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Bryan Leyland
8 December 07
New Zealand Energy "Strategy"

I have been involved in the electricity and energy business in New Zealand for the last fifty years. From 1992 to 2003, I produced the only independent review of electricity generation and demand in New Zealand.

In all that time, I have never seen anything that is potentially so disastrous for electricity supply and for the economy as the New Zealand Energy Strategy and the Emissions Trading Scheme.  Its central focus is climate change and political expediency not strategy and energy.   It also demonstrates that electricity supply is now or more firmly under government control than it was in the "bad old days"   when the Power Planning Committee issued reports that anyone could understand and which clearly set out the options and the arguments for and against them.

A rational strategy must first establish the objective. For the energy sector it is, surely, the provision of a reliable and economic supply of electricity and other forms of energy for New Zealand. The next step is to establish what the demand will be and, having done that, evaluate all the resources available to us to meet that demand.  Then it needs to match the resources and the demand to give the lowest possible cost of energy with reasonable security. Having done that, we have a firmly established and rational "base case". The next step is to consider alternatives to the base case. These can include variations in demand, and the cost and availability of, for instance indigenous oil and gas. Other options such as a belief that minimizing the emissions of greenhouse gases is important can also be factored in.

A rational strategy would give us a comprehensive review of the options and their uncertainties and their costs and benefits. On the basis of this, a long-term strategy for pursuing what is determined to be the most attractive option can be developed.  If circumstances change, then it is easy to repeat the whole exercise by changing the base case or the options as necessary.

But what we actually got is a political document that reflects, more than anything else, the government's obsession with the idea that man-made carbon dioxide causes dangerous global warming.  It also seems that the government believes that if New Zealand reduces its emissions, it will have an effect on the climate. Yet there are scientific studies which show that even if Kyoto were adopted 100%, the world would be 0.07 degrees cooler in 2050 than it otherwise would be.   It is worth noting that much of the hoped for carbon reduction will be achieved by shifting efficient New Zealand production overseas.  If this happens, more, not less, carbon dioxide will be emitted world-wide.

On the 5th Dec the government announced a moratorium on thermal power stations running on "base load".   This was done, it seems, to stop generators building more base load gas turbine stations if, as it likely, we find more gas.  Instead of "the market will provide" we get "the market shall not be allowed to provide".  So much for an electricity market and an industry free from political interference.

It is incontrovertible that the world has cooled since 1998. 2007 will be cooler than 2005 and 2006 in spite of the fact that, since 1998, carbon dioxide levels in the atmosphere increased by 4%.    The climate models said it would get warmer. It didn't.  And yet the Energy Strategy relies on the same shonky climate models.

 A significant feature of the "Energy Strategy" is the belief that our electricity supply can be 90% renewable by 2030.    To this end the government has told the state-owned generators that they cannot build new thermal generation for the next 10 years (except for "security").  The Strategy says virtually nothing about coal fired generation, claims that nuclear power is not for New Zealand - without any justification for the statement - and largely ignores the potential for continued development of large hydro power.  The strategy  ignores the fact that at least 3000 MW of our existing coal and gas fired power stations will have died of old age before 2030 and will need to be replaced. Instead, it seems to believe that some geothermal development and a huge amount of wind power will give a reliable and economic supply. It won't.

According to the government's own Electricity Commission, wind power is very expensive - more than 11 cents per kWh  - and it will need another 2c/kWh or more to provide the transmission and backup or when the wind it isn't blowing. (Over the past year, the average spot price has been in the region of 6 c/kWh.) Coal, nuclear, and large hydro power would provide electricity for about 8c/kWh and would not require near as much transmission or as much backup. So there is one thing we can be sure of: compared with the alternatives, the energy strategy will give us a very expensive supply of electricity. But no-one reading the Strategy would dream that this is the case.

Arguments rage about whether or not wind power needs a large amount of backup capacity. It does. In June and July this year, when the system demand was at its maximum, the wind farms in operation in the North Island produced virtually no electricity for 25% of the time and not much for another 12%. For 37% of the time, the output of the wind farms was less than 17% of the installed capacity. The backup that was needed was provided by hydro power. Fortunately, it was quite a wet year and the new CCGT station at Huntly ran reliably. People who understand the system believe that, at most, our 5300 MW of hydropower could support and backup 1500 MW of wind. But the government wants three times this amount. Where will the backup come from? The Strategy is silent on this.

The huge wind power developments proposed for the South Island will produce large amounts of electricity when the wind is blowing hard. Much of it can only be used in the North Island. To get it to the North Island, new 220 kV lines will be needed in the South and it will be necessary to spend more than $600 million increasing the capacity of the direct current link. But that only gets it to Wellington. To get it to Auckland, new lines will be needed between Wellington and the centre of the North Island. The costs of this extra transmission could easily add 50% to the cost of wind power in the South Island. One thing we can be sure of: one way or another, the consumer will pay for all this.

If the strategy is implemented, it is inevitable that, sooner or later there will be a need for rotating blackouts when the demand is high and the wind is not blowing. The public reaction to this will be so strong that, whichever government is it power, it will have to take desperate measures. The only option it will have is to purchase open cycle gas turbines which are inefficient and extremely expensive to run. So the cost of electricity will increase even more and these inefficient gas turbines will spew lots of carbon dioxide.

If, instead, we built a nuclear power station North of Auckland, we would save billions of dollars on power transmission and we would have a secure and reliable supply at a predictable price. And for those who believe in global warming, there would be a massive reduction in emissions of carbon dioxide. Many countries that believe that CO2 causes dangerous man-made global warming are actively considering - or actively developing - nuclear power. But our Prime Minister has decided that we are not even allowed to talk about it!

When he was in charge of the Ministry for the Environment, Barry Carbon told me that "Kyoto is all about politics, not science".   Exactly the same thing can be said about our energy strategy. 

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