IMO the issue is two fold - 1 is the gas ban and the way labour hs politicised fossil fuels so that no company can build decent sized baseload capacity.
2. The mass of intermittent renewables coming online rhst require both capacity and energy backup but which can only be supplied by hydro or flexible thermal like Huntly. Neither of which can be built.
This isn't a market failure. Even if we had a capacity market we would t get an efficient outcome because the energy sources we need are "out of bounds"., not allowed. This is a failure that can be laid squarely at the feet of Ardern and the Greems and Labour and the climate change idiocy.
Hi Louise, the gas ban has been very destabilising it has created a large sovereign risk that prevents investment. My opinion at the time was that the government would find itself being the lead investor in gas projects as a result. Here we are a few short years later and that idea has found its way into the budget.
I also agree that as the build out of renewables increase we need increasing firming capacity but don't have the tools to achieve this. We are in fact going the opposite direction with the TCC unit being decommissioned which is a critical strategic asset going forward. Perhaps some of the geothermal coming online will offset this.
Louise, you are overlooking the fact that in the ten years prior to the gas ban there were no substantial gas finds in NZ and that the gas ban only banned ‘new’ exploration not commercialisation. We must walk away from thermals, especially based on imported coal coming in little ships. Please. Let’s have some more sensible input than Green bashing, all it does is over-rate what they achieved. Not much
Ps it's not green bashing as much as stating that they are do such stupid things based on stupid ideology. Perhaps they are not actually dumb but if not why do they say such dumb things?
Sorry we "must walk away from thermals"???? Why? Got any basis for this statement.
IMO we cannot, with current tech and inability to build more large hydro, have a secure, stable, reliable system without building more thermal plant. How do you think that is going to be achieved?
Louise, we are in the midst of a transition from explosions to electrons. Thermals are a mature technology with 150yrs of investment behind them. The new power technologies have only just got going & their costs are declining rapidly as their capabilities growth. Let go of the old & embrace the new, it will convince you.
Good luck running g a power system on intermittently available resources. "I'm sorry sir, you can only turn your lights on and hear your house beteeen 10 am and 4pm while the sun is shining".
True, if you run a stand alone solar system without batteries. An integrated system of solar, wind geothermals and hydro can keep the lights on all hours and all without burning fossil fuels.
Fully agree, add to this the complexity of the grid that now needs assets that do not have good business cases due to low utilisation but are critical for reliability. The market cant address these issues well.
So yes in some form is the answer to that question.
Agreed. It will be bureaucratic & have in built inefficiencies which is ok if the lights stay on. I would leave our elected politicians in charge, totally unable to delegate to an elected Board so if they f.. it up we get to vote them out. Put an unelected Board in place and you end up with the kind of shambles AT is delivering for Auckland.
So they can borrow and buy out the public shareholders in the gentailers at the same time scrap all climate funding and scrap ETS incentives the new NZED to reduce energy costs after all these gentailers are driven by self interest and the same will apply to the new set up otherwise as you say we have no rudder only the PR people from the gentailers
There are a lot of inbuilt costs that once stripped out would create some headroom for something like this, the ETS being one of them. Great comment Peter.
Not unlike the energy crisis unfolding around us across 'The Ditch' in Oz! Australia's Energy Policy is a 'dogs breakfast'. Comprising (as reported recently to the 2024 Senate Select Committee on Energy Planning and Regulation) some 2,000 pages of T's & C's & sometimes changing as often as 3-more variations/amendments per week. What a way to run an essential service.
What's needed is adoption of sensible Energy Policies in our respective countries to replace the flawed, anti-competitive versions currently in-situ, supposedly to solve a non-problem.
