Ministry model suggests $12b investment coming in greener power

Sunday, 28 July 2019

The Ministry of Business, Innovation and Employment has 'materially changed' its assumptions about the energy market.

Government officials have ripped up their previous assumptions about the future of energy and are now modelling for an economy where 44 per cent of cars will be electric by 2050 and petrol consumption has almost halved.

Based on current trends, 22 per cent of homes will be generating their own solar power by 2050, up from just over 1 per cent today, with the country having already passed the point of peak petrol consumption, officials from the Ministry of Business, Innovation and Employment now assume.

But they believe more than $12 billion of capital investment may still be needed in new grid-connected power plants – mostly wind farms – to keep-up with rising demand for electricity.

Under some scenarios the required investment in new generating capacity over the next 30 years could top $23b, they say.

MBIE models the energy market to help the Commerce Commission regulate Transpower, but the insights it provides into future scenarios have far wider implications.

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In order to meet the expected the increase in demand and compensate for the decommissioning of fossil-fueled power plants such as Huntly, 6300 megawatts of new generating capacity will need to be added to the grid over the next 30 years, in their 'reference scenario'.

That is on top of the contribution from home-generated solar power.

The number of homes with solar power will grow from 21,000 today to more than 500,000 by 2050, making solar generation 'one of the major sector trends over the next few decades', according to government projections.

By some way of comparison, only about a net 2000MW has been added to the grid over the past 30 years.

MBIE attempts to model the future of the energy market every three years, and its latest report shows just how much has changed since it last carried out the exercise in 2016.

Petrol forecourts could be much emptier by 2050 if officials' new assumptions prove correct.

Three years ago, the ministry was assuming EVs might make up only about 10 per cent of the light vehicle fleet by 2050, spokesman Sean Martin confirmed.

It now assumes the figure will be 44 per cent based on current trends and could be as high as 74 per cent in a 'disruptive scenario' where new technology brings down the cost of batteries faster than expected and self-driving cars flourish.

Peak power demand won't rise as fast as the overall demand for electricity, in part because of home solar generation and battery storage.

Some futurists such as Stanford economist Tony Seba insist petrol cars will become obsolete far sooner.

Martin said the ministry generated its latest assumptions before Associate Transport Minister Julie Anne Genter unveiled a 'feebate' plan earlier this month that would incentivise people to import electric and low-emission cars in place of less efficient vehicles.

Wind energy will contribute 55 per cent of the extra power required by 2050, with geothermal power plants and gas turbines the next biggest contributors, according to MBIE's 'reference scenario'.

The policy is expected to give an immediate boost to EV sales when the feebates kick-in in 2021.

In 2016, officials modelled for a 12 per cent drop in petrol sales by 2050, in their reference scenario.

Wholesale electricity prices shouldn't need to rise despite the big step-up in investment in new power plants, because technology improvements mean power will be cheaper to generate, officials believe.

But the ministry now assumes petrol sales will start to fall steadily from next year, and will drop by 47 per cent by 2050.

Greenhouse gas emissions from the energy sector will fall by 28 per cent to just under 24 million tonnes of carbon dioxide-equivalent, based on that reference scenario.

But they could drop by 48 per cent to just under 17m tonnes in an alternative scenario modelled by the ministry of faster-than-expected technological progress.

MBIE assumed that the proportion of electricity that would be generated by renewables by 2050 would rise from 82 per cent to no more than 96 per cent by 2050.

That is despite Energy Minister Megan Woods reiterating as recently as two weeks ago that she was confident the country could achieve 100 per cent renewable generation by 2035.

Officials backed the argument that 100 per cent renewable generation could prove counterproductive in the fight to reduce greenhouse gas emissions.

That was based on a belief that giving up gas generators as a means to cope with peak demand would make the electrification of industrial processes less attractive.

Woods has been contacted for comment.

But the ministry believed there was room for renewable generation to rise greatly without driving up electricity prices.

Its new reference scenario assumes electricity generation would need to rise 43 per cent by 2050, with peak demand increasing by 34 per cent.

More capacity will be needed mainly because of economic growth, with the take-up of EVs and the electrification of industry playing a significant but lesser role.

It believes just over half the new generating capacity required by 2050 would come from wind generation, with geothermal, hydro, grid-connected solar power plants and back-up gas turbines chipping in.

Wholesale electricity prices are expected to remain the same in real times, mainly because of the declining cost of wind generation.

'The cost of renewable electricity generation from wind and solar has fallen faster than expected and is expected to fall further,' the report says.

'Bloomberg New Energy Finance projects that wind and solar technology will meet almost 59 per cent of global electricity demand by 2050. Therefore we project a shift in the way electricity is generated in the future in New Zealand.'

MBIE said it planned to do the modelling more frequently in future, acknowledging that many of its assumptions had 'changed materially' from just three years ago.

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