Power woes: 'We need a solution or we are going to wreck our economy'

Friday, 7 May 2021

Waikato University hydrologist Earl Bardsley says “you wouldn’t have a crisis situation like we have now, if Onslow was in operation”.

Spending billions of dollars on a power scheme that uses more electricity than it generates might seem an unattractive proposition.

But the threat of a gradually unfolding power crisis this winter couldn’t have been timed better to boost the chances of a multibillion-dollar pumped hydro scheme at Lake Onslow in Otago.

Waikato University Associate Professor Earl Bardsley, the academic who first saw the potential of Lake Onslow, hopes this year’s dry year and higher electricity prices will act as a circuit-breaker.

“It does focus minds on the need for some solution, or otherwise we are going to wreck our economy.”

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Lake Onslow would be a hydropower project like no other in New Zealand.

An earth dam stretching one or two kilometres would be built to a seal off a natural rock basin 700 metres above sea level, which would be filled with pumped water from Lake Roxburgh to create a larger artificial lake.

Depending on its final dimensions, the hydro scheme would be capable of storing between 5 and 8 terawatt-hours of electricity in the form of water, effectively acting as a giant battery back-up for the country’s power supply.

For comparison, total annual electricity demand currently sits at about 40TWh.

Lake Onslow would be capable of producing between 1000 and 1100 megawatts of electricity when water was dropped hundreds of metres through concrete-lined tunnels back to Lake Roxburgh.

That’s more power than either Meridian Energy’s Manapouri hydro scheme or Genesis Energy’s Huntly gas and coal power station can generate.

But like any battery, Lake Onslow would need more power to recharge than it could release, making it a net consumer of electricity.

The main goal of the project would be to ensure the country had power in “dry years”, and was less at the mercy of the prevailing elements.

It would store energy when power was cheap and plentiful, including when water would otherwise be spilled from existing hydro schemes such as Meridian’s Waitaki scheme.

Lithium battery farms could not realistically provide dry-year storage for the electricity market as although their power output can be impressive, their capacity to store energy is negligible compared to a lake.

“I would liken Lake Onslow to an insurance premium,” Bardsley says.

The costs have to been measured against alternatives such as storing power in the form of hydrogen or, as is happening now, “shutting down industries”, he says.

The ‘NZ Battery Project’ could expand Lake Onslow to be used to store between 5 and 8 terawatt-hours of power.

NZ Steel, the Tiwai Point aluminium smelter and the Norske Skog paper mill in Kawerau are among the businesses that have cut production amid a spike in wholesale electricity prices at least partly brought about by low lake levels and gas shortages.

Low lake levels have also sent carbon emissions from electricity generation through the roof.

Enerlytica analyst John Kidd estimates Genesis Energy’s Huntly power station is burning through about 250,000 tonnes of coal a month.

Burning coal generates about 50 to 60 per cent more carbon emissions than burning gas, depending on its quality, for the same amount of electricity produced.

Bardsley says “you wouldn’t have a crisis situation like we have now, if Onslow was in operation”.

But Lake Onslow would also serve a second purpose, smoothing out and storing power generated by new wind farms, so more could be built to replace fossil-fuelled generation, he says.

Wind farms can produce electricity at a cost of about 7 or 8 cents a kilowatt-hour without any subsidies due to our high wind speeds, about 5c cheaper than by burning coal.

But their contribution is capped by the fact production fluctuates and, in the absence of schemes like Lake Onslow, wind energy can’t be stored.

Bardsley says Lake Onslow’s generating capacity should be sufficient to allow about another 2000MW of wind generation to be built over and above what would otherwise make economic sense in the absence of the scheme.

To put that in perspective, another 2000MW of storable wind generation would increase New Zealand’s total generating capacity by about 20 per cent, or could enable the country to move to 100 per cent renewable power today based on current electricity demand.

“Wind energy looks like being the future of new energy coming on stream,” Bardsley says.

“I would anticipate that as wind power becomes more and more dominant as time goes on, there will be a need for more ‘buffering’ and you could do that with North Island pump storage to smooth out the fluctuations.”

