Does New Zealand’s plan for a nation-sized battery hold water?

Parliamentary elections will be held in New Zealand tomorrow (October 17), with the Labour-led government headed by Jacinda Ardern, popular on the back of its widely-admired response to Covid-19, seeking to return for a second term.

On climate change, they point proudly to their record of legislating for net zero emissions by 2050 (nicknamed the ‘Zero Carbon Act’), establishing a Climate Change Commission to set carbon budgets and advise the government, and for strengthening the Emissions Trading Scheme by adding a falling cap on emissions.

But on closer inspection, all is not well. There is a serious gap between words and actions, the same gap that bedevils climate action in many countries. In fact, Climate Action Tracker rates New Zealand’s actions as ‘insufficient’, and consistent with a +3ºC world. How can this be?

Per capita greenhouse gas emissions are high, at 16 tonnes of CO2e. Gross emissions are up 24% on 1990 levels, and have not reduced in the entire 17-year operation of climate legislation. Transport emissions have doubled since 1990; New Zealand now has the highest vehicle ownership rate in the world, and recent years have seen the start of a large-scale freeway-building program, supported by both major political parties.

The Emissions Trading Scheme suffers from a carbon price that is too low (US$23/t) to cut emissions, combined with too little coverage – export industries are largely exempt.

If you’ve heard anything about energy in New Zealand, you’ve probably heard of hydropower and geothermal energy. Electricity generation in 2019 was 58% hydro, 17% geothermal, 5% wind, 1% biomass, 13% gas, and 5% coal.

Sounds pretty good, right? And yet in a time of climate crisis and supposed action, no fossil fuel plants have closed since 2015, and no new wind farms have been completed since 2014 (although activity is now starting up again).

Clearly something has to give at some point. That point could come next year, after the Climate Change Commission releases their first major advice in May 2021.

But into this mix the Labour Party has introduced two striking election policies: one, to commit to 100% renewable electricity by 2030, and two, to fund a study and initial work on a stupendously large pumped hydro power station at Lake Onslow in the South Island.

New Zealand’s high renewables percentage masks some fundamental problems with the system. The hydro lakes are not large, containing just 4TWh of storage in a country with annual electricity consumption of 40TWh.

It only takes a few months of low rainfall to send prices and emissions higher. Even worse, the lakes are fed by snowmelt in spring. This creates an imbalance of about 2TWh between hydro supply (highest in spring and summer) and demand (highest in winter), currently covered by fossil fuels. The imbalance can also lead to the lakes overflowing, wasting energy.

Finally, the whole country faces a ‘dry year risk’. Every 5 or 10 years supply is unusually short, and households and industries are asked to save electricity. This risk is permanently priced in.

And that’s just the present situation. To decarbonise the whole economy will require a lot more electricity. Hydro is largely maxed out. There is scope for more geothermal energy, although the best sites have been built already, and most fields are not truly low-carbon or indefinitely sustainable – typically plants are designed to deplete the field over 50 to 100 years. That leaves solar and wind.

Enter the nation-sized battery. Engineers know well that pumped hydro is overwhelmingly likely to provide the majority of energy storage in decades to come, and will be needed to balance intermittent renewables. But most systems contain only a few hours or days of storage. The Bath County Pumped Storage Station in Virginia has a large capacity  of 3GW. But with its 24GWh of storage, it can only run flat out for 8 hours.

The opportunity at Lake Onslow is due to the combination of demand, outlined above, and the special geography of the region. The storage lake would be created with an earth dam with an 80 metre operating range at a large, gently-sloping, high-altitude schist basin, connected to another lake (part of the existing hydro system) 700 metres below, via a 20-kilometre tunnel.

In one scenario, 1.2 GW of generation is matched to 5 TWh of storage, more than doubling the capacity of the entire hydro system of the country. It could run continuously for six months. The largest configuration has up to 12 TWh of storage.

Proponents describe numerous benefits of the Lake Onslow pumped hydro station, first proposed by Earl Bardsley in 2005. It would balance a large amount of new wind and solar on time scales of hours. It would provide seasonal balancing on a scale of months. It would prevent spilling in the rest of the system and allow the other lakes to maintain more constant levels. It would allow decarbonisation of the electricity grid, and of a lot of industrial process heat use and transport as well.

The cost (perhaps $US3 billion) could add 0.35–0.5c/kWh to all other electricity; but it’s possible that, overall, the net cost of electricity would be lowered. It would make private investment in new wind and solar more attractive, by putting a floor on spot prices. Every five or 10 years, when a dry year comes along, the full capacity of the lake would be called into use.

If pumped hydro is such a great idea, and is urgently needed for the future worldwide, why isn’t it happening already? A 2016 review by Edward Barbour and others points to some of the problems.

Consider the example of Germany. Germany has seen a rapid expansion of renewables, to the point where electricity generation is now 29% from wind and 8% from solar. That should have created an ideal environment for pumped hydro. Instead, the opposite happened. Declining wholesale prices for electricity during the daytime reduced the opportunity to buy low (at night) and sell high (during the day), to the point where even existing pumped hydro facilities became unprofitable and closed.

The Barbour study found that 95% of pumped hydro stations are publicly owned or operate in monopoly conditions. The authors write: “A major reason for this is thought to be due to the regulatory and financial uncertainty surrounding the integration of Pumped Hydro Energy Storage into liberalised electricity markets, which increases the risk, without providing the certainty of rewards over longer-time frames.”

Regulators have struggled to find a model that balances the benefits to consumers, to the private and publicly owned generators and retailers, and to the environment, all on different time scales. This could justify direct public capital investment, especially at a time when governments are seeking labour-intensive, ‘green rebuild’ projects, and can borrow for close to nothing. It also points to a need to modify the market structure in the future to incorporate pumped hydro.

However, there is a political dimension to the Lake Onslow project too, especially relevant at election time. “100% renewable” is a catchy slogan; a large civil engineering project doesn’t threaten anyone’s lifestyle today, the way a hefty carbon tax or regulation of car sales might. Climate politics requires gaining support for actions today whose benefits extend far into the future.

Ian Mason is Research Fellow in Energy Engineering and Carbon Management and Director of the Renewable Energy Programme at the University of Canterbury. Robert McLachlan is Distinguished Professor in Applied Mathematics at Massey University. He writes on climate and environmental issues at Planetary Ecology.

16 October 2020

RENEW ECONOMY