Electricity sector's supply chain pain growing

Rising equipment costs and shipment delays are continuing to hit New Zealand’s electricity sector, and many organisations fear the problems are likely to get worse. Just as the pandemic seemed to be easing around the world, Russia's invasion of Ukraine and China’s draconian new lockdowns made everything worse. Generation, transmission and distribution companies are all reporting problems.

"This issue will be with us for at least the next 12 to 18 months," says Electricity Networks Association chief executive Graeme Peters.

The lead times for parts and raw materials are contributing to equipment delays, with some component suppliers reporting lead times of more than 52 weeks, Peters says. Impacted components include electrical steel, transformer oil, bushings, plate steel and aluminium wire. Local supply chains are also under pressure. Some New Zealand-based suppliers are also experiencing labour shortages, which is impacting delivery times, Peters says.

"Delivery times for 11 kV switchgear was circa 12 weeks pre-Covid, but is now over 30 weeks."

Transpower says it is concerned about potential impacts on its big plans for transmission builds. Grid delivery general manager Mark Ryall says since early 2020 the company has been increasing its buffer stocks and using early planning and active engagement with partners to mitigate the impact of Covid-19.

"However, as we move further into 2022, we are now seeing increasing impacts in terms of both resourcing and the supply chain."

Ryall says Transpower’s supply lead times are now about three months longer than they were before the pandemic.

"International shipping continues to be unreliable, constrained and delayed," he says.

"Joint planning, and forecasting early to secure manufacturing slots, is critical, particularly for complex long lead items."

Transpower says so far it has been able to deliver its work programme on schedule – or even ahead in the case of the Clutha Upper Waitaki Lines project. But it is concerned about potential difficulties in meeting customer expectations for new projects.

"If the work is not well forecast, supply chain constraints mean that we may not be able to meet customers’ timeline expectations," Ryall says.

"We would encourage anyone who is planning work that requires a grid connection to talk to us early."

Several generators report that shipping delays are forcing them to push back project timeframes. Genesis Energy had a two-month delay in shipping a generator from Spain for its Tuai power station in the Waikaremoana Power Scheme, but it was able to plan around this. Contact Energy says it is being “realistic and pragmatic” about timelines amid pandemic uncertainty.

"Where we can we also aim to source products and services locally and this often comes with the benefit of shorter delivery times," a spokesperson says.

Its Tauhara geothermal project is now scheduled for completion in the second half of 2023, instead of the originally forecast mid-2023, which is not great news for people who hoped 2022 would be the last winter with tight electricity supply. Mercury says it has not been materially impacted by supply chain disruptions, as only $127 million of its $1.8 billion spend in 2021 was outside New Zealand. The long design, manufacture and shipping timeframes for its large-scale projects – like the Turitea wind farm and Karāpiro power station upgrades – have enabled flexibility.

Several lines companies – including Counties Energy, WEL Networks, Vector and Orion – say they have managed supply issues by increasing stock levels for commonly used equipment. WEL Networks chief executive Garth Dibley says distributors are working collaboratively, particularly when they need to source specialist, one-off pieces of equipment. Nevertheless, Orion has experienced significant delays with equipment that uses electronics or silicone, as well as large items such as transformers and switchgear.

"We find manufacturers are now not able to confirm delivery dates until the item arrives at the departing port which is only when shipping bookings can be made," a spokesperson says.

"Some components are being off-loaded from ships in Australia, rather than coming into New Zealand ports directly."

Delays have impacted on planned delivery times for renewal projects – such as zone substation switchgear and transformer upgrades – as well as distribution network upgrades and extensions, Orion says. It has had to build in much longer lead times and increased flexibility in planning, shuffling projects around as equipment arrives.

"Notwithstanding the difficulties of working in this Covid environment, we have largely completed our FY22 programme of work, with a couple of major projects pushed out by some months."

Counties Energy operations general manger Dale Carline says the distributor’s Barber Rd substation build – part of its $40-million eastern network renewal project – has been delayed by supply chain and pandemic-related staffing issues. It will now be commissioned in October, after construction was delayed by two months.

ENA is worried about the long-term implications for lines companies’ asset management expenditure. Peters says increasing costs are particularly complicating distributors’ asset management as DPP3 – the default price path for lines companies between 2020-2025 – was set in 2019, before Covid-19.

"Networks are spending more than DPP3 provides a return for, which is adversely impacting debt levels and reducing dividends. DPP4 and the IM reviews are going to have to address this."

Hawke's Bay lines companies Unison and Centralines raised this concern in a recent joint submission to the Commerce Commission’s review of information disclosure requirements. They say the "eye-watering increases" in metals prices and fuel are affecting EDB input costs even more than they affect the wider economy.

"In DPP4, understanding the significant shifts we are seeing in input costs would likely be critical if the commission were to continue with approaches such as the 120 per cent cap on increases from historical average capex."

This article was written by journalist Greta Yeoman and originally published in Energy News on 7 Jun 2022.