Contact and Meridian Energy’s announcement yesterday that they are proceeding with a plan to use the power Meridian currently supplies to the Tiwai Point aluminium smelter to make hydrogen has the potential to raise everyday power prices by as much as 20 per cent.
And the Climate Change Commission has said such a proposal would likely do little to lower New Zealand’s greenhouse gas emissions.
So far, however, the Cabinet, and particularly Energy Minister Megan Woods, have been enthusiastic supporters of the proposal.
The companies are proposing to use the power from Manapouri that currently supplies the smelter to split water into hydrogen and oxygen gases by electrolysis.
The end result is so-called “green hydrogen”.
It would be used to power heavy vehicles and as a replacement for liquefied petroleum gas though most would be exported, probably to Japan and Singapore.
In a statement yesterday, the companies said the proposal had the potential to earn hundreds of millions in export revenue and help decarbonise economies both here and overseas, according to a new McKinsey & Co report.
“The McKinsey & Co report was commissioned by Meridian and Contact, who are investigating the use of renewable energy in Southland to produce green hydrogen at scale, once the supply agreement with New Zealand Aluminium Smelters finishes at the end of 2024,” the statement said.
But the first challenge facing the proposal is that New Zealand Aluminium Smelters have yet to confirm they want to go in 2024.
A spokesperson for the company was enigmatic yesterday when asked by POLITIK what the situation was.
“Our contract with Meridian has allowed us to continue operations until 2024, and we continue to work closely with the community and key partners, such as Ngāi Tahu, to achieve the best outcomes for a transition beyond that date,” the spokesperson said.
Meridian was more emphatic.
“Meridian currently has a contract in place with NZAS, which expires on December 2024. This is when they have told us and the rest of the country that they are planning to exit from New Zealand,” their spokesperson said.
Certainly, the Climate Change Commission is convinced that Tiwai will close.
In its “inaia Tonu Nei” report to the Government setting out carbon budgets, it first looks at what reductions might be achieved without any change to current Government policies.
It says gross long-lived greenhouse gas emissions would fall.
“This is primarily due to widespread use of electric vehicles expected after 2035, the announcement by Rio Tinto that the Tiwai Point aluminium smelter would close at the end of 2024, and the assumption that declining fossil gas supply results in methanol production declining in Aotearoa in the next few decades,” it said.
However, the Commission said that renewable wind and solar generation would need to rapidly expand in the 2030s and beyond to meet increased electricity demand as electric vehicles (EVs) were widely adopted.
“However, in the short term, electricity generation companies may not commit to this expansion in capacity while there is uncertainty around the future of the New Zealand aluminium smelter at Tiwai Point,” it said.
“The New Zealand aluminium smelter is the single largest consumer of electricity.
“Over the last five years, it used on average around 13% per year of the country’s electricity.
“During the course of the Commission preparing its advice, the future of the smelter was under review by its owner Rio Tinto.
“If Rio Tinto decides to close it, this electricity would be available for other uses, delaying the need for new generation.”
In other words, the Commission has identified using the smelter’s electricity as a more economically painless way to provide the power for EVs.
“Over the next few years, the displacement of baseload fossil gas generation with lower-cost wind and geothermal would reduce the average price,” it said.
“The assumed closure of the Tiwai Point aluminium smelter at the end of 2024 causes a further suppression of the price.
“The modelling suggests that the average wholesale price would eventually stabilise at around $70-$80/MWh – this price covers the costs of building new generation to match the growth in electricity demand.
(On July 21 last year, wholesale electricity was $73.85 MWh — on July 21, this year it was $106.16 – but the price varies through the year.)
The Commission said it tested its model to see what would happen if the smelter stayed open.
“If the smelter was to continue operating beyond 2024, the average wholesale price would be around $20/MWh higher, compared to the demonstration path, from about 2025 to 2035,” it said.
That would represent an increase of about 20 per cent on Wednesday’s price.
“The higher price would occur as more renewable electricity generation would need to be built to meet the growth in demand,” the Commission said.
The Commission said that not only would not releasing the Tiwai power into the general market increase power prices but using it for alternative uses such as “creating hydrogen for export, may not directly reduce emissions in Aotearoa.”
However, the hydrogen proposal has been around for some time and has been endorsed by both the Prime Minister and Energy Minister Megan Woods.
“Green Hydrogen” was a central feature of Labour’s “Clean Energy” policy announced by Woods and Jacinda Ardern in September last year.
“Labour will advance green hydrogen opportunities in line with the Green Hydrogen strategy we began work on in our first term,” the police said.
“The next step in the strategy will be a roadmap that will help chart the path towards a more renewable energy system and outline how hydrogen can play a role in decarbonisation and energy resilience.
“The roadmap will focus on accelerating the establishment of an export-orientated green hydrogen sector, optimising the utility of green hydrogen for New Zealand’s heavy transport fleet and to better understand other potential uses, such as to support remote communities.
“ The importance of having a strategic roadmap has been underscored by engagements with international partners wanting to invest in green hydrogen projects in New Zealand.”
It is not clear who those international partners might be, but a week ago, Woods announced that she had signed a hydrogen cooperation agreement with Singapore.
“This memorandum builds on the Singapore-New Zealand Enhanced Partnership signed in 2019 and marks the start of a journey between our two countries to collaborate on the production, deployment and research into a new hydrogen economy,” she said.
“Hydrogen is a key future fuel option that will help us meet our climate goals by enabling us to decarbonise transport and industry applications in particular that will be hard to electrify.
“New Zealand has an abundance of renewable energy that could be used to produce hydrogen, potentially for export, so this cooperation between us and Singapore, one of our most trusted, reliable, and long-standing partners in Asia, is significant.”
A similar agreement was signed with Japan in 2018.
There is already a joint venture involving Japan’s Obayashi Corporation and the Tuaropaki Trust using the trust’s geothermal steam to provide electricity to make hydrogen at Taupo.
And Obayashi is also working to convert Ports of Auckland heavy vehicles to hydrogen.
Vehicles combine hydrogen (stored onboard the vehicle) and oxygen (from the atmosphere) to generate electricity that powers the vehicle.
The only tailpipe emission is water vapour.
And there are plans to have hydrogen replace LPG — the barbeque gas.
In 2019, the Provincial Growth Fund provided $260,000 to investigate how the existing gas infrastructure of First Gas could adapt to transporting hydrogen.
In a statement, the company said it already had sufficient network capacity and a viable strategy for converting its networks to deliver 100% hydrogen by 2050, starting with the introduction of a 20% hydrogen blend from 2030.
“In fact, based on our study, hydrogen could replace natural gas demand across most sectors by 2050,” it said.
“It has the potential to displace natural gas currently used for high-temperature process heat, heating, electricity generation and large-scale energy storage – essential if we want to support a 100% renewable electricity system.”
Meridian Energy confirmed yesterday that it had kept Woods briefed on its proposals and pointed POLITIK to a tweet from the Minister yesterday.
“Great to see the potential for hydrogen to play a significant role to help us achieve our goal of a low emissions economy. Hydrogen offers huge potential as a flexible and clean approach for energy in NZ,” tweeted Woods.
But all that still leaves open the question of where the electricity to charge EVs is going to come from — and how consumers will pay for it.