Lake Onslow, a thousand pound gorilla 'kneecapping' a solution to Monday's problem

Energy Minister Megan Woods insists the 2018 oil and gas ban did not contribute to Monday's problems, but a combination of energy policies may make a solution more difficult. Photo / Mark Mitchell

ANALYSIS:

As businesses and households turn on more electrical devices, the electricity grid could become more prone to demand spikes.

But the direction of government policy, from discouraging gas to contemplating monumental investment in a wildly ambitious project, is discouraging the type of investment needed to keep the grid stable, a leading analyst warns.

This week, as she had before, Energy Minister Megan Woods pushed back hard at questions of whether the Government's decision in 2018 to effectively ban new oil and gas exploration caused the problem.

For the most part, analysts have agreed with the argument. Even if an exploration well was drilled on the day of the ban, it is highly unlikely it would have been turned into commercial use given the lead-in time to bring discoveries into production.

But this week leading energy analyst John Kidd of Enerlytica said that, when several pieces of policy were taken together, it was "definitely a consideration in investment decisions" for generation companies.

Kidd said the Government's ban on oil exploration, its target of having 100 per cent of electricity generation from renewable sources by 2030 and the NZ Battery project (which appears to be focused on a vast pumped hydro project, Lake Onslow) taken together were likely to discourage investment.

"It's very, very difficult for asset developers to justify business cases for the sort of new capacity that would have been helpful yesterday."

While the easy solution is gas (or new hydro, but this is enormously difficult to consent), the Government's claim that gas was available belies the type of solution needed, as Monday proved.

In Parliament on Wednesday, David Parker, standing in for Woods who was attending a funeral, conceded that it may be that a pool of gas needed to be available to cater for risks to the system, so Huntly could run on gas rather than coal, as gas could be brought on much more quickly than coal.

He is partly correct. Initially Woods appeared to blame Genesis' decision not to bring one of the Rankine units at Huntly online on Monday for the problem.

"This wasn't a physical constraint of generation, we did have the ability to physically generate the amount of electricity that would have been needed ... but commercial decisions were made not to," Woods said. Parker softened the language a day later switching "commercial decisions" to operational ones.

Genesis said at the time Transpower began issuing warnings about the grid needing more generation, it did not see a need to bring Rankine online. By the time one of its hydro stations was clogged by weed and the wind dropped, it was too late.

Kidd said the "old and cumbersome" Rankine units were not designed to respond to short-term spikes in demand.

"To activate them and turn them from cold to warm to hot is a very long process," Kidd said.

Another gas-fired station, the Contact-owned Taranaki Combined Cycle, has also been offline since the end of July, with the company said to be "nursing" the ageing station along when it is needed until its geothermal development, Tauhara, joins the grid in 2023.

Elsewhere, so-called peaker plants, which sit waiting for shortages in the market and can be activated within seconds, were running at full throttle on Monday.

Lake Onslow in central Otago. Photo / Supplied

It is this type of generation which will be needed as more and more households turn to electricity (heat pumps instead of log burners and electric rather than petrol vehicles) at the same time as new renewable generation (wind and solar) is a less reliable form of generation.

But it is this type of station which Kidd said is most undermined.

Kidd pointed to the fact that Nova Energy, part of the Todd Corporation, has had all of the necessary consents to build a 360 megawatt gas-fired peaking plant in the Otorohanga District since 2017, but had made no commitment to building the project.

"That would have been extremely helpful yesterday, but the chances of that being developed any time soon, because of the direction of policy over the last couple of years, is very low."

A spokesman for Todd Corporation, which owns Nova Energy, declined to comment on why the business had not progressed plans to build the 360 megawatt station.

Kidd said concerns around gas supply and the prospect of a vast pumped hydro scheme meant it would be hard to convince capital providers to approve such a project.

"Lake Onslow really does kneecap anything that looks like that as a proposal," Kidd said.

To be viable, peaking plant needed confidence that at times, wholesale prices would spike, as the plants may only run for a few weeks of the year, when prices justified the operation.

"Lake Onslow is the thousand-pound gorilla that nobody has a clue about what it is intended to be," Kidd said. "But what it does seem to be is a suppressant in the market for peak pricing."

While the Government has described Lake Onslow as a possible solution to New Zealand's dry year problem, implying it would only be used once every few years, typically pumped hydro schemes are used as intermittent load, whenever prices reach a certain level.

"There is no incentive in the market for developers … for developing new plant to serve into the market like we needed [on Monday], which is serving in peak periods and having to extract peak prices, to justify their business case.

"Volatility is what these peaking plants require to be able to justify their investment cases".