In the absence of empirical evidence proving the case against CO2 (there isn't any), how about adoption of a sensible Energy Policy that's fair to all (including the unreliables of wind & solar-PV's), is market driven & works from the consumers interests back, NOT from the energy industry’s interests forward that;
• Is Technology agnostic;
• Removes current anti-competitive subsidies favoring the unreliables;
• Requires industry to comply with clearly defined QOS (Quality of Service) standards of reliability & availability (i.e.; 99.98% reliability as per current AEMO specs in Australia);
• Invites industry to commit by way of auction (a week or a month IN ADVANCE of the offered opportunity) to provide reliable 24/7, base load power at their best competitive price(s);
• Imposes SUBSTANTIAL financial penalties upon power generators for failure to deliver in accord with their mandatory QOS obligations (Force Majeure notwithstanding eg earth quakes, floods, bushfires, tornados etc);
• Requires a substantial bond to restore the environment (i.e. recycle aged solar-PV’s & wind turbine blades etc as is already commonplace in the coal mining industry);
• Repeals anti-competitive CO2 legislation i.e., in Australia that would be the Safeguard Mechanism, LRET, RET etc. In NZ, probably something similar, but under a different name.
Thus, let market forces prevail on a level playing field.
Doubtless, some Eco-enthusiasts will invest in their perceived market opportunities associated with the unreliables plus ‘firming’ (i.e., back-up by way of batteries etc, but at their cost) to meet mandatory QOS reliability obligations.
Whereas others might be just a titch more circumspect, investing in proven, reliable, base-load (fossil) technology.
Longer term, in nuclear, (assuming the current legislative ban in Australia is repealed) & nuclear is (
of course) cost competitive Vs competing technologies, not least fossil fuel technology.
Great points Jim thanks for that, you've given me a few ideas there. I have long been thinking that if we are going to have a market and keep skewing it with incentives then we need a "power quality" mechanism. This would reward power characteristics that support a reliable grid. At the moment firming and baseload often get hit with the carbon taxes but the intermittent sources socialise the cost of their intermittency. I suspect something like this would have the effect or improving the system EROI too by returning some balance to the market.
Regarding Power quality the amount of conventional rotating machines generating electricity compared to wind and solar power is an important factor in frequency stability and avoiding Spanish type blackouts. The revelation that it is possible for the Chinese government to shut down any or all wind and solar farms of Chinese manufacture is seriously frightening.
Way back in the 1990s the Wholesale Electricity Market Development Group was offered a market that consisted of a central "Single Buyer" contracting with private developers to build and operate stations that generated when needed on the instructions of the SB. This meant that generation concentrated on the combination of generators that delivered the lowest cost in the short and long-term.
A good Paper indeed Bryan with but only one suggestion on my part.
Consider changing the lead headline from a question "Do we need a new electricity Market?" to a statement that "We need a sensible Energy Policy" ie, to replace that which is clearly flawed. Then let market forces sort it out. Easy.
It is an interesting and worrying theme that a critical public service like electricity has no overlord responsible for security of supply. This was also my big "takeaway" from reading Meredith Angwin's excellent book "Shorting The Grid". No one is responsible. It also begs the question of why this worked in the pre-renewables world?
Thats a great question. I suspect its to do with the inherent complexity intermittency brings and the market manipulations that governments introduce to accommodate this.
In the "old days" you would have an understanding of Peak Demand, and then build a generation stack that would have a nameplate capacity > than Peak Demand, such that taking into account likely down time (planned) it would leave you with a System Adequacy Contribution that would be roughly Peak Demand +15% (such that unplanned outages could be absorbed). given this relatively stable situation, it seems that there was no need for an over-riding authority to ensure reliability. It was kind of built-into the system. This rule of thumb has been messed up by the inclusion of renewables with huge nameplate capacity and potential to produce zero. I wrote about this a couple fo years ago.
It’s a completely different proposition I agree. Systems of old had a huge potential energy source that could be modulated in response to demand typically via a valve. In the same way people modulate their speed when driving. Now the system needs to modulate in response to the supply. This is much more complicated.
This is the inherent complexity of intermittency. Take a look at my "market guardrails" piece. You'll see there that the wind generation profile is remarkably similar across the length of the country. This feast or famine situation creates the capacity problem. It also lowers the utilisation of the firming and baseload resources which in turn lowers the overall EROI of our grid.
Adoption of a 'sensible Energy Policy' that's fair to all concerned, including the unreliables, exclusive of subsidies, with clearly defined QOS performance standards & substantial $penalties for failure to meet such QOS standards & advance commitment (via auction to submit offers at best prices) & deliver guaranteed performance (at 99.98% reliability per current Australian AEMO levels) would fix it virtually overnight. Easy.
