The Renewable Energy Squeeze

New Zealand is relying upon expansion of renewable energy generation to absorb the decarbonisation of transport, industry and households as part of its plan to reach net zero emissions by 2050.
This will require renewable energy infrastructure investments of at least $13 billion over the next few decades and overcoming barriers to success, some of which may not have been adequately considered in scenarios to date.
As those considerable parts of our economy that are currently fossil-fueled jump into the power grid, we must wrestle with the prospect of our renewable energy infrastructure failing to expand to meet our energy demands, forcing us to rethink how we maintain our enviable standards of living and evolve national prosperity.

New Zealand uses more than 53,000 kWh of commercially traded energy per person per year, one of the higher rates in the world, albeit less than our sunny neighbour Australia which uses 70,000 kWh per person. To put this in perspective, per capita energy use in Ireland, our northern hemisphere twin, is 38,000 kWh. At the lower extreme, Vanuatu uses 2,500 kWh, Solomon Islands uses 1,500 kWh and Democratic Republic of Congo uses just 500 kWh per person, while cold countries Canada and Iceland use 106,000 kWh and 180,000 kWh per person, respectively (Our World in Data, 2019).

This isn’t a measure of the electricity that we use at home, which is around 5,000 kWh per household per year, but the electricity used across our nation to power our economy and our lifestyles.

A variety of units are used to describe energy:

  • kWh (kilowatt-hours) describe energy use per person over time
  • PJ (petajoules) describe national levels of energy consumption
  • MW (megawatts) describe energy plant output
  • GWh (gigawatt-hours) describe energy plant output over time

There is hope among many people that the increasing availability and decreasing price of renewable energy will enable us to continue, and even improve, our current lifestyles unabated and guilt free, and will raise the living standards of those in developing nations.

Carbon Tracker Initiative recently suggested that at current rates of growth and with rapidly falling prices, solar and wind power could push fossil fuels out of the electricity sector by the mid-2030s and entirely power the world by 2050 using just 1% of potential renewable resources, with solar panels requiring only 0.3% of land surface, a fraction of the land currently occupied by oilfields (CTI, 2021). Within the suggested timeline, this seems an oddly fanciful idea, at least in New Zealand.

New Zealand’s Current Energy Picture (2021)

New Zealanders are proud that we produce at least 80% of our electricity from renewable sources. New Zealand’s electricity generation and distribution infrastructure meets demand of 43,000 GWh per year. Hydro produces approximately 60% (26,000 GWh), geothermal produces 17% (7,500 GWh) and wind provides 5% (2,000 GW). Renewable energy infrastructure generated 82.4% of our electricity in 2019, down from 84% in 2018 due to poor hydrological conditions and planned outages of gas use, which resulted in a 43% increase in coal-based generation (MBIE, 2020 (pdf)).

However, that is just our electricity grid. We actually fuel the country on 60% fossil fuels. If we decarbonise our fossil-fueled activities (industry, transport, household heating) by switching most of them to electrification, the capacity of our electricity grid will have to more or less double in less than 30 years.

New Zealand consumes 600 PJ of energy per year, which is 0.15% of the world’s total annual consumption, although we represent only 0.06% of the world’s population.

We meet 60% of our total energy needs with fossil fuels, including crude oil (33%), natural gas (20%) and coal (7%), while 40% is met with renewable sources, including geothermal (22%), hydro (10%) and wood (7%), with wind and solar providing the remainder (1%).

New Zealand had the second highest share of renewables in primary energy of International Energy Agency member countries in 2018, behind only Norway.

New Zealand’s Future Energy Picture (2050)

He Pou a Rangi, the Climate Change Commission, has said that to reach our climate goal of net zero emissions by 2050, Aotearoa must focus on decarbonising our economy, increasing the number of electric vehicles and increasing our total renewable energy supply.

Projections vary, but MBIE’s scenarios (MBIE, 2019 (pdf)) for the period 2018 to 2050 include:

  • a reference scenario (based on the continuation of current trends) assuming a 44% electric light vehicle fleet and a 13% electric heavy vehicle fleet, leading to a 43% rise in electricity demand and a requirement for an additional 6,250 MW of capacity by 2050 at a cost of NZ$13 billion
  • a disruptive scenario (based on improved technologies) assuming 74% electric light vehicle fleet and a 45% electric heavy vehicle fleet, leading to a 78% rise in electricity demand and a requirement for an additional 10,600 MW of capacity by 2050 at a cost of NZ$24 billion

Demand by 2050 could also see greater daily peaks, up to 40% higher than today, as households and industries cope with a changed climate. This means that about one quarter of generating assets could sit idle 90% of the time (ie outside peak demand) (The Conversation, 2021).

The Labour government is sticking to its target of a 100% renewable electricity sector by 2030, but the Climate Change Commission recommends that we aim for 99% renewable energy as the final 1% of change would be at a high cost with very few emissions saved.

