circuit Hawera–Stratford.
Dismantle Hawera–Waverley.
Dismantle Waverley–Wanganui.
Connect Waverley to 220 kV.
The rationale for the choice of reference case is explained in section 4.3.3 below.
3.3 Reflecting Good Electricity Industry Practice in meeting the Grid
Reliability Standards
Rule 13.4.1.1 permits the Commission to approve a reliability investment where the
proposed investment reflects GEIP in meeting the GRS.
3.3.1 The short list options reflect GEIP
The Rules define GEIP in relation to transmission as:
"The exercise of that degree of skill, diligence, prudence, foresight and
economic management, as determined by reference to good international
practice, which would reasonably be expected from a skilled and experienced
asset owner engaged in the management of a transmission network under
conditions comparable to those applicable to the grid consistent with
applicable law, safety and environmental protection. The determination is to
take into account factors such as the relative size, duty, age and
technological status of the relevant transmission network and the applicable
law."
Accordingly, comparable international practice should be considered in assessing
what is GEIP in terms of grid investment planning. Transpower, as a prudent planner,
owner and operator of a transmission network, can reasonably be expected to adopt
solutions consistent with good international practice.
Transpower considers that all the short-list options reflect GEIP. Specifically, the
approach undertaken for the Proposal is consistent with international practice as
being a prudent investment given the size, nature and importance of the load and
generation in the Taranaki area.
3.3.2 The short list options meet the Grid Reliability Standards
The GRS are contained in Schedule F3 of the Rules. These provide that the grid
satisfies the grid reliability standards if:
"4.1 the power system is reasonably expected to achieve a
level of reliability at or above the level that would be
achieved if all economic reliability investments were
to be implemented; and
4.2 with all assets that are reasonably expected to be in
service, the power system would remain in a
satisfactory state during and following any single
credible contingency event occurring on the core
grid.”
As the Wanganui-Stratford line does not form part of the core grid, only clause 4.1 of
the GRS is relevant for this Proposal.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 18Wanganui-Stratford Investment Proposal
3.3.3 Base case
For the purposes of the GIT, the Rules also require that the Proposal and the
alternative projects be assessed against a base case, which is defined4 as follows:
"Base case" means the market development scenarios developed for
the reasonable future state of the electricity industry without the
proposed investment or any alternative project.
As noted by both the Commission and Transpower in analysis of the North Island
Grid Upgrade Proposal, it is difficult to identify a suitable base case for the analysis
when an investment proposal is required to meet the GRS, and more particularly rule
4.2 of the GRS because the base case must meet the GRS, but not be an alternative
project.
The Commission has previously resolved this issue by using one of the “alternative
projects” as a reference case. Transpower has adopted this approach.
Transpower considers that a reasonable reference case for this investigation would
be to dismantle the Hawera to Wanganui section of the line, reconductor the Stratford
to Hawera section with like-for-like conductor and connect Waverley to the nearby
Stratford–Brunswick 220 kV lines. This is probably the minimum cost option which
would ensure that existing load continues to be served. It does lower the level of
reliability at Hawera and Wanganui, but this is accounted for in the GIT using
reliability analysis.
4
Clause 20 of Part F Section III Schedule F4
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 19Wanganui-Stratford Investment Proposal
4 GIT Methodology and assumptions
This section sets out Transpower’s approach to applying the Grid Investment
Test
The GIT requires Transpower to determine the market benefits and costs of the base
(reference) case and each of the short-list options for each of a number of market
development scenarios for the future.5
The GIT analysis requires certain methodology, input assumptions and parameters to
be determined and applied and then results tested against various sensitivities.
4.1 Modelling approach and market development scenarios
The GIT requires Transpower to develop market development scenarios and analyse
the base case and each short-list option against each scenario.6 The market
development scenarios utilise a set of generation drivers as inputs. These drivers
include details of generation cost, timing, location, carbon charges, demand etc.
To date, the Commission has established the scenarios by using the drivers in its
generation expansion model (GEM) as a part of the process of establishing its
Statement of Opportunities (SoO) as required under Rule 9. There are five scenarios
within the SoO. Transpower has used the five scenarios as a starting point for the
analysis and has amended them as described below.
