Geothermal gathers steam

The geothermal industry is in a growth phase, says association chief BRIAN WHITE. Total consumption in 2006 was 38,740GW and has been escalating by about 660GW every year over the past three decades.

Geothermal generation currently supplies about 7.6 percent of the country’s total power, generated by stations with a capacity of 450MW. Growth equates to the supply from a new 85MW base-load geothermal station each year.

The Government’s Energy Strategy shows that geothermal investment appears competitive, with a wide range of generation sources, and so presents a strong opportunity. After deleting protected fields from consideration, and de-rating fields that are close to population centres and may draw local opposition, there is the equivalent of around an additional 1000MW to 1200MW available.

The historic generation of electricity from geothermal sources has seen at least four significant phases. Fifty years ago, there was the Wairakei (and Kawerau) development. Twenty years ago, Ohaaki was launched, although output from this station has dropped off significantly. And 10 years ago, there emerged a collection of stations, some developed by the old electricity supply authorities prior to legislation restricting their involvement in generation and retail. These also including the Mokai station. Recent station expansions include Rotokawa 2, Mokai 2 and 3, and the Wairakei binary plant.

Then, there are the ongoing efforts to maintain or increase generation from existing facilities. Steam-winning in the Te Mihi area has recently provided enough to load Wairakei and Poihipi, with a full load at Poihipi expected in 2008. Ohaaki’s output dropped dramatically after commissioning, though some of this declined was planned for. In September 2007, the output of the station was down to 25MW, but an active steam winning project has seen that increase to around 55MW net by mid-November 2007. While these steps do not represent increases in installed capacity, they do represent real low-cost gains in generation.

There may be some larger efficiency improvement investments possible, too. The proposed Te Mihi development, for instance, not only replaces the old Wairakei plant, but is expected to gain 67MW through improved efficiency.

Electricity prices push expansion

The most recent expansions in geothermal capacity have been partly driven by the rising wholesale electricity price, pushed up by increasing fossil fuel prices. Until 2003, the low contract price of Maui gas essentially under-cut many energy supply options, including geothermal energy. The impending end of the operational supply from the Maui field has already led to a renegotiation of gas supply contracts and a wholesale gas price that has more than doubled for some consumers. Major thermal generators are now taking positions on various gas fields to secure options.

Despite a generally positive impression of geothermal development opportunities, the only generator companies actively developing new resources for projects are Contact Energy and Mighty River Power. Tuaropaki Power Company is a flexible company that invests in Mokai-specific geothermal generation and other opportunities with minimal staff resources. Bay of Plenty Electricity maintains an active interest in generation projects in its area, along with a team of project leaders and operators who could implement projects if one was selected. Top Energy has actively pursued a further stage of the Ngawha project, with operational and project staff. Norske Skog Tasman has invested in a replacement geothermal turbine on its site, using its normal process and project management skills, and contracted forces.

Contact Energy, formed in the initial break up of the Electricity Corporation, inherited a core collection of New Zealand geothermal development and operations expertise. It also came with station and steamfield assets on the Wairakei-Tauhara and the Ohaaki geothermal fields, and land interests at Mokai. Recent efforts have been directed at maintaining or maximising the use of current interests at the Wairakei-Tauhara and the Ohaaki resources. These resources are valuable and – based on simple stored heat assessment (see the NZGA website) – could eventually enable more than 500MW of generation, including current output.

Outside of Wairakei-Tauhara and Ohaaki, Contact has an agreement for the purchase of Ngawha electricity for retail purposes. It also sits on the Mokai steamfield development committee, because of the land interests secured by ECNZ over Pukemoremore. Through these interests, and in co-operation with the Mokai steamfield committee, Contact may eventually develop a Mokai 4 stage.

Mighty River Power (MRP) has established a significant geothermal team, largely based in Hamilton, with a plan to progressively develop projects over time. MRP’s chair, Carole Durbin, and chief executive, Doug Heffernan, jointly indicated the strategic role of geothermal development to their company in their 2006 Interim Report. Here, they specifically indicated an intention to develop 400MW of geothermal energy over the next five to 10 years.

MRP has been assisted by valuable information from legacy science and drilling undertaken by government agencies more than 20 years ago. It has already supplemented this on some fields with its own surveys and additional wells. Land negotiations are known to be an issue for any developer, and MRP has settled in for the long haul when it comes to developing relationships.

MRP has also invested in exploration wells in Mangakino, Kawerau and Rotokawa. The Mangakino wells were a brave step, but appear to have helped firm up a strategy for field development that is largely focused on brownfields, but also includes Ngatamariki – based on MRP’s 2006 Interim Report.

MRP still appears to be bullish about resource consents, too. The already secured consents for Kawerau will probably have been among the most difficult, being for development of a resource underlying major mills and the town of Kawerau. While there were appeals, the total time from consent application lodging to a final decision was seven months. This is in contrast with the six years to finalise the re-consenting of the existing Wairakei development by Contact – the consents were applied for in 2001and didn’t come into effect until late 2007. While there are clear differences between the associated projects, it is these two very different experiences that have helped to set the views of MRP and Contact respectively regarding consents.

At the time of writing, MRP has lodged an application for consents for a major Rotokawa expansion, with the expectation that a decision  would be in place by December 2007. This is a clearly identified development field under Environment Waikato’s planning regime.

A low risk strategy is available to MRP to achieve its 400MW target, just based on stage developments of Kawerau, Rotokawa, and Ngatamariki. The Mokai field is significantly developed already, though monitoring combined with field reservoir modelling may eventually support further development there. These few fields present an opportunity for possibly more than 500MW of electricity generation development.

It is understood that Genesis has an active watching brief on the technology, while TrustPower has previously expressed interest in geothermal development and still has some interest in the Rotoma geothermal field. However, it will be many years before its interests will be commercially viable.

A number of Maori trusts have an active interest in geothermal development for electricity generation or for heat. It should be borne in mind that these already have operating business ventures and recognise the potential commercial value of geothermal resources below their land. The Geothermal Association wants to find ways to encourage these groups to move to decision points, either for independent development or development linked to others. There are already successful precedents, such as the diversified Tuaropaki Trust interests.

Foreign investment

In Australia, there are currently 27 to 30 geothermal development companies investing in difficult and expensive deep drilling projects. Some of these may eventually look to easier targets for investment, such as those found in our high temperature fields.

The market in which developers operate requires a greater degree of vertical integration to reduce risks. This will mean all parties will need to maximise involvement in fuels, generation and retail. The other major change will be the carbon economy, with carbon prices likely to be volatile. How this will translate into restructured organisations is unclear at the moment, although it will almost certainly involve greater attention to forestry and timely renewable energy projects, and may see increased interest in our largely renewable companies from overseas investors.