Dr Scott Sheeran is a barrister and published academic, and a former public servant and management consultant. He was National’s Wellington Central candidate at the 2023 general election.
OPINION
Why is a country with an enormous renewable energy potential like ours now facing an electricityand energy shortage?
This should be extremely alarming for all of us, whether your priority is affordable household energy, jobs and tax revenues or climate change mitigation.
Spiralling wholesale electricity prices in the past two years have put NZ in the unenviable position of having the highest power prices in the developed world. This is hugely damaging to our industry, jobs, exports and climate goals. It’s also about to hit household budgets.
The unsustainable increases have driven the Government to scrutinise the electricity market and potential for competition regulation. The key drivers for our current predicament are relatively well-known.
We have four big generation retailers (gentailers) operating effectively as an oligopoly. There’s a natural temptation for the gentailers to keep out rivals, price for over-demand, and use generation revenues to subsidise their retail businesses.
The previous Labour government banned domestic gas exploration, so we ended up relying more on energy imports, including record imports of coal in 2021.
We have a highly complicated resource consent process that has a track record of constraining or disincentivising renewable energy projects. The Government is now seeking, albeit not without debate, to address this through its “one-stop shop” bill.
We have a not-so-friendly overseas investment regime that does not incentivise NZ’s access to more foreign capital. The Labour government’s capitalisation rule changes in 2018, which went largely unnoticed, made us less attractive for large foreign investors. We’re one of the worst performers in the OECD for attracting foreign direct investment.
We face a future of soaring electricity demand. This is fuelled by electrification to reduce emissions, and new and increasing uses, including strong uptake of electric vehicles, the wave of data centres being built, and industry processes switching from fossil fuels.
While all of these factors can and should be addressed, there’s another fundamental challenge that we should be talking much more about.
NZ’s inability to store excess renewable energy has become an ongoing impediment to further investment in renewable energy generation and “turbo-charging” electrification.
The variability of renewable energy - wind, water and sun - means on a daily basis we may generate too much, or we may not generate enough. It’s more of an issue for NZ in comparison other countries, because of our high level of renewables.
NZ’s energy sourced from our electricity grid needs to grow from around 40% today to 60% by 2050. It’s got to be more than 95% renewable (we’re around 87% on average today) and available 100% of the time.
Yet, from a commercial perspective, why would a company invest in further renewable generation capacity if the excess electricity is largely wasted and unsaleable? Also, when there’s a shortage, as currently, generators know they can charge high spot prices and achieve spectacular profit margins.
This is a market failure, and one with serious implications.
Electricity shortages from renewable generation are currently filled by firing up gas and coal-fired plants. The Government recognises “gas peakers” are the best short-term answer. But we have a growing domestic gas shortage too, and the development pipeline will be slow to turn around. It’s not a long-term solution.
We need a way to draw on stored green energy when renewables are deficient, and accumulate that green energy when there is excess - a simple enough proposition in principle.
The Lake Onslow project for a pumped storage reservoir was inspired by this challenge, but was not the right solution. It was too large-scale and costly at an estimated $16 billion, aimed at over-year storage, as much as managing our day-to-day renewables variability and shortfall.
If NZ was able to develop green hydrogen or ammonia production, which stored our excess renewable energy, we could never have too much renewable generation. Whatever renewable energy we didn’t use could be stored, and also turned into export product and earnings. There is already interest from Japan and South Korea to buy green hydrogen from NZ.
Auckland Transport unveiled NZ's first hydrogen fuel cell bus in March 2021.
Green hydrogen, when burned, emits only water vapour. The global market is expected to grow from $1.8b in 2023 to over $50b by 2030. Green ammonia, more easily stored and transported than hydrogen, also offers a huge opportunity, including for agriculture and fertilisers.
There is enormous R&D investment globally in green hydrogen production and storage, driving constant technological improvements. Long-term, natural gas pipelines may be repurposed for use with green hydrogen. That’s good for South Taranaki. Once NZ masters floating offshore wind generation, we could become “the Saudi Arabia of wind energy”, as one foreign engineer told me.
Australia has made a big move on green hydrogen, releasing its National Hydrogen Strategy in 2019, and now has an A$127b pipeline of investment projects.
In New Zealand, we’re late to the party, and lack a national approach.
The Christchurch-based company Fabrum is manufacturing hydrogen electrolysers, storage and refuelling systems. Since 2021, a hydrogen-powered bus has transported passengers from the Prime Minister’s electorate of Botany to Britomart in Auckland.
Our current energy woes provide an opportunity for NZ to work towards storage of renewably generated energy. We should recognise green hydrogen is a part of the future global energy mix and system.
NZ would benefit from a clear national strategy, supportive policy, and government working with industry. This would help drive investment in renewable energy generation. It’s time to be bold, do our homework and back a vision for a better environmental and economic future for Aotearoa.
