We know what we have to do to beat climate change: electrify everything, and stop investing in things that burn fossil fuels. In New Zealand, that has been hard to do. Thirty years of climate policy have left us with only two main tools: the Emissions Trading Scheme, and an ‘aspirational’ target of 90% renewable electricity by 2025.
The ETS has failed to reduce emissions. Although the carbon price has now risen to $25/tonne, and a 50% discount for large emitters gradually unwound, the price is not high enough to have an effect. It’s adding 5c/l to petrol, and in theory it’s adding 2.5c/kWh to coal-powered electricity and (and 1.25c/kWh to gas). Gas peakers, which can be turned on every evening when the spot price is high, are still being used and even built.
The short story of new electricity generation in New Zealand is that we massively invested in fossil fuel power stations in the 90s and early 2000s, and then began to unwind that with a move into wind and an expansion of geothermal power in the decade to 2014. But in the past 5 years, that effort has come crashing to a halt.
The result is that emissions have remained stubbornly high, jumping another 2% in 2017:
For a period of intense international focus on climate change, and an urgent need to start reducing emissions, that’s pretty frustrating. We kept hearing about the 3000MW of consented wind power just waiting to be built – when the demand was there. We also heard about consents for new fossil-fueled power stations (1240MW planned), an old 377MW plant at Stratford that was up for closure that instead got a $45m makeover in 2017, a new 100MW gas peaker to open in New Plymouth in 2020, and the closure of the 500MW of coal-fired capacity at Huntly, originally set for 2018, extended first to 2022 and then to 2030.
Indeed, why would anyone build wind today? Wind power takes any price it can get. In a flat market, adding more wind will depress the spot price and hurt existing operators. Hydro owners would not suffer particularly – when the wind is blowing they can save their water for later – but fossil owners would be worst off, as they would face both lower prices and lower demand.
In this context the decision by Mercury to start building the Turitea wind farm is a welcome surprise and is striking in a number of ways.
1. It’s big. The first stage, committed now, has 33 3.6MW turbines, totalling 119MW. It adds 20% to New Zealand’s wind power. The turbines will be the biggest yet installed in New Zealand. (They are Vestas V112s, which are normally 3.45MW, but are available in a 3.6MW ‘power optimized’ option, presumably for very windy sites.)
2. It’s bigger than expected. The original consent was for 3MW turbines; Vestas has been able to deliver 20% more power in the same site with the same tower height.
3. It has big potential. Mercury is building the transmission lines for the full Turitea project, and for the additional Puketoi farm further east, now. The whole package totals 500MW. Although they’re not committing to the full thing now, surely this makes it likely to go ahead.
4. It’s highly efficient. Mercury and Vestas are claiming a 45% capacity factor, even higher than the New Zealand average of 37% which is already among the world’s highest. Presumably this is due to a combination of the site and engineering improvements.
5. It has global significance. Vestas will service the wind turbines for 25 years – longer than the usual certification of 20 years. In return they will also get access to data on the operation of the farm in this extremely windy area.
6. It’s cheap. The capital cost is $256m and Mercury have said their total operational costs are 1.3c/kWh. If finance is 7%, then the overall cost of generation is 5.1c/kWh, well below the typical spot price of 7-8c. That’s cheap for new build generation in New Zealand.
Why, then, are they going ahead, when I argued above that no more wind was going to be built? Part of the reason must be the change in government and the strong signals that a Zero Carbon Bill is coming, that the price of carbon will rise, and that more renewable generation will definitely be needed. But the (partly private, partly arms-length state-owned) electricity industry is not compelled to respond to any of this.
A conference call on the day of the announcement contains this important detail from Mercury CEO Fraser Whineray: “We’re also interested in where this will go for co-optimisation with our same island hydro scheme, that being the Waikato hydro scheme, which is the biggest peaker in the North Island.”
So that’s the clue. Mercury owns a lot of hydro. 1078MW on the Waikato, which is 58% of allNorth Island hydro. When the wind is blowing they can save their own water for later without bleeding income to other companies. (They do risk spilling water when they run out of storage, but they will have modelled that thoroughly.)
A lot of things had to line up correctly for this to go ahead. The larger future of New Zealand’s electricity sector will have to await details of the Zero Carbon Bill.
Will the Turitea wind farm reduce emissions? It’s possible that it will. If demand for electricity continues to be flat, then when the wind is blowing the gas peakers will be running less. If the 470GWh of wind power from Turitea entirely displaced gas, that would cut emissions by 235,000 tonnes of CO2 per year – to be sure, a small amount when we need to be cutting by millions of tonnes per year, for many years in a row – but well worth having, in an environment when cuts of any sort are hard to find.
In a few years, then, our electricity capacity might look more like this: