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Heroic and pioneering decisions to construct large-scale hydro projects over the last 100 years have seen New Zealand’s energy sector develop as one of the world’s cleanest and have underpinned the country’s clean, green brand. As the world moves towards pricing carbon and as thermal fuels continue to increase in price, the hydro generation base also provides this country with an enduring competitive advantage. But while hydro electricity generation has provided the foundation for New Zealand’s economic development to date, we also face many of the challenges that our trading partners are struggling with:
These three challenges – the desire for the lowest price, lowest environmental impact and highest level of energy security – compete against each other. Burning coal, for example, delivers a high level of security, but will be impacted heavily by carbon pricing and contributes to climate change. Wind, on the other hand, is likely to be competitive on price some time in the future and by itself contributes no greenhouse gases, but provides no guaranteed contribution to peak energy security. So how do we proceed? How do we strike the best balance between these competing demands? The shifting generation mixElectricity demand is expected to continue to grow at around two to two and a half percent per annum. In addition, it is forecast that the 1000 megawatts of coal-fired generation at Huntly will transition to function more as a reserve role so, not only do we have to develop energy resources to meet the country’s rising demand, but also replace retiring thermal plant that has been critical to energy security. So where does that leave us? What are our best options? Geothermal is the most strategically important source of new electricity generation for New Zealand. It’s the most cost effective of all the options, it produces relatively small amounts of greenhouse gases and generates baseload electricity with a high reliability factor. It is critical that the country’s geothermal options are sensibly and sustainably developed to replace any thermal plant that is retired, ensure energy security, mitigate exposure to carbon pricing and deliver the most cost effective energy options to consumers. This is Contact’s development priority, with 500 megawatts of geothermal projects under various stages of development. But the geothermal resource is finite and cannot be developed indefinitely. Even if we could replace Huntly’s output with geothermal, how then to meet growth in demand? Wind will continue to play a role, but there are limitations. We are already witnessing the impact of increasing wind penetration on system and price volatility and, increasingly, the cost of wind will also need to include the costs of the peaking plant that is required to firm it. Hydro’s critical roleThe short answer is that hydro generation will play a critical role in our energy future. Hydro generation is price competitive with wind, and economic alongside gas-fired generation under only moderate carbon and gas price scenarios. It’s clean, renewable, has no carbon emissions, and a hydro power station can provide that energy for generations to come – just like our existing hydro stations have. While it’s still obviously weather-dependent, hydro provides much greater system stability and reliability than wind, can contribute to peak demand management and can, to some extent, provide a limited balance to wind’s variability. We need more hydro. We have some very good hydro generation development options. So how do we go about it? The answer is that it won’t be easy. It’s not easy to consent any large renewable projects – if anything, various consenting decisions in 2009 have shown that it’s getting harder and harder. There is an increasing reluctance for people to see where their electricity comes from, that arises at the same time as demand is growing, concern around security of supply is increasing, and consumers are demanding the development of the most cost effective energy sources. It’s incredibly difficult to develop any energy project in New Zealand at the moment without significant levels of opposition. This is particularly true of large-scale renewables. As an industry, we need to take some responsibility for this situation. Sure, there are individuals and groups who will vigorously oppose any local development, but the industry has not done enough to explain to consumers how the sector works, where our electricity comes from, and why more development is critical to the country’s economic success. As a result, there is a disconnect in the minds of many consumers between the electricity that powers their lives and the need for power stations. It’s easy to oppose something when you don’t make the link with how important it is to your quality of life. The Clutha projectThis disconnect is something Contact wants to turn around. We’ve started doing this with a discussion around the need for a new hydro generation project on the Clutha River in Central Otago. We believe the Clutha strikes the best balance between a range of competing demands and represents one of the country’s most important long-term energy options. The Clutha has the potential to generate large volumes of electricity. Importantly, it’s already a modified hydro catchment with two large hydro dams on it at Clyde and Roxburgh. Contact’s preference – and that of a number of stakeholders – is for new hydro to be built on previously modified waterways, to avoid the need to disrupt unaltered rivers. Contact is actively investigating four options for hydro development on the Clutha which the company inherited from the old Electricity Corporation of New Zealand. The four options range in terms of capacity (roughly from 100 to 350 megawatts) and area of inundation, but each represents getting more renewable energy out of an already modified waterway. Contact believes one of these options will need to be developed over the next 10 years. That’s why we have started our conversation with the community now. Whilst the overall trend remains a South to North energy flow, there has been an increase in the periods where the nation’s energy flow is from North to South. Over the last 10 years electricity demand has been growing in the South Island at a faster rate than in the North Island, yet over that same period there has been almost no new electricity generation capacity built in the South Island. The North Island is picking up more and more of the load. The South Island needs new generation capacity and the best current renewable options are hydro and wind. The Clutha River offers some of our best hydro options. Future of energyWe often get asked about tidal power and solar energy. There is a great deal of research and development going into these potential fuel sources and there is good potential for these to be sources of energy for the country in the future. But these fuel sources are not cost competitive and are unlikely to be in the medium term – in fact they are a great deal more expensive than traditional wind, hydro, geothermal and thermal plant. We will move towards new ways of generating electricity over the coming decades. In the meantime, our challenge is to sensibly develop our resources to maintain supply security and to minimise our greenhouse gas emissions and price impact on consumers. Contact believes we have a responsibility to ensure our existing hydro catchments are as efficient as possible in order to achieve these goals.
Energy NZ Vol.4 No.1 Energy Perspectives 2010 |
New Zealand’s economy, and our quality of life, has been built on the back of it strong hydro electric generation base and it’s the reason why we need new hydro development. By James Kilty, Contact Energy’s director of renewable generation.