billions of dollars<\/a> on onshore wind, solar and battery projects, yet there is still a reliance on coal and gas to provide back-up for the system.<\/p>\nGiacomo Caleffi, Top\u2019s business development director, said the recent passing of the Offshore Renewable Energy Bill, which establishes a permitting regime for offshore renewable energy projects, could see the country\u2019s first offshore wind farm commissioned by the mid-2030s at a cost of about $5 billion.<\/p>\n
\u201cObviously, we had been working with the MBIE [the Ministry of Business, Innovation and Employment] and with Government for over three years really on that legislation, so it\u2019s great to see it finally passed,\u201d Caleffi said.<\/p>\n
\u201cThese days, we\u2019re actually waiting to see the full, final text of the act just to make sure that we understand it entirely, but we\u2019re very happy with the way it was developed.\u201d<\/p>\n
The New Zealand legislation was along similar lines to that employed in Australia and in some European jurisdictions.<\/p>\n
Energy Minister Simeon Brown said at the time that the absence of a regulatory framework for offshore renewable energy \u2013 wind, solar, wave or tidal \u2013 had created uncertainty for potential developers.<\/p>\n
Passing the bill would allow the selection of developments that best meet New Zealand\u2019s national interests, while managing risks to the Crown, he said.<\/p>\n
The partnership\u2019s plans for the South Taranaki Bight were first unveiled in March 2022.<\/p>\n
\u201cIn the world of development, things could always go quicker but having said that, CIP has been behind quite a few offshore wind markets \u2013 we know that this is a complex exercise,\u201d Caleffi said.<\/p>\n
He added that the legislation was an important first step.<\/p>\n
\u201cIt\u2019s not sufficient by itself to \u2018press go\u2019 on all the rest of the big feasibility spend, so we still have quite some work there to understand if the parameters are just right.\u201d<\/p>\n
Caleffi, noting that some of CIP\u2019s competitors had exited, said: \u201cWe are setting up something from scratch so it\u2019s not uncommon to see exits, but we\u2019re happy to say that we still think the opportunity in South Taranaki is absolutely exceptional.<\/p>\n
\u201cThere\u2019s still a lot of work to do, but certainly the investors \u2013 CIP and NZ Super \u2013 are very excited about the opportunity.\u201d<\/p>\n
All going well, the partnership is expected to make its final investment decision (FID) on the project by 2030-31.<\/p>\n
Between now and then, Top would be doing feasibility work, environmental and geotechnical studies.<\/p>\n
Work was then needed on understanding the national grid\u2019s preparedness for accepting a potential 1GW from the project.<\/p>\n
Offshore wind\u2019s backers say the proposed 1GW wind farm would provide as much as seven typical onshore wind farms, or almost 7500ha of solar panels.<\/p>\n
The 4.5 terawatt hours per year connecting into the North Island network would reduce reliance on the Cook Strait cable connecting the islands\u2019 power supply.<\/p>\n
It would also reduce the demand on the southern hydro lakes to provide baseload power, allowing them to act as a giant battery to be called on during peak demand.<\/p>\n
Genesis chief executive Malcolm Johns, in a recent interview with Ryan Bridge TODAY, said the impact of offshore wind generation would be big.<\/p>\n
\u201cEven the smallest offshore wind farm would have a dramatic impact on the supply of electricity in New Zealand,\u201d Johns said.<\/p>\n
Caleffi said that in the future, there would be conversations with Transpower to make sure that the national grid was ready to take that amount of power.<\/p>\n
Then there would be wider discussions with the Government around what its role would be in supporting or \u201cde-risking\u201d such a big and complex project.<\/p>\n
Once the FID is reached, construction is expected to take three or four years.<\/p>\n
Caleffi said 2035 is the time when offshore wind would make more sense, assuming greater electrification of transport and industry between now and then.<\/p>\n
\u201cIt wouldn\u2019t really work in today\u2019s environment, but 2035 is the horizon where we start seeing limitations in achieving the amount of power that we need via the common renewables like onshore wind and solar farms, and that\u2019s where the value of something that brings in a lot of efficient power like offshore wind lies,\u201d he said.<\/p>\n
\u201cWe\u2019re saying the whole point of this project is that the impact that will have on the market and on the system in New Zealand needs to be positive and that\u2019s what we\u2019re working towards.\u201d<\/p>\n
Offshore wind has its detractors \u2013 particularly in the US \u2013 but Caleffi says some Asia-Pacific countries are enthusiastic adopters.<\/p>\n
He said offshore wind is about attracting large energy users who require clean, green energy.<\/p>\n
Big offshore wind projects tend to avoid the complexity of having multiple on-land projects, with each one going through separate consenting processes.<\/p>\n
Caleffi said the sector globally took a big hit when the United States suddenly got cold feet on offshore wind, as much of the world\u2019s supply chain was starting to gravitate towards the US.<\/p>\n
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The offshore wind industry suffered a setback when the US pivoted away from renewable energy in favour of gas. <\/p>\n
CIP completed its first US offshore project \u2013 the 810-megawatt, 62-turbine Vineyard Wind Farm off the Massachusetts coast early this year, but has paused future builds because of the political climate in the US.<\/p>\n