All in all, to meet energy demand and our net zero goals by 2050, we will need to have expanded our electricity generation infrastructure by at least 6,000 MW within 30 years, with a final generation mix of at least 95% renewables.

The MBIE reference scenario for 6,250 MW assumes 3,000 MW would come from additional wind assets and 1,000 MW from additional geothermal assets, with gas peaking plants providing a further 1,000 MW.

Current and pipeline developments over the next five years amount to 1,000 MW (MBIE, 2020 (pdf)).

Turitea wind farm, near Palmerston NorthMercuryWind103
Waipipi wind farm, South TaranakiTilt RenewablesWind133
Tararua wind farmTilt RenewablesWind68
Mt Cass project, HurunuiMainPowerWind93
Tauhara project, near TaupoContact EnergyGeothermal250
Ngāwhā geothermal power station expansion, NorthlandTop EnergyGeothermal64
Upper Fraser project, near AlexandraPioneer EnergyHydro8
Junction Road peaking plant, New PlymouthTodd GenerationCoal and Gas100
Hawkes Bay Airport solar farmCentralinesSolar10
North Waikato solar farmGenesis EnergySolar300
Green hydrogen is not a feasible energy source at present, but is being studied.

Some Big Challenges in the 2020s

Our ability to deliver on our renewable energy aspirations to help reach net zero emissions by 2050 depends on how we resolve a number of big challenges this decade.

Our optimal renewable energy mix is unclear

A diversified renewable energy portfolio, including a mix of sources and storage options, would help balance the energy trilemma of affordability and accessibility, energy security and environmental sustainability. We need to decide if we can afford to build storage for hydro energy, whether wind power is going to work for us, and how we feel about exhausting our geothermal heat reservoirs.

New Zealand must manage its future reliance on hydro energy because, even though it is one of the few renewable energy sources that can be stored, it is also highly susceptible to dry weather years. Models suggest that future dry years could be mitigated through demand management (eg smart appliances in households) and a battery system, including a pumped hydro scheme (potentially at Lake Onslow), which would pump water back up to a storage reservoir during periods of off-peak demand (MBIE, 2021). This would be similar to the 2,000 MW Snowy 2.0 project under construction in New South Wales, whose costs have blown out from an original estimate of AU$2 billion to AU$5 billion and may potentially reach AU$10 billion, excluding the cost of connecting the asset to the grid (The Guardian, 2020).

MBIE’s reference scenario includes 3,000 MW of additional energy through wind farms and it was reported in 2019 that enough wind farms had been consented in New Zealand to add 1,800 MW to the country’s electricity supply. Yet, wind is an intermittent power source, gentailers are nervous of it, and the vast majority of consents are sitting on the shelf or quietly lapsing. The largest consented project is Genesis Energy’s 850 MW Castle Hill wind farm in the Wairarapa, valid until 2023, which the company has no current plans to construct – although it has recently issued a Request for Proposal relating to 6000 GWh of renewable generation options that may or may not include the Castle Hill project. Meridian Energy’s 130 MW Central wind farm consent and Contact Energy’s 540 MW Waikato Coast wind farm consent have both recently lapsed. Contact Energy says it prefers geothermal energy for decarbonising electricity generation “as it is low cost and not weather dependent” (Stuff, 2019).

Geothermal heat is a finite resource. Current reservoirs are being used up at a rate that will exhaust them within 150 years and, since each plant has a lifespan of about 50 years, each additional installation (minus any retired plants) may increase the rate of exhaustion. By the end of this century, we may face the demise of, not only a power supply, but a geological feature of our country (Stuff, 2020).

Renewable energy projects will be impacted by another national imperative: the protection of nature

Renewable energy is invariably sourced in places where people are not, ie in wild places amongst nature. One of our pressing responsibilities as a nation is to protect our unique biodiversity for future generations. How will we balance the coincidental and co-mingling needs of energy generation and protection of biodiversity?  

The Randerson Report, issued in 2020, reviewed the Resource Management Act 1991 and recommends its repeal and replacement with two major new pieces of integrated legislation, a Natural and Built Environments Act and a Strategic Planning Act. The Randerson review recommends that current forms of national direction be retained and “all existing and new national direction should be brought together into a coherent combined set and any conflicts between them resolved”.

Clarification on national direction will be helpful to renewable energy projects because, currently, it is not clear which of New Zealand’s national direction instruments, such as the National Policy Statement for Renewable Electricity Generation, the National Policy Statement for Freshwater Management, the National Environmental Standards for Air Quality and the New Zealand Coastal Policy Statement, should prevail during the consenting process. Typically, renewable energy projects meet stakeholder resistance. Hydro projects affect biodiversity and recreational use of water bodies; wind farms create visual and noise disturbance, and geothermal plants may affect groundwater or existing users. This means that many renewable energy projects are classified as non-complying and must reduce their impacts, despite their benefits (Dentons, 2021).

