Source: Energy News
Eamon Road – Thu, 1 Jun 2023
New Zealand can keep fossil fuels in the energy mix and meet climate targets by locking in emission reductions early, a BusinessNZ Energy Council report suggests.
The organisation’s latest modelling found coal and gas use potentially rise under its ‘Kea’ scenario without exceeding budgets outlined in the Government’s emissions reduction plan.
Kea envisions a more aggressive policy approach to reducing emissions, with large-scale buy-in from businesses and the public. BEC compares this with Tui, where climate change isn’t considered a top priority, in its Energy Strategy Deep-Dive report.
Emissions may rise out to 2060 under Kea if bioenergy costs – particularly woody biomass – rise significantly or there is little progress on reducing reliance on private vehicles. But the ERP’s second budget for 2035 can still be met.
Meeting targets for 2035 and beyond is less likely under Tui. BEC notes that rebalancing the energy system is more complex under this scenario.
BEC says the implication is that Kea’s aggressive pursuit of emissions reductions earlier leaves “a degree of headroom” that provides long-term resilience to system shocks. This occurs without breaching New Zealand’s climate commitments.
BEC executive director Tina Schirr says that underscores the importance of optionality in the energy mix.
“New Zealand’s energy system can best reflect the findings of this deep dive by ensuring we have options for all types of fuels,” she says.
“The more options we have, the more resilience, the lower emissions, and lower costs we are likely to have.”
Methanex leaving?
A gas sensitivity modelled as part of the study attempts to test the effect on the gas market if Methanex leaves the country.
The methanol producer is by far New Zealand’s largest gas customer, accounting for about 40 per cent of the market. Removing this keystone by 2032 under Kea and 2047 for Tui has a dramatic effect on gas prices.
These rise to $35 per gigajoule from less than $10/GJ today, plus a $4/GJ cost-of-storage if the electricity sector still needs natural gas for peaks and dry years.
That would have far-reaching effects. Gas consumption would fall in industrial, commercial, and agricultural sectors as well as in electricity generation.
Woody biomass would fill most of the gap in industrial uses, with small increases in coal, diesel, and electricity. More demand for wood in direct heat applications would significantly reduce its availability in the power sector. [factfile]
Higher gas prices lead to significant increases in renewable generation, mostly wind and solar, in both scenarios. Electricity and hydrogen increase as well. Tui leads to more commercial diesel use while Kea utilises more wood pellets.
BEC notes that it isn’t forecasting a Methanex departure but illustrating the effects of such a major event for the sector.
“We simply need to understand the impact on the energy system should a major gas user leave.
“In other words, a stressed market that has just lost its biggest customer.”
Complications
There are possible complications.
Emissions rise in both scenarios if domestically produced woody biomass doubles in price to $20 a gigajoule, as firms seek cheaper but more emission-heavy fuels.
Overall costs increase under Tui, which Kea manages to avoid. But that is more than offset by consumers paying higher carbon charges.
“While the cost of adaptation was relatively minor, the emissions increase stood out amongst all sensitivities conducted, suggesting that there were no competitively priced low-emissions alternatives,” BEC says.
BEC also tested what would happen if coal were banned by 2037, with exceptions for niche applications like steel making.
This reduces emissions in both scenarios, but only barely, and has no effect on cost. It’s also the only sensitivity without any influence on wider fuel choices. BEC says that suggests fuel switching is doable without any bans and at a similar cost.
“The scenario modelling indicates there is value in ensuring a wide scope of low-emissions energy options is possible to support the management of uncertainty,” BEC says.
“Don’t put sand in the cogs.”