Source: Energy News
Steve Rotherham – Fri, 17 Mar 2023
The BusinessNZ Energy Council says the proposed Lake Onslow pumped hydro scheme in Central Otago can’t address pressing energy issues that must be tackled in the next few years.
A final investment decision on Lake Onslow isn’t expected until 2026, and the project could then take another nine years to build.
BEC executive director Tina Schirr says New Zealand needs dry-year and demand peak solutions long before 2035, and government should consider solutions for both short and long-term energy issues.
“With the world moving to decentralised options, and with extreme weather events highlighting risk, it is important the Government considers options that are modular, decentralised and spread risk across the country to build resilience,” Schirr says.
“The dry year problem and demand peaks are serious issues for the sector that need to be addressed. But Onslow carries a huge price tag for a solution that isn’t modular and won’t deliver in the next few years.
“Unfortunately, the pumped hydro solution at Onslow will come too late to address the immediate issues facing the energy sector.”
Not only would Onslow not address these issues, but it might also discourage the private sector from tackling them.
A mix of government policies – including not only consideration of Onslow but also the 100 per cent renewable energy target and the ban on new offshore gas exploration permits – has already halted investment in building new gas peakers.
Many industry observers say Onslow could add to this policy-driven generation shortfall.
Generators and business analysts have long warned that approving Onslow would further deter investment in generation and storage.
Energy Resources Aotearoa chief executive John Carnegie reiterated these concerns yesterday.
“This decade we need to see historic levels of new investment in the energy sector – including large-scale electricity generation; natural gas generation and storage; renewable gas and biomass; and demand response,” he says.
“That investment is harder to justify while the prospect of Lake Onslow hangs over the sector. The idea of a Government-owned, taxpayer-funded behemoth dominating the market is bad for business and households.”
Studies released late last year by Concept Consulting and Boston Consulting Group concluded that Onslow’s development – or even speculation that the project will proceed – could suppress investment in flexible generation and storage, or indeed in all forms of generation.
In addition, the project’s scale could deter many renewables developers – particularly the overseas ones now considering New Zealand solar and offshore wind opportunities – from investing in new generation.
Concept argues Onslow would also ‘crowd out’ other forms of flexibility provision.
“It will substantially reduce the returns for investing in demand flexibility at the Tiwai aluminium smelter, or in a potential hydrogen production facility,” its report says.
“This will reduce the international competitiveness of electricity-intensive commodity industries for whom flexibility is a practicable option.
“It will also likely crowd-out potential investment in additional fast-start peakers or other equivalent sources of flexibility which our modelling indicates could be required even before 2030.”
Concept says this “crowding out” and the mismatch in timing between Onslow’s likely commissioning and when substantial new flexibility resources are actually needed will probably increase electricity prices. This would hold back decarbonisation in the wider national economy.
At the BCG report’s launch function in late October, BCG energy practice lead for Asia-Pacific Francois Tibi expressed concern.
“My worry is how do we get through the 2020s,” he says.
Several critics have pointed out that Onslow’s $16 billion budget could fund plenty of other clean energy options.
On NewstalkZB this morning, Manawa Energy chair Paul Ridley-Smith told Mike Hosking that there were smarter and cheaper ways to solve the dry-year and peak demand issues.
“You can build a new geothermal plant – like Contact did recently – for $800 million,” he says.
“You could build 20 of those for $16 billion and completely solve the problem.
“When I saw the $16 billion figure, I thought ‘here’s the off-ramp’. I’m surprised the Government hasn’t taken the off-ramp.”
It’s unlikely that Contact Energy’s Tauhara geothermal project could be replicated 20 times. Nevertheless, $16 billion could buy a lot of generation and storage.
The NZ Battery Project is also scoping alternatives to Onslow, which include a portfolio of flexible geothermal, hydrogen and bioenergy, and possibly also North Island pumped hydro built on a much smaller scale than Onslow.
The budget for these would be about $13.5 billion, but the operating costs would be “significantly higher” than Onslow’s. However, this portfolio would offer a more diverse mix of technologies and locations than Onslow, and possibly also the potential to kickstart new industries. They would also be closer to New Zealand’s largest demand centres.
And they are likely to start delivering increments of energy before 2035.
But would either NZ Battery Project option give the country the best bang for its buck?
The current generation development pipeline has New Zealand on track to reach 98 per cent renewable electricity by 2035 – assuming nothing deters or interrupts those investments.
Is it worth spending $16 billion to squeeze out the last 2 per cent of thermal generation? Or could that be better invested in decarbonising transport and agriculture?