Yet, clarification may not mean plain sailing for renewable energy projects. New Zealand must work harder to protect its irreplaceable ecosystems, as much as it seeks to take advantage of its valuable ecosystem services. The expansion of renewable energy infrastructure must align with equally valid environmental concerns. The Ministry for the Environment has developed a proposed National Policy Statement for Indigenous Biodiversity (NPSIB) which sets out a range of regulated measures that require councils to take a more proactive role in protecting biodiversity, and this new item of national direction will surely be included in the “coherent combined set”.

COP26 on climate change, being held in the UK later this year, and COP 15 on biodiversity, being held in China, also later this year, will raise the profiles of both renewable energy and protection of biodiversity in global policy circles, bringing these co-mingling needs to the top table in several nations.

Decarbonisation may suddenly accelerate, requiring supply to accelerate in step

If carbon prices accelerate faster than expected and decarbonisation becomes not just an economic imperative but an economic bull, can our renewable energy and electrification transitions be accelerated?

MBIE’s scenarios assume that carbon prices will rise from NZ$25 per tonne in 2019 to NZ$66 per tonne in 2050 on the basis that New Zealand aligns with its trading partners. This assumption is already out of date. Europe was trading carbon at €50 per tonne by May 2021 and analysts predict the price will reach €90 per tonne by 2030 (Reuters, 2021). MBIE’s reference scenario assumes that 15% of process heat will be electrified, but a higher carbon price could drive industry to convert to renewable energy sooner, increasing pressure on developers and the government to speed up new renewable generation projects.

Renewables projects have a carbon cost that must be reduced

It is estimated that Snowy 2.0 in NSW will lead to 50 million tonnes of CO2 emissions during construction and its first decade of operations (The Guardian, 2020). We must prepare to drastically reduce embedded carbon in future projects.

Danish energy company Ørsted has calculated that, on average, material extraction, manufacturing, transport and installation account for 90% of the total lifecycle emissions of an offshore wind farm, due to carbon-intensive processes needed to manufacture materials for wind turbines and foundations, as well as the fossil fuels used during installation. As a first step to tackling scope 3 emissions, Ørsted is demanding that its suppliers use 100% green electricity in the manufacture of turbines, foundations, cables and substations. As a next step, Ørsted is investigating ways to find low carbon steel, since steel accounts for 50% of the total emissions in the offshore wind supply chain (Orsted, 2021). This level of attention to scope 3 emissions is world leading, and it could become industry standard within the decade. How much of the New Zealand renewable energy project supply chain could meet such demands and how might this impact renewable energy project design, funding and consenting?

A bottleneck in minerals supply may slow down decarbonisation and renewables projects

The decarbonisation of transport and installation of renewable energy projects, particularly battery and network projects, may suffer a supply chain bottleneck by 2030 due to their reliance on minerals. Is this blip factored into current projections?

The IEA, in its special report The Role of Critical Minerals in Clean Energy Transitions, urges a realistic perspective on the potential for renewable energy to satisfy projected growth in energy demand. It finds that solar power, wind power and electric vehicles require up to six times more mineral resources (including copper, lithium, nickel, manganese, graphite, cobalt and aluminium) than fossil fuel-based assets. Clean energy technologies have emerged as the fastest growing segment of demand for minerals, which are required for batteries, magnets and transmission networks. “The world is currently on track for a doubling of overall mineral requirements for clean energy technologies by 2040”, and if we step up our efforts and hit net zero globally by 2050, global demand for minerals will multiply by a factor of six.

Existing mines and projects under construction can meet only half of lithium and cobalt requirements by 2030. Not only does this place a strain on the minerals supply chain that may cause renewable energy price volatility, but it also introduces new geopolitical dynamics. The top mineral producing nations are DRC and China; the top mineral processing nation is China. Furthermore, extraction costs and energy requirements rise as ore quality degrades in older mines, and several types of mining have high water requirements, yet are predominantly located in water stressed areas. Recycling of minerals (from used batteries, for instance) will provide some resilience, as will diversification of energy sources.

What Does this Mean for New Zealand?

New Zealand’s net zero goal gives us the responsibility to achieve our generation’s moonshot mission. The Climate Change Commission has spelled out that we must decarbonise almost everything we make, use and do. Most people believe that this will be achieved through a direct switch of our industries, transport and households to renewables-generated electricity, but there is a significant chance that our renewable energy sector will neither expand sufficiently fast to meet our decarbonisation timeline, nor find suitable ways to develop that meet other national goals, such as protection of biodiversity.

That our future renewable energy supply may fall short of our extrapolated needs should, rather than defeating us, encourage us to all pitch in to develop a highly integrated national energy resilience strategy informed by a range of views from within and beyond the energy sector. This would place more onus on energy users to reduce their expectations of the future energy grid, and it would engage the renewable energy sector on its duty to protect our fragile natural heritage.

Published on LinkedIn on 8 May, 2021