...one reason I bought a place in QLD is because the state still owns their coal power stations. I am far more concerned about having a reliable power supply than emissions .
I clicked onto the MBIE strategy you link to, but there isn't one . . . (page last updated in September 2024, promises a strategy by end of 2024.) Would seem to reinforce the point. However, I note Rewiring Aotearoa have just brought out a strategy; perhaps they grew impatient.
I'm really enjoying your research and writing in an area most don't worry to much about as long as the lights come on when they flick the switch. Thankyou!
That's it in a nutshell, and it's clear that the paralytic political class have no clue what to do about it, apart from pushing here and pulling there on the multi-cog Bradford Contraption. We're cooked.
Yes they have no solution and just saw we are the Saudi Arabia of wind and its all about the market. Its just needs to be more competitive. This tells me there is a massive blind spot that fails to recognise strategy and physics.
Offshore turbines operating at 60% capacity constantly in the prime wind zone, South Taranaki Bight, could supplement our existing base load, but it’s currently looking like only one farm will be built there due to seabed mining having booked the same space and is now up for fast-tracking approval. I write about this in a feature in the latest NZ Listener mag, on sale from today (3.6.25), $7.50. - Richard Woodd
Hi Richard, this is a good question. My initial thoughts are that 60% capacity factor is very optimistic when considering wake effects, blade erosion loses, electrical loses, and maintenance downtime. A more achievable number would be ~50-55%. This gives an average output on the high side of ~550MW at a cost that I estimate will be in the order of somewhere around $10 having studied the actual project costs in the US offshore market.
The reality though is that we will not get a constant 550MW baseload output. Having quite a good understanding of the area proposed it likely oscillate between quite high output in the range of 800MW to very low outputs of less than 100MW. This is going to be difficult to manage from a grid perspective and the cost does not include the grid infrastructure that would be needed to transmit and firm a variable generation source like this. Likely with the addition of some form of storage.
The market would also need to be reformed to accommodate CFD’s and curtailment mechanisms which will have much wider implications.
The only company currently still expressing interest is CIP in partnership with the super fund. The issue there is that CIP is having a very tough time with the Vineyard wind project after blade failures and appears there are ongoing issues (link below). I’m not sure what the CIP board’s appetite for further offshore wind investments will be after that experience.
I think it should actually have been 55% from Caleffi’s last talk. There’s a lot more detail in the mag. But I would not be surprised if TTR has finance raising problems due to the huge stoush developing over their plans which will add costs to an already very expensive project in terms of specialist vessels and two seabed crawlers all of which have to be purpose built.
Ben Taylor exactly so. As one who follows the Commerce Commission decisions I felt obliged to complain to the Parliamentary Regulations standing committee about ComComs decision to grant a special allowance to Clarus for the costs it incured during and after Cyclone Gabrielle. These "decisions" are Gazetted as "delegated legislation." The terminology used is so arcane I have difficulty getting my head around it and conclude no local breadwinners are going to give a damn so long as they can have the lights come on when they flick a switch
I doubt I could get my head around a delegated legislative mechanism either Winston. I seems sometimes the logic behind such decisions is intentionally obscured and you hit the nail on the head as long as the lights come on thats all we are actually interested in.
IMO the issue is two fold - 1 is the gas ban and the way labour hs politicised fossil fuels so that no company can build decent sized baseload capacity.
2. The mass of intermittent renewables coming online rhst require both capacity and energy backup but which can only be supplied by hydro or flexible thermal like Huntly. Neither of which can be built.
This isn't a market failure. Even if we had a capacity market we would t get an efficient outcome because the energy sources we need are "out of bounds"., not allowed. This is a failure that can be laid squarely at the feet of Ardern and the Greems and Labour and the climate change idiocy.
Hi Louise, the gas ban has been very destabilising it has created a large sovereign risk that prevents investment. My opinion at the time was that the government would find itself being the lead investor in gas projects as a result. Here we are a few short years later and that idea has found its way into the budget.
