Environment Minister David Parker may not have been the most popular Minister at the Agricultural Fieldays in Hamilton yesterday, but he can return to Wellington confident that his previous backing of the Onslow pumped hydro scheme may prove to be the right bet.
In contrast, the support of his colleague, Energy Minister Megan Woods, for the Southern Green Energy project may turn out to be a loser.
This almost counter-intuitive finding was unveiled this morning by the Parliamentary Commissioner for the Environment, Simon Upton who commissioned a report to look at the country’s electricity generation options as it decarbonises.
The findings will also make National’s energy policy look ridiculous, given that it has pledged to immediately scrap all work on Onslow if it forms the next government.
What will leave even more egg on National’s face is that it has generally taken notice of what Upton has had to say on issues like the Natural and Built Environments Bill and climate change.
And, after all, he is a former National Minister and a pretty significant one at that.
Ministers last night were scrambling to get on top of the report, but none were ready to comment.
Similarly, a request for comment from the promoters of Southern Green Energy, Meridian Energy, drew no response.
Upton says he commissioned the study to look at the options facing the country as it decarbonises.
He says there are three ways we can meet future demand in a world without fossil generation.
We could overbuild renewable capacity to compensate for intermittency, incentivise consumers to reduce their demand, particularly at peak times or seek to store renewable energy harvested at times when it is plentiful.
From that, he derived three options for the study:
- Closing Tiwai Point aluminium smelter.
- Using renewable energy to manufacture hydrogen, with the option of reducing production when demand is high and renewable energy is scarce.
- Building pumped hydro electricity storage at Lake Onslow
“The results of this exercise are in themselves interesting enough,” he says.
“They cannot, by themselves, form the basis of a decisive view in support of one pathway over another.
“It is, after all, a modelling exercise and is only as good as the assumptions on which it is based.
“Furthermore, there are many important issues that are not addressed, such as the possible economic benefits of a significant hydrogen export industry or what any number of technological breakthroughs could do to the cost of currently expensive options like off-shore wind or chemical batteries.
“Similarly, the environmental consequences of operating a large pumped hydro storage facility have not been addressed.
“The modelling focuses purely on the price of electricity paid by consumers and the associated system-wide costs under different future electricity pathways.”
The simplest solution would be to close down the Tiwai Point aluminium smelter.
It uses 13 per cent of the country’s total generation.
Its closure would give the whole electricity system its quickest renewable boost.
And unlike the hydrogen project or Onslow, it would involve no major new construction or development costs, making it the lowest-cost option.
The primary costs for closing Tiwai Point would be the lost tax revenues to the government from the export of aluminium and lost wages to staff working at the smelter as well as suppliers, contractors and other flow-on effects to the economy, the report said.
“This pathway produces the lowest residential electricity price and results in the highest NPV over the modelling period when compared with the other scenarios giving this pathway the highest economic benefit,” the report concluded.
“This pathway also brings down emissions the fastest over the first decade, but emissions slowly rise again towards 2050 as new fossil powered flexible generation is required to manage supply intermittency and dry year risk.”
The Southern Green Hydrogen Project already has a supporter in the Beehive with Energy Minister Megan Woods, and the Ministry of Business Innovation and Employment has begun work on a regulatory regime for a green hydrogen industry.
The project’s main shareholders are Meridian, Mitsui, Woodside Petroleum and Ngai Tahu, which may be a shrewd political move by Meridian, who have been the lead promoters.
This year’s Budget included $100 million to be spent as a rebate over the next four years for a small number of early adopters in hard-to-abate industries in reducing emissions by 150,000 tonnes — equivalent to cancelling the emissions of “hundreds of trucks”.
But Upton’s report assumed that all the hydrogen produced would be exported.
It also assumed the Tiwai Point aluminium smelter would continue to operate, so the hydrogen plant would need around six to ten per cent of the country’s total generation to produce 500,000 tonnes of hydrogen and ammonia.
Thus the hydrogen plant would require a massive increase in renewable generation, and it would most likely require compensation if it was required to cease hydrogen production during a dry year when the country was faced with electricity shortages from a lack of hydro-generation capacity.
The sheer quantity of new renewables that would be required to support the development of a Southern “Green Hydrogen project without the closure of Tiwai Point would push electricity infrastructure in the South Island to its absolute limits requiring significant grid upgrades to occur,” the report said.
The consequence could be higher electricity prices, possibly by as much as six per cent in Auckland.
The Lake Onslow pumped hydro scheme is already controversial.
It would pump water up into its dam when rivers were running full between September and April and at times when electricity prices were low, probably overnight.
It would then use that water to produce electricity during the peak winter demand period. The report estimated that during a normal year, it could produce about a third of the electricity currently produced by the Huntly thermal station, New Zealand’s largest generator.
But its estimated construction cost of up to $15 billion has led the National Party to promise to scrap it immediately on becoming the government.
“Advancing a project with a $16 billion price tag in the midst of a cost-of-living crisis makes a mockery of Chris Hipkins’ claim that the Government would focus on bread-and-butter issues,” said the party’s energy spokesperson, Stuart Smith.
“At a time when we should be reigning in spending and focusing on improving the outcomes for Kiwi households, Labour remains fixated on a massively wasteful project which will not be delivered until at least the mid-2030s.”
But Smith’s statement is disingenuous because a Cabinet paper released before he made his statement in March indicates that a decision to go ahead would not be made until 2025 and construction on the project would be unlikely to begin until 2027.
It is unlikely that the country would be facing a “cost of living crisis” until then.
Onslow is the biggest saver of emissions of the three scenarios.
Upton’s report finds that the annual emissions savings from Onslow (including from the construction of Onslow) would be equivalent to around 0.06% of New Zealand’s total emissions.
But where Onslow really wins is its impact on electricity prices. Because it would even out the peaks in the pricing system, it would lead to overall lower prices.
“Even though there are high upfront capital costs, they are outweighed by the system-wide benefits of lower wholesale electricity prices,” the report said.
Upton is clearly passionate about the need for a nationwide debate on the various generation options.
“As a young man, fully a generation ago now, I witnessed a seriously flawed debate about the energy sector projects that erupted in the wake of the oil shocks of the 1970s,” he said.
“The fortuitous (as it was then) discovery of vast off-shore gas resources sparked a rush to invest in energy security.
“Many of those investments were controversial; some of them proved to be extremely costly.
“All of them had system-wide consequences that created a path dependency from which New Zealand must now extricate itself.
“The absence of publicly available information to expose the ‘Think Big’ era projects to proper scrutiny was widely lamented at the time.”
The hope that we might avoid a repeat of that is why he has produced the report.
“Today’s decarbonisation challenge is every bit as significant, and the scale of investment required even greater,” he concluded.
“We are already seeing significant public subsidies being extended to technologies that are claimed to be part of the future.
“There are hard choices to be made.
“There is no perfect solution, and none of us can predict the future of technology or the shape of the economy on a warming and climate-disrupted planet.
“The most we can hope for is high-quality decision-making based on the even-handed treatment of the options.”