For this proposal, Transpower has reviewed and updated the generation details in the
current operative SoO to align with those scenarios used in its Wairakei Ring
Investment Proposal (Part III of the 2008 Grid Upgrade Plan). The Commission was
satisfied that the changes made to the market development scenarios in that proposal
were an appropriate update, as they incorporated more current information than used
to compile the SoO.
Transpower has further modified the market development scenarios, to better reflect
information available on potential generation in Taranaki which could directly affect
the Wanganui-Stratford reconductoring. Two minor changes have been made:
• The wind generation forecast to connect at Waverley was brought forward in
MDS1. As shown in Table 2-1, this provides a wider range of connection
dates for the forecast wind and better aligns with current information on the
possibility for wind in the area.
• New cogeneration capacity previously shown as connecting at Stratford, was
moved to Hawera. This corrects what appears to be an anomaly in the
previous forecast, as it should have been shown at Hawera. It was immaterial
to that analysis but potentially important to this analysis.
5
Clause 5 of Schedule F4, Part F of the Rules.
6
Refer to definition of “market development scenarios” at clause 28 of Schedule F4, Part F of the Rules.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 20Wanganui-Stratford Investment Proposal
Table 4-1: Market Development Scenario modifications
MDS1 MDS2 MDS3 MDS4 MDS5
Year MW Year MW Year MW Year MW Year MW
Original Waverley wind 2032 126 2020 30.6 2043 65
2021 126
Original Stratford 220- 2015 50
cogen
Modified Waverley wind 2012 126 2020 30.6 2043 65
2021 126
Modified Hawera 110- 2015 50
cogen
The generation schedules were then input into the SDDP model which was run to
give the reliability, loss benefits/ costs, fuel cost benefits and shortfall benefits arising
from each of the options under the five scenarios.
As a result of the consultation process, Transpower accumulated stakeholder input
on potential demand growth in the Taranaki and Wanganui regions and asked Covec
to assimilate the information and produce an independent forecast. This process
resulted in demand forecasts at Hawera, Waverley and Wanganui which differ from
those outlined in the SoO. The forecasts are summarised in Attachment A – GIT
results and are described in full in Attachment D – Covec demand forecast. These
have been reflected in the analysis, although have little practical impact, as the driver
for a larger conductor is based on issues other than load growth.
4.1.1 Changes to market development scenarios
The changes made to the market development scenarios are relatively minor and
Transpower considers that the updated market development scenarios are
reasonable assumptions for the GIT analysis and are more appropriate than the
possible future scenarios outlined in the SoO published by the Commission.
For the purposes of clause 6.1 of the GIT, Transpower is seeking a determination by
the Commission that these market development scenarios are more appropriate than
the possible future scenarios outlined in the SoO.
4.1.2 Summary of the approach to the GIT and assumptions
The following is a summary of the high level approach taken to the GIT analysis along
with a summary of the assumptions utilised in the analysis.
Table 4-2 Summary of the GIT approach
Approach Value
Market development scenarios (MDS) 5 Scenarios based on 2008 SoO.
Scenario weightings Equally weighted
Demand Forecast Covec forecast
Net present value or real options analysis NPV with scenarios
Discount rate 7%
Analysis in current or future dollars $2009
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 21Wanganui-Stratford Investment Proposal
4.2 Calculating the expected market benefits
Market benefits under the Rules cover benefits to those persons who produce,
distribute, retail and consume electricity in New Zealand.7 Transpower’s approach to
estimating the market benefits of each short list option is set out in detail in
Attachment A. The following is a summary of the approach to estimating benefits:
Table 4-3 Summary of market benefits
Market benefit Approach
Capital benefits – capital cost of generation Not included
Fuel costs and transmission losses Included
Greenhouse gas emission, spill and load shedding Included
Reliability benefits Included
8
Operational benefits Not included
Market services (ancillary services and reserves) Not included
Competition benefits Not included
Consumer benefits Not included
Future options Not included
9
Terminal benefits Included
4.3 Market costs
Assessment of the costs of each short list option requires identification and
quantification of the following categories of costs over the analysis period:
• transmission costs for each transmission option; and
• statutory compliance costs.