I also agree that as the build out of renewables increase we need increasing firming capacity but don't have the tools to achieve this. We are in fact going the opposite direction with the TCC unit being decommissioned which is a critical strategic asset going forward. Perhaps some of the geothermal coming online will offset this.
Louise, you are overlooking the fact that in the ten years prior to the gas ban there were no substantial gas finds in NZ and that the gas ban only banned ‘new’ exploration not commercialisation. We must walk away from thermals, especially based on imported coal coming in little ships. Please. Let’s have some more sensible input than Green bashing, all it does is over-rate what they achieved. Not much
Ps it's not green bashing as much as stating that they are do such stupid things based on stupid ideology. Perhaps they are not actually dumb but if not why do they say such dumb things?
Sorry we "must walk away from thermals"???? Why? Got any basis for this statement.
IMO we cannot, with current tech and inability to build more large hydro, have a secure, stable, reliable system without building more thermal plant. How do you think that is going to be achieved?
Louise, we are in the midst of a transition from explosions to electrons. Thermals are a mature technology with 150yrs of investment behind them. The new power technologies have only just got going & their costs are declining rapidly as their capabilities growth. Let go of the old & embrace the new, it will convince you.
Good luck running g a power system on intermittently available resources. "I'm sorry sir, you can only turn your lights on and hear your house beteeen 10 am and 4pm while the sun is shining".
True, if you run a stand alone solar system without batteries. An integrated system of solar, wind geothermals and hydro can keep the lights on all hours and all without burning fossil fuels.
Aren't you overlooking geothermal?
Yes I was pleased to hear there should be another 100MW of geothermal in the coming year. Good quality baseload, exactly what we need.
Electricity is basic infrastructure and needs strategic network-wide planning and management of its supply and distribution over time.
A market is incapable of doing this because of short term time horizons and because market participants act selfishly.
So back to electricity as a basic public service?
Fully agree, add to this the complexity of the grid that now needs assets that do not have good business cases due to low utilisation but are critical for reliability. The market cant address these issues well.
So yes in some form is the answer to that question.
Agreed. It will be bureaucratic & have in built inefficiencies which is ok if the lights stay on. I would leave our elected politicians in charge, totally unable to delegate to an elected Board so if they f.. it up we get to vote them out. Put an unelected Board in place and you end up with the kind of shambles AT is delivering for Auckland.
Government loves to borrow money
So they can borrow and buy out the public shareholders in the gentailers at the same time scrap all climate funding and scrap ETS incentives the new NZED to reduce energy costs after all these gentailers are driven by self interest and the same will apply to the new set up otherwise as you say we have no rudder only the PR people from the gentailers
There are a lot of inbuilt costs that once stripped out would create some headroom for something like this, the ETS being one of them. Great comment Peter.
Not unlike the energy crisis unfolding around us across 'The Ditch' in Oz! Australia's Energy Policy is a 'dogs breakfast'. Comprising (as reported recently to the 2024 Senate Select Committee on Energy Planning and Regulation) some 2,000 pages of T's & C's & sometimes changing as often as 3-more variations/amendments per week. What a way to run an essential service.
What's needed is adoption of sensible Energy Policies in our respective countries to replace the flawed, anti-competitive versions currently in-situ, supposedly to solve a non-problem.
In the absence of empirical evidence proving the case against CO2 (there isn't any), how about adoption of a sensible Energy Policy that's fair to all (including the unreliables of wind & solar-PV's), is market driven & works from the consumers interests back, NOT from the energy industry’s interests forward that;
• Is Technology agnostic;
• Removes current anti-competitive subsidies favoring the unreliables;
• Requires industry to comply with clearly defined QOS (Quality of Service) standards of reliability & availability (i.e.; 99.98% reliability as per current AEMO specs in Australia);
• Invites industry to commit by way of auction (a week or a month IN ADVANCE of the offered opportunity) to provide reliable 24/7, base load power at their best competitive price(s);
• Imposes SUBSTANTIAL financial penalties upon power generators for failure to deliver in accord with their mandatory QOS obligations (Force Majeure notwithstanding eg earth quakes, floods, bushfires, tornados etc);
• Requires a substantial bond to restore the environment (i.e. recycle aged solar-PV’s & wind turbine blades etc as is already commonplace in the coal mining industry);
• Repeals anti-competitive CO2 legislation i.e., in Australia that would be the Safeguard Mechanism, LRET, RET etc. In NZ, probably something similar, but under a different name.
