Contact Energy CEO, Mike Fuge and Meridian CEO, Neal Barclay at yesterday's Hydrogen Summit

New Zealand could be on track for a green economic boom which will transform the country into a South Pacific energy state in which energy exports form a major part of the economy.

That was the message from speaker after speaker at the country’s first hydrogen summit, which opened in Wellington yesterday.

The centre-piece of the whole New Zealand hydrogen industry started out as a  proposal to use the electricity that currently supplies the Tiwai Point aluminium smelter to split water by electrolysis into its hydrogen and oxygen components.

That assumed the smelter was going to close.

But now, it may not.

However, the potential gains from producing hydrogen are now so attractive that both the Minister of Energy Resources and the companies involved in the proposal believe that we should now build more wind generation and use that to produce the hydrogen.

Last year, a report by consultants McKinsey estimated that a hydrogen plant in Southland could add between $400 million and $600 million to GDP a year.

Contact Energy and Meridian have proposed building  what will be the world’s largest green hydrogen electrolysis plant in Southland, and they want it up and running in 2025

Much of its output will be exported to Japan which explained the presence of the Japanese Ambassador at the summit.

“We believe we are working on an opportunity that will redefine the economic foundation of Aotearoa, New Zealand, for the next generation,” Meridian CEO, Neal Barclay, told the summit.

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“What we’re looking at is an opportunity to create a large scale, low-cost green hydrogen production facility in Southland.

“And if we get a wriggle on, we think it’ll be the largest and probably first such facility in the world.

“So time is important in this context.

“This opportunity, I believe, will leapfrog New Zealand into a leadership position around the globe where countries are obviously looking to wean off carbon and move to a zero-carbon future.”

POLITIK Japan Ambassador, Koichi ITO

But it may not be as simple as that.

The original Southern Green Hydrogen joint venture proposal was predicated on the Tiwai Point smelter closing.

Meridian supply the smelter with power generated at Manapouri; it is the country’s largest power consumer and consumes between 10 and 14 per cent of the country’s total electricity generation each year.

If the smelter closed this would liberate that huge chunk of New Zealand power generation. The plan was that some would go directly to charge Electric Vehicles while the rest would be turned into hydrogen for use in heavy vehicles, industrial processes and possibly ships.

But there would still be a huge surplus left over which could be exported.

However, in July 2020, the smelter’s owners, Rio Tinto, said high energy costs and an uncertain outlook for aluminium meant they would close the smelter towards the end of 2021.

Instead, in January 2021, Rio Tinto announced a four-year deal to continue taking power from Meridian that would see the smelter continue operating until December 31, 2024.

Barclay said the two companies began to work on the Southern Green Hydrogen proposal when it looked like the smelter would close.

And that remained the assumption; it would close at the end of 2024.

But earlier this year, New Zealand Aluminium Smelters (NZAS) CEO Chris Blenkiron said that with a global strategy focused on decarbonisation and growth, Rio Tinto saw a positive pathway for New Zealand’s Aluminium Smelter to continue operating and contributing to the local and national economies beyond 2024. 

The possibility that the smelter might not close worried the Climate Change Commission in its Carbon Budget advice report in May last year. It had based its recommendations on the assumption the smelter would close in 2024 and that its electricity would become available for other purposes.

But it qualified its comment and forecasts involving the freeing up of the Tiwai Point power but always saying “if” the smelter closed.

Barclay said the joint venture now had a different view on the smelter’s future, that it might not close.

“The question I get asked a lot is can green aluminium and green hydrogen at scale coexist effectively in Southland and New Zealand?” he said.

“And the answer is absolutely yes.

“We’re working on a large number of scenarios, but we think that with the response of demand that hydrogen brings to the market, but also a massive amount of untapped renewable generation available in the Southland region, which is largely unnoticed because of the overhang from the smelter over many years there is an opportunity to have both.

“I think as a country we need to be thinking hard about how to use that renewable energy advantage and where we’ve got export opportunities  and can create high-value jobs; then the conversation needs to be how we might, not can we.”

Meridian already has a wind farm in Southland, and Contact has announced it is looking at establishing wind farms in the South Island.

Energy Resources Minister, Megan Woods, had proceeded on the basis that NZSAS meant what it said in its press statements that the smelter would close in 2024.

On that basis, in February this year, she released a plan on how Southland might transition away from the smelter.

But the release coincided with the latest NZAS statement suggesting the smelter might not close at all.

POLITIK Energy Resources Minister Megan Woods at the summit

Energy Resources Minister Megan Woods has been an enthusiastic supporter of hydrogen exports to Japan since she went there and signed an agreement to facilitate them in 2018.

She is not phased by the possibility that Tiwai may not close.

“The Southern Green Hydrogen proposal is one option for the production of hydrogen, and I think it’s an exciting option, but we’re already seeing other opportunities start to be realised,” she told POLITIK.

“It is an important part of the puzzle, but it’s not the only part of the puzzle.

“So what we’ve seen this morning is that hydrogen is critically dependent on the ability to produce renewable energy at a cheap cost.

“New Zealand can do that well.”

But Woods has her critics, not the least being the Parliamentary Commissioner for the Environment, Simon Upton, who in March sent her a letter warning that there was an opportunity cost involved in using renewable electricity to make hydrogen.

“Producing green hydrogen from renewable electricity in New Zealand would have an opportunity cost because there are potentially better uses for that electricity,” he said.

“The economic and environmental trade-offs need to be explicit and transparently balanced.

The Commissioner also laid out several challenges that must be investigated and discussed before making a decision that would commit significant blocks of renewable energy and government finances to green hydrogen production.

First, the production of green hydrogen remains commercially unproven in New Zealand.

Second, if green hydrogen for export is the end goal, there appear to be better-placed countries with a stronger comparative advantage than New Zealand.

Third, producing green hydrogen for export is likely to make it more difficult and costly for New Zealand to meet its climate change commitments. (that point has also been raised by the Climate Change Commission.)

But, again, Woods is not phased.

“Of course, we have to be thinking both domestically and internationally about what this means for New Zealand in terms of our domestic energy system,” she said.

“But we can’t have our eyes shut to the international opportunities that exist as well.

“I don’t think they’re mutually exclusive.

“I think what New Zealand must ensure is that it’s not left behind.”