Now, much of that supply chain is tilted towards the Asia Pacific \u2013 particularly South Korea and Taiwan, which would be beneficial for New Zealand.<\/p>\n
Some offshore wind developers had voiced their concerns about Trans Tasman\u2019s plan to mine for vanadium, titanium and iron off the Taranaki coast, but those plans look to be on the backburner for now.<\/p>\n
Trans Tasman lodged a fast-track application last year to mine but withdrew its application after an expert panel declined marine and discharge consents.<\/p>\n
The company \u2013 part of the ASX and NZX-listed Manuka \u2013 still regards the mining project as being \u201cenvironmentally benign\u201d and is looking at \u201calternative pathways\u201d for approvals.<\/p>\n
Caleffi said seabed mining in the area would have added extra complexity.<\/p>\n
He said offshore wind farms all over the world co-exist with other marine activities \u2013 such as shipping and fishing, but some activities \u2013 deep-sea trawling and seabed mining \u2013 were incompatible.<\/p>\n
\u201cAnd so the idea that there would be a potential overlap between the only really premium spot for offshore wind in New Zealand and the seabed mining area was always of concern.\u201d<\/p>\n
The costs of just getting the project to the FID stage were estimated at between $200m and $300m, but Caleffi said the wind speeds available justified the expense.<\/p>\n
\u201cThe efficiency that we could get out of this offshore wind farm is world-class, so that\u2019s what keeps our investors interested.\u201d<\/p>\n
If it goes ahead, the project would be 20-25km out at sea \u2013 barely visible from the coast.<\/p>\n
Offshore wind\u2019s critics say the projects only exist because of government subsidies \u2013 something Caleffi firmly rejects.<\/p>\n
\u201cWith offshore wind, they\u2019re really big projects.<\/p>\n
\u201cThey don\u2019t come to market by themselves.\u201d<\/p>\n
He said the scale of projects meant there would always need to be some form of partnership between developers and governments.<\/p>\n
\u201cI think there\u2019s a misconception about offshore wind being heavily subsidised \u2013 that makes it sound like it\u2019s some project that is commercially not viable and just requires subsidies to keep it going.<\/p>\n
\u201cThat\u2019s not really the way it works.\u201d<\/p>\n
Designing offshore wind farms, getting them to the FID and then building them takes a long time.<\/p>\n
\u201cIt involves lots of capital that is mostly lent by banks and so what is always required is some form of de-risking early on to help reassure banks that the revenue and returns on the wind farm will be sufficient to service the debt effectively.\u201d<\/p>\n
Over the decades, various governments have adopted a number of mechanisms to get around the problem.<\/p>\n
In the UK, contracts for difference (CFD) are employed to make projects bankable.<\/p>\n
CFDs guarantee a strike price for every megawatt-hour (MWh) of electricity generated.<\/p>\n
If the market electricity price is below the strike price, the generator receives a top-up payment.<\/p>\n
Conversely, if the market price is above the strike price, the generator pays the difference back.<\/p>\n
\u201cThat allows a project in the early phases to get finance as cheap as possible and get the project built as efficiently and cheaply as possible,\u201d Caleffi said.<\/p>\n
He also expected power purchase agreements, when users sign up for a certain amount of power from a new project for a certain period, would also play a part.<\/p>\n
At the end of last year, Top signed a memorandum of understanding with Genesis Energy aimed at discovering how the market might value the generation profile of offshore wind.<\/p>\n
Caleffi said the market would appreciate extra power coming into the mix over the peak demand times of winter and spring.<\/p>\n
While the FID is still a long way off, Caleffi says he has high hopes that the project will go ahead.<\/p>\n
\u201cI would say we\u2019re optimistic.<\/p>\n
\u201cObviously, there\u2019s still a lot of work to do, but the market is moving in the right direction,\u201d he said.<\/p>\n
\u201cLet\u2019s put it this way, offshore wind has always happened in countries that really realised that it was going to have a strategic value and was going to be an essential part of the energy mix.\u201d<\/p>\n
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our\u00a0Business newsletter<\/a>\u00a0\u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"Over the past five years, Top has invested $15 million into establishing the feasibility of developing a 1GW…\n","protected":false},"author":2,"featured_media":528819,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[70577,138,11586,18478,1686,15980,71,261139,14639,305,78,111,139,69,4732,2682,4753,2170,2171,7798,1240,21707,22858,314,16715,261138,10000,102,80],"class_list":["post-528818","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-5b","tag-business","tag-coast","tag-course","tag-electricity","tag-fallen","tag-from","tag-fundbacked","tag-generate","tag-have","tag-in","tag-new-zealand","tag-newzealand","tag-nz","tag-offshore","tag-others","tag-partnership","tag-plan","tag-plans","tag-race","tag-south","tag-staying","tag-stays","tag-superannuation","tag-taranaki","tag-wayside","tag-wind","tag-with","tag-zealand"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/528818","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=528818"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/528818\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/528819"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=528818"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=528818"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=528818"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}