Great article. Of particular interest is the rate of dividend payouts to investment in new generation which has seen capacity rise 6% since 2004, despite population increasing 30%. The New Zealand Official Yearbook for 2004 (available on stats NZ) has this scarcely believable paragraph (hindsight is everything of course):
"Projections suggest that New Zealand will have much slower population growth in the future. The population is currently projected to peak at 4.81 million in 2046.
"Assuming fertility levels remain below replacement level, New Zealand would need a sustained net migration gain of nearly 10,000 a year to reach 5 million. Although annual net migration has exceeded 40,000 in recent years, the external migration balance has also fluctuated widely, with several periods of net migration loss."
This was only 20 years ago, but energy companies (and the government before it sold half of them) needed to recognise it could not rest on its laurels of old plants and had an obligation to invest in new projects, if only to be able to retire old ones
Thanks Eli, bringing demographics into the conversation is an interesting angle that complicates growth projections, as you demonstrate from 20 years ago. I don't think much has changed and the assumptions of growth MBIE run are probably now more on the wildly optimistic side of things. Thats said, I agree we need to build infrastructure with head room for expansion and to lifecycle old plant. It seems that this was the mindset of the 70's but has now been long forgotten.
Agreed. Whether the projection was accurate or not, more energy generation should have been invested in to enable an economy that runs on productive machinery rather than primarily people, and therefore has a higher productivity per hour worked. The fact that the projection was so wrong only makes the picture than much bleaker
Nobody's talked about energy policy very much in this country, or about using domestic energy resources to power industrial development and wean us off the slow puncture of petroleum imports, since the days of Rob Muldoon. Yet it has come back to bite us with our gasfield depletion, which seems to be about as significant as the winding down of North Sea Oil in the UK, a phenomenon similarly overlooked in contemporary discussions of Britain's present malaise, as if nobody remembers the seventies. Does Energy Policy mind if I use one of the graphs, in particular the gas depletion graph, in a post of my own?
Hi Chris, no problem, feel free to use it. It is published by the gas industry company (GIC) their web site can be found here. https://www.gasindustry.co.nz/
It is apathy and perhaps the recent emergence of professional politicians that have no exposure to the productive sector that has lead to forgetting the lessons of the 70's. Listening to Jimmy Carter's 1977 energy crisis speech there was a very real fear of the implications of being energy constrained. This lead to very energy focused policies all around the world including here as you note with the Muldoon Govt. To the extent that we were looking at nuclear in the Kaipara.
We have been living off of these projects ever since but not replacing them and building out to meet our growing demands.
Some very strong points in this analysis, including the government's conflict of interest. But why does the author expect only a "slow trickle of small wind and solar projects and maybe the occasional battery"? Logic not clear. There are plenty of decent size wind and solar projects that are relatively low cost now, with the falling cost of new renewable technology, and could go ahead over the next couple of years, unless the current government-aggravated recession drags on and on.
With regards to the falling cost of solar in particular I fell into the trap of thinking that this was primarily due to technological improvements in the manufacturing process. It turns out that it has more to do with over supply saturating the market. There is something like 40GW of panels in warehouses uninstalled in Europe and 90GW in the US. Much of which was dependent on large scale Govt incentives like the Biden administration's IRA that have likely now evaporated. So now is the time to buy solar panels they will never be cheaper than they are now.
Your earlier post ('fast track fantasies') also made some good points, including that much solar even now becomes available when electricity demand is low. However, electricity storage is increasingly relevant to this, so that solar investment which generates electricity that can be stored for even just a few hours at a cost that is not exorbitant is becoming more economic. Alongside this, micro grid sharing raises the potential for someone to make use of local surpluses, for uses such as EV charging and home heating.
With abundant wind, reasonable sunshine and a few potential hydro resources, NZ is much better placed than other countries for increased electrification of transport and heating, particularly with likely cost reductions in PV cells and batteries. Could also support expansion (!) of industry (data centres anyone ?) Some of the electrification has already been happening but there seems to be no recognition of the opportunities in energy policy.
There is a geographical issue with New Zealand's wind that is not well understood. New Zealand by in large is affected across the whole country by large weather systems simultaneously. Which means that you typically get an all or nothing market dynamic for wind with them all generating or none of them generating all at the same time.
This comes back to privatization and fragmenting of the grid. If it was all owned and operated by one entity this would not be so much of an issue as you could pull back on hydro and geothermal for example when the wind is blowing. In our market however fully, amortized hydro is typically always the cheapest generation and competes with the wind farms making it very hard for them to make money.
Something I don't understand - don't we already have enormous energy storage capacity in New Zealand in our hydro lakes? Is there not some sensible way that we could build up solar and wind and use that power when it's available to displace hydro power and leave lake levels higher?
Nuclear will always be a non-starter due to massive costs, very long lead times, and the need for a highly skilled, dedicated workforce and supply chain - all factors in why it's the most expensive form of generation.
Costs for offshore wind in Europe continue to decline due to massive build out, but it's not clear this would happen here due to differences in continental shelf depth and distance from supply chains.
