Brian Fallow: Power games prolong climate danger

OPINION:

Monday saw both the release of grim warnings from the world’s climate scientists and a failure of security of electricity supply in New Zealand.

The former adds urgency to the need to stop burning coal and other fossil fuels.

The latter highlights thecoal-fired Huntly power station’s current role in keeping the lights on.

In so doing, it casts a pall of suspicion over the power companies’ motives for prolonging that role, by opposing the idea of a pumped hydro storage “battery” at Lake Onslow, and over Meridianand Contact Energy’sevident enthusiasmfor what we might call Tiwai 2.0 — a green hydrogen plant in the far south.

The long-awaited report from the Intergovernmental Panel on Climate Change is unequivocal. If we are not to render the planet increasingly inhospitable to ourselves as a species, we need to stop emitting greenhouse gases.

Central to the NZ Climate Change Commission’s strategy for doing that — and it is an internationally normal approach — is to electrify the consumption of energy, including transport and industrial heat, while decarbonising the generation of electricity. The power companies are all for that strategy.

But there are three sides to the energy trilemma: energy has to be not only sustainable and affordable, but also reliable.

It is scandalous that power was abruptly cut off, even if only for a few hours, to thousands of households, not because of any physical damage to the grid but because a cold snap saw demand outstrip supply.

The Electricity Authority is launching an investigation. It remains to be seen whether it backs up Energy Minister Megan Woods’ pointing the finger at Genesis.

In its submission to the Climate Change Commission, Genesis says that in a typical winter New Zealand needs 2000GWh more stored energy than our hydro lakes can provide and in dry years an additional 5000GWh or more can be needed.

“Thermal plant at Huntly power station fills most of that storage gap today and we expect it will meet the entire gap within the next few years,” it said. Translation: forget about banning coal if you want the lights to stay on.

But Genesis is not the only generator/retailer with an incentive to keep Huntly plugged in to the grid.

That is because of the way the wholesale electricity market works.The most expensive generation needed to meet demand in any half-hour period is whatsets the wholesale (spot) price for that period. When running, that would normally be a thermal generator.

“However, when thermal plant is not running renewable generators often ‘price up’ their generation offers to marginally below the operating cost of thermal plant, knowing they can keep the thermal plant out of the market up to that point,” Genesis told the commission.

“We have seen this phenomenon reflected in wholesale prices over the past two years, in particular, when infrastructure and/or fuel outages combined with low hydrology have led to increased security of supply risks. This ultimately increases the cost of electricity to all users — consumers and businesses alike.”

In other words, when the market is tight those power companies which are able to generate more renewable power than they need to meet their own consumers’ needs, and are therefore net sellers into the market, can make out like bandits — so long as Huntly is the marginal generator. They get to profit from a rising carbon price pushing up the cost of running Huntly (or a gas-fired generator) while avoiding that cost themselves.

A tight wholesale market is increasingly likely as demand from electric vehicles and industrial users rises steadily, while additions to generating capacity tend to be lumpy and retarded by RMA delays. Meanwhile, a warming climate is itselfchanging how much rain and snow falls where and when.

All five of the major generator/retailers are negative in their submissions to the commission about the idea of a proposed alternative for managing seasonal and dry-year risks: a pumped hydro scheme at Lake Onslow, a man-made lake in hills overlooking the Clutha River. The business case for such a scheme is being prepared.

Mercury and Trustpower both argue that if RMA restrictions were relaxed, better use could be madeof the storage capacity of existing hydro schemes. In Mercury’s case, those schemes are on the mighty river (the Waikato) after which the company used to be named. This would lessen the need to spend billions of dollars creating a whole new lake and pumping capacity, they say.

Even more self-serving is the position of Meridian and Contact, which are spending millions evaluating the business case for a plant which, after the aluminium smelter’s scheduled closure in three years’ time, would use Manapouri’s output to split water and export the resulting “green” hydrogen.

Heaven forbid that Manapouri’s clean, green power, an eighth of the country’s current generation, should be made available to New Zealanders to do something useful like propel vehicles or dehydrate milk, if that risks putting Huntly out of business and limits their ability to profiteer from a rising carbon price.

Better to continue exporting that electricity so that Japan, say, can decarbonise — or so we are asked to believe.

Manapouri’s owner, Meridian, suggests to the Climate Change Commission that it “could contract with a large hydrogen producer post-Tiwai and include in that contract the ability to call on demand response when lake levels are low”. Demand response means the ability to throttle back or cut supply to the plant and release that power to the grid.

It says flexible hydrogen production on this scalehas the potential to solve a significant proportion —35 to45 per cent — of the dry-year risk that defines much of the New Zealand electricity market.

But one has to wonder how low the power price would have to be to attract a counterparty to contract for interruptible supply to a very large energy-hungry plant, and if that really is the best use of the jewel in electricity system’s crown.

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