For the purposes of applying the GIT, Transpower has estimated costs for the short-
listed options to a level of accuracy that will determine the difference between the
options and between the costs and benefits such that a sufficiently robust decision
can be made on the technology and/or the type of upgrades that might be required.
Transpower’s approach to estimating the costs of each short-list option is set out in
detail in Attachment B. The options that involve reconductoring the existing circuits
have been designed and costed to a level which confirms the scope of the technical
work required.
The following is a summary of the approach to estimating costs.
7
Clause 27 of the GIT.
8
Clause 9 of the GIT provides that where a material benefit cannot be quantified, the direction and
likely magnitude of the benefit must be identified. Transpower did not consider estimating the “likely
magnitude” to be possible or commensurate with the project spend. However, such benefits are
important and have been accounted for as discussed in section 6.1.3.
9
Terminal benefits only include those benefits that have been quantified.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 22Wanganui-Stratford Investment Proposal
Table 4-4 Summary of market costs
Market Cost Approach
Transmission costs Line and Substation capital costs Included
Property costs Included
Project management Included
Consenting costs Included
Operating and maintenance costs Included
Decommissioning costs Included
Statutory compliance costs Included
4.4 GIT Sensitivities
The sensitivities analysed or considered in applying the GIT to the short-list of options
and the reasoning behind choices made, is fully described in Attachment A. A
summary of the sensitivities used by Transpower in its application of the GIT to the
short-list options are set out in the table below:
Table 4-5 Summary of Sensitivities
Sensitivity Value
Forecast demand Not included – the driver for higher
capacity is to connect generation not
to accommodate load growth
Variations in the size, timing, location, and operating and maintenance Not included as a sensitivity
costs
Capital cost Lines costs - low 80%, high 120%
Timing of decommissioned assets Not included
Value of expected unserved energy $11,600 and $34,800 per MWh
Discount rate 4% and 10%
Variation in hydrological inflow sequences Not included as a sensitivity,
modelled within SDDP analysis
Generator and demand side bidding strategies Not included as a sensitivity,
included in scenarios
Competition benefits Not included
Carbon charges Not included
Property Costs Not included
Operating and Maintenance costs Included – low 80%, high 120%
Market development scenarios Reported separately
Discount rate, lines cost, O&M cost 4%, 120%, 120% for MDS1, MDS2
Transpower considers this level of sensitivity analysis is sufficient to ensure the rigour
and comprehensiveness of the analysis is commensurate with the estimated capital
expenditure required for the Proposal.
Part III 2009 Grid Upgrade Plan: Wanganui-Stratford Transmission Investment Proposal © Transpower New Zealand Limited 2009.
All rights reserved 23Wanganui-Stratford Investment Proposal
5 Application of the Grid Investment Test
This section sets out Transpower’s application of the Grid Investment Test
5.1 Compliance with the Grid Investment Test
The investment proposal under consideration contemplates an investment in the Taranaki
and Wanganui regions which is not part of the core grid. As such, the Proposal, will
satisfy the GIT under clause 4.2 of Schedule F4 if the Proposal:
• maximises expected net market benefit compared with a number of alternatives;
• results in an expected net market benefit greater than zero, in a robust manner
with respect to any sensitivity analysis.
5.1.1 GIT results
The GIT results are presented as a comparison of the expected net market benefit for the
short-listed options and the sensitivity of the expected net market benefit to various
parameters. Table 5-1 below summarises the results of the GIT analysis.