NZ should rapidly prioritise more onshore wind and solar, and battery storage to shift renewable energy into the evening peaks, and expand geothermal. Drilling tech for geothermal has improved exponentially in the past few years with large scale reductions in cost coming through, plus promising approaches to enabling geothermal in any location.
It's great you highlight the Bradford reforms and government ownership of generators - this seems to be the biggest impediment to fixing this mess.
With regards to offshore wind I would disagree that the costs are declining. Possibly the installation costs but not the hardware as reflected in the large increases in strike rate pricing. Closer to home it is evident that the big offshore wind payers need CFD contracts and offtake agreements to commit which our market does not support. https://newzealandenergy.substack.com/p/floating-away
Geothermal I agree is our best hope and I would like to see this accelerated.
Thanks for your thoughtful and considered comment.
Great comment Andrew. Yes, geothermal is a high-quality energy source and it is an oversight on my behalf that is well worthy of inclusion. In terms of conventional geothermal my understanding is that there is scope for growth, but it is somewhat geologically constrained. That said an addition of another 200-300MW being bought online quickly would make a very big difference to our current predicament.
Geothermal is not without technical challenges in terms of H2S and metallurgy but you are right to highlight it as our best short-term option.
Longer term there is a lot of talk about Taupo having the potential for super critical geothermal (SCGT) which is a closed loop system that if the hype is to be believed could give as much as 2GW. For reasons I don't understand the lead time for this is more than 10 years. Possibly this is driven by drilling technology or the transmission network, I shall investigate further.
Adding 1-2GW of baseload would be a game changer for NZ and SCGT can do that and do it fast then I'm all in! The implications of this would be huge. Taupo is in the right place geographically relative to demand, it would pair well with hydro, Huntly could be decommissioned, and it would see a lot of wind and solar projects going broke.
We now live in the USA but I married a Kiwi and worked at Tiwai smelter for about 8 years. starting in 1977. FYI attached is a substack from "Energy Bad Boys" on Chris Wright our new Secretary of Energy:
Great article. Of particular interest is the rate of dividend payouts to investment in new generation which has seen capacity rise 6% since 2004, despite population increasing 30%. The New Zealand Official Yearbook for 2004 (available on stats NZ) has this scarcely believable paragraph (hindsight is everything of course):
"Projections suggest that New Zealand will have much slower population growth in the future. The population is currently projected to peak at 4.81 million in 2046.
"Assuming fertility levels remain below replacement level, New Zealand would need a sustained net migration gain of nearly 10,000 a year to reach 5 million. Although annual net migration has exceeded 40,000 in recent years, the external migration balance has also fluctuated widely, with several periods of net migration loss."
This was only 20 years ago, but energy companies (and the government before it sold half of them) needed to recognise it could not rest on its laurels of old plants and had an obligation to invest in new projects, if only to be able to retire old ones
Thanks Eli, bringing demographics into the conversation is an interesting angle that complicates growth projections, as you demonstrate from 20 years ago. I don't think much has changed and the assumptions of growth MBIE run are probably now more on the wildly optimistic side of things. Thats said, I agree we need to build infrastructure with head room for expansion and to lifecycle old plant. It seems that this was the mindset of the 70's but has now been long forgotten.
Agreed. Whether the projection was accurate or not, more energy generation should have been invested in to enable an economy that runs on productive machinery rather than primarily people, and therefore has a higher productivity per hour worked. The fact that the projection was so wrong only makes the picture than much bleaker
Nobody's talked about energy policy very much in this country, or about using domestic energy resources to power industrial development and wean us off the slow puncture of petroleum imports, since the days of Rob Muldoon. Yet it has come back to bite us with our gasfield depletion, which seems to be about as significant as the winding down of North Sea Oil in the UK, a phenomenon similarly overlooked in contemporary discussions of Britain's present malaise, as if nobody remembers the seventies. Does Energy Policy mind if I use one of the graphs, in particular the gas depletion graph, in a post of my own?
Hi Chris, no problem, feel free to use it. It is published by the gas industry company (GIC) their web site can be found here. https://www.gasindustry.co.nz/
It is apathy and perhaps the recent emergence of professional politicians that have no exposure to the productive sector that has lead to forgetting the lessons of the 70's. Listening to Jimmy Carter's 1977 energy crisis speech there was a very real fear of the implications of being energy constrained. This lead to very energy focused policies all around the world including here as you note with the Muldoon Govt. To the extent that we were looking at nuclear in the Kaipara.
We have been living off of these projects ever since but not replacing them and building out to meet our growing demands.
Thanks! Must mentally highlight the bit about "professional politicians that have no exposure to the productive sector," as well.
Awesome article so true and our poor politicians are so naive 😢
Thanks Peter! Glad you enjoyed it.
Some very strong points in this analysis, including the government's conflict of interest. But why does the author expect only a "slow trickle of small wind and solar projects and maybe the occasional battery"? Logic not clear. There are plenty of decent size wind and solar projects that are relatively low cost now, with the falling cost of new renewable technology, and could go ahead over the next couple of years, unless the current government-aggravated recession drags on and on.
