Contact Energy is investing heavily in geothermal energy.
Billions of dollars are already being invested in renewable energy projects, and Contact Energy chief executive Mike Fuge says this is just the beginning.
For Contact, it’s all happening in the central North Island, where it has invested heavily in geothermal projects.
Near Taupō, the company’s Tauhara geothermal station (174 megawatts) is nearly finished, and then there is Te Huka 3 (50MW) after that.
“We are looking now at replacing Wairakei and we’ll take FID [final investment decision] on that towards the end of this year, early next year, which will be another 175 to 200MW.
“With a geothermal plant, 175MW doesn’t sound very big, but it runs at a capacity factor of 96 per cent, so that’s equivalent to a 500MW wind farm.
“Multiply that by five to get an equivalent solar farm.”
That’s baseload power - continuous for 365 days a year.
Fuge agrees with the idea that as New Zealand makes its big push to decarbonise, the power generators will play a far greater role in the economy as motorists switch to EVs and industry seeks alternative sources for process heat.
He says the unfortunate thing about big power projects in New Zealand is that they have tended to be stop-start affairs.
“We start and then we stop, and all that capacity and capability gets destroyed because we are in this very short-term cycle.”
On that score, Fuge says Contact having a cluster of projects around Taupo makes a lot of sense.
“And that’s the learning from Tauhara is that it was clear that a lot of the ‘muscle strength’ from decades past had been lost around project management and execution. Getting that built up again and actually executing on it is going to be a big challenge.”
Contact now has a “fairway” of projects in front of it with the almost-completed Tauhara, then Te Huka 3 and Wairakei.
As it stands, Contact has about 650 people working on-site.
“As they roll off Tauhara, they’ll go on to Te Huka 3, and as they roll off Te Huka 3 they’ll go on to Wairakei, and then if we are fortunate, they will then come back to Tauhara South.
“And so you’ve got that sustained capability of fitters, turners, welders, steel formers, electricians that can move to Taupō, send their kids to school in Taupō and keep them in Taupō - which isn’t a bad place to live - over a sustained period.
“I think that is the real opportunity in front of us,” says Fuge.
Contact has already committed to building 1.8 terawatt hours (TWh) of renewable generation. With Wairakei, that will go up to 2.2 to 2.4 TWh.
“That’s over 5 per cent of New Zealand’s demand (40TWh), which will be very low-carbon and which will play a really significant role in decarbonising New Zealand.”
On top of its geothermal projects, Contact has its Christchurch Airport solar project, which is another 0.3TWh, and then wind (0.6TWh).
“It’s not small, and the important thing is that it’s not just talk - they are real, committed projects.”
While geothermal has good renewable energy credentials, the process does emit carbon dioxide, albeit at low levels.
Fuge says Contact has come a long way over the decades, having been heavily reliant on fossil fuels in its early days.
The company started off as a fossil fuel burner, with some geothermal assets and some variable hydro, emitting 2 million tonnes of carbon dioxide a year.
Today the company emits 700,000 tonnes, and that is set to come down soon.
“When Taranaki Combined Cycle goes, and we are closing Te Rapa, we’ll be down to 200-300,000 tonnes a year.”
The challenge then becomes what to do about its geothermal carbon emissions and the emissions from its Stratford Peakers – gas-powered units that can start up in 10 minutes in times of peak demand - which are staying.
With its geothermal CO2 emissions, Fuge says Contact has cracked it.
He says the company has come up with a way of taking the reasonably pure stream of carbon dioxide, putting it back into the injection water and returning it to the ground.
The process has been successfully trialled at the relatively small Te Huka 1 and 2 plants.
For bigger geothermal operations, he says Contact will need a compressor to put CO2 back in the water and return it to the geothermal reservoir.
The solution came about quickly, taking just a year from drawing board to implementation, he says.
Elsewhere, Contact is working on a solution at its geothermal Ohaaki plant – a high emitter – involving capturing gas and using it for sustainable, food-quality CO2.
In time, Contact will be down to its last remaining carbon emitters – the two gas-fired, fast-start, Stratford Peakers - which kick in when the grid is stressed.
From there, he says the company rapidly gets down to net-zero emissions through its partnership with Foresty Partners via carbon offsets.
“By actually doing the hard work and transitioning, we will be a bigger, better company than we were 25 years ago.”
Looking ahead, he says the lines companies will need to lift their investment in connections for households as demand increases.
Likewise, the electrification of heavy industry will require more connections to the grid.
Contact and fellow South Island hydropower generator Meridian are in talks over the Tiwai Point aluminium smelter’s likely demand.
Fuge sounds optimistic that the country’s biggest power user, NZ Aluminium Smelters (NZAS), will keep Tiwai running beyond 2024.
He says decarbonisation does not – as some have said – mean de-industrialisation.
NZAS has suggested it could help the power network by cutting back on use when the system is under stress – acting as a kind of de facto battery.
Fuge says that’s an example of industries rethinking how they work.
“Maybe asset utilisation isn’t the only economic driver in the new world going ahead that they have a role to play [in], and they’ve picked up on that.”
Tiwai has a relatively low carbon footprint, as most smelters are driven by coal-fired generation.
In terms of decarbonising the country, big companies with the heft of Tiwai’s majority owner, Rio Tinto, could play a part.
“They bring a balance sheet, so they can put that balance sheet behind power purchase agreements and new renewable development, which is a tremendous opportunity.
“The smelter was in some ways the stimulus for the building of the last major hydro in the country – Manapouri - and they have the opportunity to do it again.”
NZAS has signaled that the smelter will remain open until 2024.
“I think it’d be a travesty if they went. It would be a travesty for the planet because that aluminum is going to be made and it’s going to be used.
“And I think it’s either going to be made and used using the best part of 100 per cent renewable electricity here, or it’s going to be made with 100 per cent coal-fired electricity.
“That’s just not an economic dilemma - that’s a moral dilemma that people have to resolve.”
Fuge says the investment climate for renewables is highly favourable: “We wouldn’t be spending over a billion dollars if it wasn’t.”
When Tauhara is finished, it will have cost $860m. Te Huka 3 is another $300m. The Wairakei replacement – the total programme - is worth around $2 billion.
The next critical decision on Taranaki Combined Cycle is a few months away.
“The next refurbishment, which typically happens every five years, so we’re coming up to that decision now.
Fuge says it won’t be a dramatic announcement. “I suspect that it will go quietly into the night, but it’s still an important piece of kit for us today.
“For the country, it still provides significant risk mitigation.
“And we recognise that. I think its importance will diminish as we start up Tauhara and Te Huka 3 as base load - there’s quite a natural fit there.”
In the big picture, Fuge says electricity will play a major role in decarbonising the country.
“Realistically, electricity is the fuel of the future and we’re at 85 per cent renewable. By the time we complete our geothermal programme we’ll be at 98 per cent renewable as a country.
“Then the question becomes, how do we decarbonise the rest of the energy demand in the country – process heat and transportation?
“I think that despite the talk of biofuels and the like, most of us are going to have to move to electricity.
“There will be niche applications but the bulk of our decarbonisation journey as a country will be electrification.
“And what’s really important for people is that we don’t get distracted.
“People talk about hydrogen, they talk about biofuels, but the reality is decarbonisation primarily will happen through the electricity industry and that’s the challenge in front of us.”
“It’s one thing to talk,” he says. “It’s quite another to actually do it.”
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