Table 5-1: Overall results of application of the Grid Investment Test
Option 1 New conductor
Option 2 New conductor
Waverley–Wanganui
Waverley–Wanganui
Option 3 Dismantle
Option 4 Dismantle
Option 5 Dismantle
Option 6 Dismantle
Option 7 Dismantle
Option 8 Dismantle
Hawera–Wanganui
Wanganui–Hawera
Hawera–Waverley
Hawera–Waverley
Reference Case
Coyote @50°C
Coyote @50°C
Coyote @50°C
Coyote @50°C
Nb @90°C
Nb @90°C
Nb @90°C
Nb @90°C
Present Value,
$million
Capital costs 31.8 31.9 39.3 37.5 35.1 44.4 42.4 39.3 46.2
O&M costs 1.6 6.4 6.4 4.4 3.6 1.6 4.4 3.6 1.6
Reliability
-12.3 0.0 0.0 -2.6 -5.9 -0.6 -2.6 -5.9 -0.6
benefit
Dispatch cost
0.0 9.8 15.5 -2.9 -1.1 0.0 9.7 12.6 16.5
benefit
Terminal
-3.5 -4.3 -1.9 -10.3 -9.7 -0.6 -5.0 -3.5 -0.5
benefit
TOTAL =
49.1 32.8 32.1 57.7 55.5 47.1 44.7 39.7 32.4
Costs-Benefits
Expected Net
- 16.3 17.0 -8.6 -6.4 1.9 4.4 9.4 16.7
Market Benefit
These results show that Option 2, reconductoring the line from Stratford to Wanganui with
Nobelium at 90°C has:
• the highest expected net market benefit of the short-list options; and
• an expected net market benefit greater than zero.
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Transpower concludes that Option 2 satisfies the requirements of clauses 4.2.1 and 4.2.2
of the GIT.
5.1.2 Sensitivity analysis
Transpower has considered the sensitivity of this result to changes in key variables and
parameters to assess the robustness of this result (in accordance with clause 4.2.3 of the
GIT). Table 5-2 below shows the results of these sensitivities.
Table 5-2: Sensitivity of the expected net market benefit of the short-list options
Waverley–Wanganui
Wanganui-Waverley
Option 3 Dismantle
Option 4 Dismantle
Option 5 Dismantle
Option 6 Dismantle
Option 7 Dismantle
Option 8 Dismantle
Hawera–Wanganui
Hawera–Wanganui
Hawera–Waverley
Hawera–Waverley
Reference Case
Coyote @50°C
Coyote @50°C
Coyote @50°C
Coyote @50°C
Option 1 New
Option 2 New
Nb @90°C
Nb @90°C
Nb @90°C
Nb @90°C
conductor
conductor
Expected Net
Market Benefit
$million
Base results - 16.3 17.0 -8.6 -6.4 1.9 4.4 9.4 16.7
Sensitivities
Discount rate 4% - 21.3 25.8 -14.2 -11.5 8.2 7.9 14.8 27.6
Discount rate 10% - 12.6 11.4 -6.3 -4.4 -1.5 1.7 5.8 10.0
Lines capital +20% - 12.4 12.7 -13.3 -10.6 -0.6 -0.6 5.0 14.1
Lines capital -20% - 20.2 21.3 -3.8 -2.2 4.5 9.4 13.8 19.3
O&M +20% - 15.0 15.8 -9.3 -7.0 1.9 3.7 8.9 16.7
O&M -20% - 17.5 18.2 -7.9 -5.9 1.9 5.1 9.9 16.7
VoLL, $11,600 - 8.6 9.4 -14.6 -10.4 -5.4 -1.6 5.5 9.4
VoLL, $34,800 - 23.9 24.7 -2.5 -2.5 9.2 10.5 13.3 24.0
MDS1 only - 13.7 24.2 -48.1 -49.4 1.9 4.9 10.1 11.6
MDS2 only - 28.4 32.6 -20.6 -6.0 1.9 4.3 24.7 17.8
MDS3 only - 27.2 23.0 19.1 18.3 1.9 14.7 15.1 19.1
MDS4 only - 8.7 4.6 6.5 4.6 1.9 2.1 0.7 15.2
MDS5 only - 3.4 0.8 0.3 0.3 1.9 -3.8 -3.6 19.7
4% discount rate,
+20% lines cost, - 17.2 21.4 -19.1 -15.9 5.6 2.7 10.2 24.8
+20% O&M cost
4% discount rate,
+20% lines cost,
- 6.8 26.5 -82.3 -83.0 5.6 -2.8 7.6 18.1
+20% O&M cost,
MDS1
4% discount rate,
+20% lines cost,
- 34.4 43.8 -40.8 -18.7 5.6 2.1 32.6 26.5
+20% O&M cost,
MDS2
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