Thus, let market forces prevail on a level playing field.
Doubtless, some Eco-enthusiasts will invest in their perceived market opportunities associated with the unreliables plus ‘firming’ (i.e., back-up by way of batteries etc, but at their cost) to meet mandatory QOS reliability obligations.
Whereas others might be just a titch more circumspect, investing in proven, reliable, base-load (fossil) technology.
Longer term, in nuclear, (assuming the current legislative ban in Australia is repealed) & nuclear is (
of course) cost competitive Vs competing technologies, not least fossil fuel technology.
Easy.
Great points Jim thanks for that, you've given me a few ideas there. I have long been thinking that if we are going to have a market and keep skewing it with incentives then we need a "power quality" mechanism. This would reward power characteristics that support a reliable grid. At the moment firming and baseload often get hit with the carbon taxes but the intermittent sources socialise the cost of their intermittency. I suspect something like this would have the effect or improving the system EROI too by returning some balance to the market.
Regarding Power quality the amount of conventional rotating machines generating electricity compared to wind and solar power is an important factor in frequency stability and avoiding Spanish type blackouts. The revelation that it is possible for the Chinese government to shut down any or all wind and solar farms of Chinese manufacture is seriously frightening.
Way back in the 1990s the Wholesale Electricity Market Development Group was offered a market that consisted of a central "Single Buyer" contracting with private developers to build and operate stations that generated when needed on the instructions of the SB. This meant that generation concentrated on the combination of generators that delivered the lowest cost in the short and long-term.
I have since written a paper on this which is available here: http://www.bryanleyland.co.nz/uploads/2/9/7/1/29710909/leyland-single-buyer-market_gwpf.pdf
If WEMDG had accepted this recommendation we would be billions of dollars better off.
A good Paper indeed Bryan with but only one suggestion on my part.
Consider changing the lead headline from a question "Do we need a new electricity Market?" to a statement that "We need a sensible Energy Policy" ie, to replace that which is clearly flawed. Then let market forces sort it out. Easy.
It is an interesting and worrying theme that a critical public service like electricity has no overlord responsible for security of supply. This was also my big "takeaway" from reading Meredith Angwin's excellent book "Shorting The Grid". No one is responsible. It also begs the question of why this worked in the pre-renewables world?
Thats a great question. I suspect its to do with the inherent complexity intermittency brings and the market manipulations that governments introduce to accommodate this.
In the "old days" you would have an understanding of Peak Demand, and then build a generation stack that would have a nameplate capacity > than Peak Demand, such that taking into account likely down time (planned) it would leave you with a System Adequacy Contribution that would be roughly Peak Demand +15% (such that unplanned outages could be absorbed). given this relatively stable situation, it seems that there was no need for an over-riding authority to ensure reliability. It was kind of built-into the system. This rule of thumb has been messed up by the inclusion of renewables with huge nameplate capacity and potential to produce zero. I wrote about this a couple fo years ago.
https://pandreco.substack.com/p/grid-fragility-public-enemy-no1
It’s a completely different proposition I agree. Systems of old had a huge potential energy source that could be modulated in response to demand typically via a valve. In the same way people modulate their speed when driving. Now the system needs to modulate in response to the supply. This is much more complicated.
Pre renewables we didn't have a capacity issue. We do now and as a result of intermittence we also have an energy issue to go with it.
Also we weren't paying businesses with gas and coal boilers to switch to electricity.
This is the inherent complexity of intermittency. Take a look at my "market guardrails" piece. You'll see there that the wind generation profile is remarkably similar across the length of the country. This feast or famine situation creates the capacity problem. It also lowers the utilisation of the firming and baseload resources which in turn lowers the overall EROI of our grid.
