This year’s Mood of the Boardroom survey asked exporters whether New Zealand’s renewable electricity share made any difference to their commercial prospects. Their verdict was emphatic: No. So whose reputation are we really polishing? The fixation seems to exist more for diplomatic vanity than economic value. And for a country fighting to stay in the OECD club, that vanity comes at a cost. Voters should be asking whether the parties they support are ready to let this fiction go.
If we do, what replaces it? We already sit in the global elite for renewable electricity. So let’s elevate the game, from reserve grade to first division, where only a handful of countries play. That arena is renewable energy, not merely electricity.
The distinction matters. Electricity makes up about half of New Zealand’s total energy use and is already largely renewable. The other half, transport fuels, natural gas, industrial heat, and the remnants of coal, is neither renewable nor electric. Talking about renewable electricity alone is like switching your kids’ lunches from Glad Wrap to honey wraps while keeping a V8 in the driveway. To the informed observer, it looks, politely, inconsistent.
New Zealand’s renewable energy share sits in the high-40% range. In this context, squeezing another 5% to 10% renewability out of the electricity system is insignificant compared with decarbonising transport and process heat. The more energy we make ourselves, the less vulnerable we become to imported fuels. That vulnerability has a habit of biting those who ignore it long enough.
In August, I wrote in the New Zealand Herald that the first major challenge in front of us is security of supply. Ours is a hydro-dominant system with roughly five weeks of storage, nowhere near enough to buffer variable rainfall into the southern lakes. That’s why Huntly was built in the 1980s. Today, renewables (good) and declining domestic gas supplies (less good) push Huntly off the grid most of the time, but it still stands behind them as insurance. That dynamic will not change. Hydro storage isn’t expanding and rainfall isn’t taking orders. A small amount of coal for the month, or four, when lakes run low is what stands between New Zealand and rolling blackouts. And that back-up sits in one location, using three turbines roughly the age of a Mitsubishi Cordia.
So how do we solve this? We can keep a limited amount of coal for seasonal insurance, keeping prices down and the lights on, with emissions dwarfed by those from Air New Zealand. Or we build a hydro storage project larger than anything this country has ever attempted. If there’s an economically competitive version of that latter option, let’s see it. It isn’t Lake Onslow. And, for the umpteenth time, batteries cannot replace seasonal hydro storage. If you believe they can, buy a calculator. It’s about $5 trillion worth of Powerwalls. T for trillion.
The second challenge is prices. Electricity prices are artificially inflated by the fear we will run short and by the ETS costs passed through when Huntly occasionally needs to run on coal. That is not how a developed economy should operate. The ETS is supposed to encourage alternatives, not impose a de facto tax on every consumer.
Prices today are probably 15% higher than they should be because of these distortions. Yet the Government has declined to pursue ETS reforms recommended in the Frontier report, stating that it “remains committed to the ETS as it stands.” In a few short Ministry of Business, Innovation and Employment sentences, the country has been left with a highly regressive electricity system. This falls hardest on the households and businesses least able to afford it. It’s a cost-of-living own goal.
The Government’s response also proposes the idea of importing liquified natural gas – LNG. I have yet to see evidence that converting imported LNG into electricity is viable or beneficial against other choices. The Cabinet paper remains unpublished. Frontier said, plainly: “It would make no economic sense to develop an LNG import terminal …” I expect electricity prices would rise at least another 50%. Look at international LNG prices and work forward. And even if we built a terminal, what would we do with a single shipload of LNG? It’s like buying 10 cattle beasts’ worth of meat when all you own is a small beer cooler. One LNG cargo contains about the same energy as the available hydro storage of Lake Taupō, which is literally 800 million tonnes of water sitting just above the height of the Sky Tower. You can develop more gas storage, but that’s yet another bill for Kiwis on top of an already expensive option.
Some useful recommendations from the Frontier review were adopted, but these were not the big levers. You can’t jawbone electrons. They answer only to physics, not politics.
Good energy policy means removing any realistic risk, actual or implied, of winters without enough electricity. It means reducing reliance on ageing, Mitsi Cordia-era coal units before they reach their final lap. It means acting now, because nothing meaningful can be built in under five years. This isn’t a trip to Mitre 10.
We need households and businesses to feel confident electrifying their cars, heaters, and boilers when due. But they will not switch without confidence in secure supply and reasonable prices. That’s why New Zealand needs a renewable energy target. Not the vanity of a renewable electricity target that punishes poorer households, achieves little for emissions, and nudges New Zealand closer to developing-country status.
It really is that serious.
Fraser Whineray is a multi-sector business leader who has led extensive decarbonisation in electricity generation, transport and industrial heat. He has previously been chief executive of Mercury and COO of Fonterra.