Lake Onslow could act both as an insurance policy for dry years and as a buffer for wind generation without any trade off between the two functions, Bardsley says.

“You wouldn’t build Onslow just for the sake of buffering wind, but if you are going to use it anyway for dry years, you might as well make full use of it.

Lake Onslow could make it economic to roughly triple wind generation.

“The fluctuation from wind might see Onslow go up and down maybe just by centimetres during the course of a day.”

Bardsley says Onslow could also be used as a buffer when power stations of any kind were taken offline for maintenance, and potentially as a supply of water for irrigation during droughts in Central Otago.

He first identified the potential of Lake Onslow back in 2005 when he was looking for ways to take the pressure off the country’s existing natural lakes and reduce erosion around them as their water levels were raised and lowered to produce power.

But it wasn’t until last year, when the Government committed $30 million to investigate the opportunity alongside alternative ways of combatting New Zealand’s dry-year risk, that Lake Onslow morphed into more than a pipe dream.

The Government has since earmarked a further $70m for engineering studies for whatever solution it picks.

The scheme has its critics, not just because of its expected $2 billion to $4b price tag, but also because it appears to challenge the commercial status quo within the electricity market.

Kidd has likened it a “1000 pound gorilla” that could tip existing market structures on their head and create a “hard ceiling on electricity prices”.

“It is so big that the entire market would need to reconsider how it behaves in a market with Onslow present,” he said in August.

One of the unresolved questions is who would own the scheme; perhaps a new state-owned enterprise, Transpower, or an existing player in the market.

Bardsley says that he may have been naive when he first proposed the scheme as he was hoping for some support from generators.

“It really would help if the Government made a statement at some point about how the scheme was likely to be run and who was likely to own it,” he says.

Mercury Energy also has power stations in the North Island that could help “buffer” more wind generation, but less clear is how they could provide enough new storage to help with dry-year risk, Bardsley says.

But Energy Minister Megan Woods indicated to Stuff last month that the Government had not yet decided whether Lake Onslow or a series of pumped hydro storage schemes in the North Island might make the most sense.

And it was not possible for the Government to determine the implications its NZ Battery project might have for the structure of the power market until it knew more about what that project would be, she said.

A North Island option would be likely to put control of the “NZ Battery” in the hands of existing hydro scheme operator Mercury Energy.

But Bardsley believes that while Mercury’s hydro assets could provide additional short-term storage that might allow for more wind generation, it is not clear how they could provide a dry-year solution.

“For the life of me, I just cannot see the mathematics working out on that,” he says.

“If you want to have large energy storage, you have got to have a mass of water at a sufficiently high elevation, and the topography of the North Island just doesn’t give you the areas of high elevation.

“There is one site that we have looked at, Ngaruroro above Lake Taupo where there is energy potential of 2.7TWh, but that is in a sensitive region, so I’d doubt that would go ahead.”

Mercury would not say what sites it was putting forward, how much power it believed they could store, or what their generating capacity might be.

In theory, Lake Taupo itself could be used more as a power store if any Government was prepared to deepen the channel from the lake and allow its level to rise and fall significantly, Bardsley says.

But he makes clear he would not advocate for that.

Whatever the answer that officials from the Ministry of Business, Innovation and Employment come up with in about a year, the question looks likely to become more nagging.

Bardsley notes there was a 13-year gap between the last dry-year power crisis in 2008 and the current dry year.

But if New Zealand scientists are right, the odds may be in favour of a shorter gap before the next one.

Nick Cradock-Henry, a scientist at Landcare Research, said New Zealand was likely to face hotter, drier conditions due to climate change.

Victoria University Professor Justin Hodgkiss said people could expect the frequency and impact of dry winters to become more challenging both because of that and the growing demands from electrifying transport and industry.

“Without additional renewable energy generation and storage capacity, dry winters mean that coal and gas is required to meet our winter electricity demands – a significant setback for our climate commitments,” he said.