Adoption of a 'sensible Energy Policy' that's fair to all concerned, including the unreliables, exclusive of subsidies, with clearly defined QOS performance standards & substantial $penalties for failure to meet such QOS standards & advance commitment (via auction to submit offers at best prices) & deliver guaranteed performance (at 99.98% reliability per current Australian AEMO levels) would fix it virtually overnight. Easy.
With a single buyer market, the single buyer would be directly responsible for keeping the lights on at a reasonable price.
...one reason I bought a place in QLD is because the state still owns their coal power stations. I am far more concerned about having a reliable power supply than emissions .
Thanks Larry for an educational and insightful read, look forward to hearing some of your plans for solutions
Thanks Annmarie much appreciated and thanks for reading!
I clicked onto the MBIE strategy you link to, but there isn't one . . . (page last updated in September 2024, promises a strategy by end of 2024.) Would seem to reinforce the point. However, I note Rewiring Aotearoa have just brought out a strategy; perhaps they grew impatient.
Case in point. Everyone is going it alone in the vacuum created by the lack of strategy.
I'm really enjoying your research and writing in an area most don't worry to much about as long as the lights come on when they flick the switch. Thankyou!
That's it in a nutshell, and it's clear that the paralytic political class have no clue what to do about it, apart from pushing here and pulling there on the multi-cog Bradford Contraption. We're cooked.
Yes they have no solution and just saw we are the Saudi Arabia of wind and its all about the market. Its just needs to be more competitive. This tells me there is a massive blind spot that fails to recognise strategy and physics.
Offshore turbines operating at 60% capacity constantly in the prime wind zone, South Taranaki Bight, could supplement our existing base load, but it’s currently looking like only one farm will be built there due to seabed mining having booked the same space and is now up for fast-tracking approval. I write about this in a feature in the latest NZ Listener mag, on sale from today (3.6.25), $7.50. - Richard Woodd
Hi Richard, this is a good question. My initial thoughts are that 60% capacity factor is very optimistic when considering wake effects, blade erosion loses, electrical loses, and maintenance downtime. A more achievable number would be ~50-55%. This gives an average output on the high side of ~550MW at a cost that I estimate will be in the order of somewhere around $10 having studied the actual project costs in the US offshore market.
The reality though is that we will not get a constant 550MW baseload output. Having quite a good understanding of the area proposed it likely oscillate between quite high output in the range of 800MW to very low outputs of less than 100MW. This is going to be difficult to manage from a grid perspective and the cost does not include the grid infrastructure that would be needed to transmit and firm a variable generation source like this. Likely with the addition of some form of storage.
The market would also need to be reformed to accommodate CFD’s and curtailment mechanisms which will have much wider implications.
The only company currently still expressing interest is CIP in partnership with the super fund. The issue there is that CIP is having a very tough time with the Vineyard wind project after blade failures and appears there are ongoing issues (link below). I’m not sure what the CIP board’s appetite for further offshore wind investments will be after that experience.
https://www.mvtimes.com/2025/05/23/questions-transparency-swirl-around-vineyard-wind/
I think it should actually have been 55% from Caleffi’s last talk. There’s a lot more detail in the mag. But I would not be surprised if TTR has finance raising problems due to the huge stoush developing over their plans which will add costs to an already very expensive project in terms of specialist vessels and two seabed crawlers all of which have to be purpose built.
Ben Taylor exactly so. As one who follows the Commerce Commission decisions I felt obliged to complain to the Parliamentary Regulations standing committee about ComComs decision to grant a special allowance to Clarus for the costs it incured during and after Cyclone Gabrielle. These "decisions" are Gazetted as "delegated legislation." The terminology used is so arcane I have difficulty getting my head around it and conclude no local breadwinners are going to give a damn so long as they can have the lights come on when they flick a switch
I doubt I could get my head around a delegated legislative mechanism either Winston. I seems sometimes the logic behind such decisions is intentionally obscured and you hit the nail on the head as long as the lights come on thats all we are actually interested in.
Larry, if you live in Auckland, it would be nice to meet for coffee or something like that. You can contact me via my website www.bryanleyland.co.nz
Thanks James, much appreciated. Ideas coming soon.