Ralph Chapman
Thanks Ralph, for my thoughts on why this will be a slow trickle see an earlier post https://newzealandenergy.substack.com/p/fast-track-fantasies.
With regards to the falling cost of solar in particular I fell into the trap of thinking that this was primarily due to technological improvements in the manufacturing process. It turns out that it has more to do with over supply saturating the market. There is something like 40GW of panels in warehouses uninstalled in Europe and 90GW in the US. Much of which was dependent on large scale Govt incentives like the Biden administration's IRA that have likely now evaporated. So now is the time to buy solar panels they will never be cheaper than they are now.
Thx NZ Energy
Your earlier post ('fast track fantasies') also made some good points, including that much solar even now becomes available when electricity demand is low. However, electricity storage is increasingly relevant to this, so that solar investment which generates electricity that can be stored for even just a few hours at a cost that is not exorbitant is becoming more economic. Alongside this, micro grid sharing raises the potential for someone to make use of local surpluses, for uses such as EV charging and home heating.
Cheers, Ralph
With abundant wind, reasonable sunshine and a few potential hydro resources, NZ is much better placed than other countries for increased electrification of transport and heating, particularly with likely cost reductions in PV cells and batteries. Could also support expansion (!) of industry (data centres anyone ?) Some of the electrification has already been happening but there seems to be no recognition of the opportunities in energy policy.
There is a geographical issue with New Zealand's wind that is not well understood. New Zealand by in large is affected across the whole country by large weather systems simultaneously. Which means that you typically get an all or nothing market dynamic for wind with them all generating or none of them generating all at the same time.
This comes back to privatization and fragmenting of the grid. If it was all owned and operated by one entity this would not be so much of an issue as you could pull back on hydro and geothermal for example when the wind is blowing. In our market however fully, amortized hydro is typically always the cheapest generation and competes with the wind farms making it very hard for them to make money.
Something I don't understand - don't we already have enormous energy storage capacity in New Zealand in our hydro lakes? Is there not some sensible way that we could build up solar and wind and use that power when it's available to displace hydro power and leave lake levels higher?
Nuclear will always be a non-starter due to massive costs, very long lead times, and the need for a highly skilled, dedicated workforce and supply chain - all factors in why it's the most expensive form of generation.
Costs for offshore wind in Europe continue to decline due to massive build out, but it's not clear this would happen here due to differences in continental shelf depth and distance from supply chains.
NZ should rapidly prioritise more onshore wind and solar, and battery storage to shift renewable energy into the evening peaks, and expand geothermal. Drilling tech for geothermal has improved exponentially in the past few years with large scale reductions in cost coming through, plus promising approaches to enabling geothermal in any location.
It's great you highlight the Bradford reforms and government ownership of generators - this seems to be the biggest impediment to fixing this mess.
Yes, I agree the nuclear opportunity has been missed in New Zealand since it was abandoned in the 70's https://newzealandenergy.substack.com/p/nuclear-new-zealand
With regards to offshore wind I would disagree that the costs are declining. Possibly the installation costs but not the hardware as reflected in the large increases in strike rate pricing. Closer to home it is evident that the big offshore wind payers need CFD contracts and offtake agreements to commit which our market does not support. https://newzealandenergy.substack.com/p/floating-away
Geothermal I agree is our best hope and I would like to see this accelerated.
Thanks for your thoughtful and considered comment.
Excellent summary of the current situation, from our point of view at least. Really appreciate your clarity of thought around this worrying plight.
Geothermal identified as one of the potential base load growth areas, but then not discussed further (although nuclear and more hydro problems are)?
Great comment Andrew. Yes, geothermal is a high-quality energy source and it is an oversight on my behalf that is well worthy of inclusion. In terms of conventional geothermal my understanding is that there is scope for growth, but it is somewhat geologically constrained. That said an addition of another 200-300MW being bought online quickly would make a very big difference to our current predicament.
Geothermal is not without technical challenges in terms of H2S and metallurgy but you are right to highlight it as our best short-term option.
Longer term there is a lot of talk about Taupo having the potential for super critical geothermal (SCGT) which is a closed loop system that if the hype is to be believed could give as much as 2GW. For reasons I don't understand the lead time for this is more than 10 years. Possibly this is driven by drilling technology or the transmission network, I shall investigate further.
Adding 1-2GW of baseload would be a game changer for NZ and SCGT can do that and do it fast then I'm all in! The implications of this would be huge. Taupo is in the right place geographically relative to demand, it would pair well with hydro, Huntly could be decommissioned, and it would see a lot of wind and solar projects going broke.
I think an "if" was left out before "SCGT can do that."
Yes, correct still a big "if".
We now live in the USA but I married a Kiwi and worked at Tiwai smelter for about 8 years. starting in 1977. FYI attached is a substack from "Energy Bad Boys" on Chris Wright our new Secretary of Energy:
https://energybadboys.substack.com/p/chris-wright-is-right-keep-the-coal?publication_id=1664779&utm_medium=email&utm_campaign=email-share&isFreemail=false&triedRedirect=true