Getting the most out of our assets
Our assets are critical to our ability to generate electricity. As a company we're responsible for nearly 30% of Aotearoa's electricity generation.
Our Asset Management Policy coupled together with our annually reviewed rolling 20-year Asset Management Plan identifies and prioritises all maintenance and enhancement work on our generation assets. We embrace a total asset management approach which encapsulates our people, our processes and our plant. Our asset management framework is aligned with ISO55000 and we pride ourselves in having an agile and experienced capability to best balance risk, plant performance and financial performance in response to ever changing market demands.
Our expert engineering and maintenance teams provides on-the-ground expertise in reviewing our assets’ current condition and escalating issues quickly. Their efforts in FY20 resulted in significant avoided costs. During the year Meridian invested $49 million in the ongoing maintenance and improvement of our generation assets across the Group.
Meridian owns and operates the largest dams in New Zealand and accordingly we have a duty of care to both the public and our shareholders to ensure the operational safety and performance of our dams is best in class. Our Dam Safety Policy sets out our obligations and our Dam Safety Assurance Programme details how those obligations will be met and ensures compliance with international best practice.
In addition, our Dam Safety Intelligence subsidiary company worked with Catalyst IT to create a new version of our dam-monitoring software that will further ensure the long-term safety of our dams and the dams of its other clients. This project was successfully delivered within budget and on time.
Managing our asset risk through good maintenance
We rely on various pieces of equipment and technology at our power stations. If any critical equipment or technology, including, for example, generating plant, transformers, switchgear, control gates and canal civil structures, or control systems were to suffer failures (through issues such as asset condition or human error) requiring unplanned power station outages, replacement or repair, our generation production may be reduced. Our ability to generate electricity depends on the continued efficient operation of our power stations. And generation is an increasingly complex technical challenge.
At our hydro power stations, in addition to routine maintenance, we’ve been busy completing a number of upgrades and refurbishments to reduce this risk. Key achievements have included completing several projects including a second generating unit overhaul at Ōhau A, a long-running project to improve the reliability of power supplies at Manapōuri, refurbishing the first of three control gates at the outlet from Lake Pūkaki, and mechanical overhauls to address bearing issues on one unit at Benmore and alignment issues on a further unit at Manapōuri. These works have required extended unit outages and as a consequence availability for FY20 was down slightly. However, the hydro stations continued to provide the operational flexibility and reliability essential for meeting market demand and optimising river chain hydrology.
The risk of critical equipment or technology failure also applies to our wind farms, who generally use the same plant throughout one site. For the larger components, serial defects may therefore have an adverse effect on the reliability and operation of a particular wind farm if they are not covered by warranties or other remediation. In addition to a well-defined regular maintenance regime, we manage this risk by ongoing monitoring of critical components within the wind turbines so that we have the ability to predict asset failures before they occur and have consequential impacts on other components.
Te Āpiti wind farm has been an example of this risk. We’ve been able to steadily improve our wind portfolio by completing the major half-life refurbishment at Te Āpiti wind farm. Meridian’s wind portfolio is now operating at availability levels around 90%, compared to the low 80% just a few years ago. This means we’re now able to generate more consistently and improve our overall capacity by around 50-60MW.
Our Australian hydro sites have had much lower availability, driven entirely by poor hydrological conditions in their catchments.
The risk of a catastrophic event such as a major earthquake, landslide, fire, flood, cyclone, explosion or act of terrorism could adversely affect any or all of our power stations and including our other operations. These events could also cause a failure of the transmission grid for which we are dependent upon to export our power. Such an event could affect major electricity consumers (including our own customers), which in turn could have an adverse effect on the markets in which Meridian operates.
We carry insurance cover for up to $1.1 billion to cover material damage and business interruption losses. However, it is possible that this won't be enough should a single catastrophic event occur, or multiple catastrophic events occur in succession.
Climate change presents a potential risk to our dam structures. Increased temperatures are likely to increase the severity of extreme rainfall events, and consequent flood events, in our catchments, which then poses a potential increased risk of physical damage to our dam and hydro structures.
Best practice dam safety management requires that all of Meridian’s high potential impact category dams are required to be assessed, maintained, and managed to remain safe even under extreme flood and seismic loads. The effects of climate change are not expected to materialise in any increase in risk or cost in the near term but in the future it is possible that we will need to manage to a higher level of risk of extreme weather events in order to ensure the continued safety of our dams.
Mitigations to the future effects of climate change include the review of our flood rules, reducing the maximum control level in Lake Pukaki and in the Waiau catchment, we may need to make physical changes to our lake control structures
Managing our way through COVID-19
Our generation teams have been amazing in their response throughout the COVID-19 pandemic. They’ve quite literally kept the lights on for hundreds of thousands of New Zealanders and Australians. During the Alert Level 4 lockdown in New Zealand and similar restrictions in Australia, teams focused on continuing the essential maintenance work required to keep our wind turbines spinning and hydro plant operating safely. Our major upgrade and refurbishment projects in New Zealand were deferred under Alert Level 4 but resumed once we reached Level 3. In Australia normal maintenance programs have been completed whilst adhering to all of the applicable travel restrictions.
Our technology systems need to stay secure
We’re aware that the increase in our people working from home has increased the importance of information security and privacy. The Meridian Group has a clear information security policy that’s designed to protect the business and our customers, investors and staff. We acknowledge that a failure to protect our information could have serious adverse impacts on the Meridian Group business, especially if we lose control of our assets.
For example, an event that compromises our critical information technology systems could interrupt or disable our critical systems or damage operating assets. We could incur costs to stop the attack, repair the systems, potentially repair damaged assets, and manage any subsequent business interruption. Our reputation would likely suffer due to reduced service, potential environmental damage, potential risks to public safety and perceptions of poor security, and the company could be exposed to subsequent fines and penalties.
Consequently, we take information security extremely seriously and work hard to ensure we have robust and modern protection systems in place to avoid these potential outcomes. Across the Meridian Group we adopt a risk-based approach to identify threats, weaknesses and vulnerabilities, and look at the potential consequences. This enables each part of the business to make informed decisions about opportunities and to address risks that matter most. We then apply security measures to manage these risks to acceptable levels, with the objective of protecting confidentiality, integrity and the availability of property, systems, services, information and intellectual property, as well as safety.