Over $1bn is invested in renewable energy but meanwhile NZ must import coal to generate electricity

Two   of  the  Labour  government’s  major  policies are  to reduce  carbon  emissions  in the  battle against  climate change, and  to   produce 100% of  NZ’s  energy from renewable sources.

So   are those  policies   going?

Reports  this week make  it  clear:  poorly.

So  badly,  indeed, that  Energy  Minister Megan  Woods  could be  living  in  la-la  land.

This  was  her  response  to RNZ’s finding  that in the same year  the government declared a climate emergency, imports of an especially dirty type of coal from Indonesia topped a million tonnes for the first time since 2006:

“This government is not been [sic] satisfied with this reliance on fossil fuels and last year we backed up our goal to have a fully renewable electricity grid with a $30m investigation into solving the dry year problem.

“The NZ Battery project is investigating the country’s potential for pumped hydro, as well as comparator technologies, and is progressing well but will take time.”

Coal  is   currently  generating  a  significant proportion of NZ’s electricity. In the first quarter of this year, 44%  of Genesis Energy’s total generation was from coal.

The company has signed an agreement to receive natural gas from another company, Methanex.

Woods said there has been an unexpected reduction in natural gas supply from  the Pohokura gas field, recently the country’s largest.

“At full capacity, Pohokura gas field provides about 40% of NZ’s natural gas supply but over the past 12 months, production from the field has almost halved.

“As a result, overall natural gas production is down about 20% on last year. While this decline has put pressure on the supply of gas for all users, including electricity generators, this is not something anyone could have foreseen and is not a result of government decisions.

“The market responded as it was originally designed to, which included more use of coal at Huntly power station to provide the dry year cover that gas has previously provided to ensure security of supply.”

Woods said the energy sector has also committed over $1bn in new renewable capacity this year alone, including both geothermal and wind energy plants. Another wind farm, Waipipi, opened last month, and the country’s biggest solar farm in Kapuni.

Great.

But  much  of that capacity  won’t be available  for  several   years.

And  guess  what?

Wholesale electricity prices   have  climbed so   high,  the  cost  has  been  a  factor  in key  industries limiting production.

But  the  government  doesn’t  seem unduly grieved  about that.  It is the majority shareholder of each of Genesis, Mercury and Meridian energy companies.

The issues  at  the  Pohokura  field could  not have been  foreseen  but certainly  the decision  announced   with  much  flag-waving in 2018 by the Ardern  government   not  to offer new offshore permits for gas exploration compounded  the  problem. It  drove  away   companies  from offshore exploration  and even those   with  fields  to develop.

NZ had 2021 petajoules (PJ) or about 2 trillion cubic feet of natural gas sitting in existing gas fields at the start of last year that could be economically extracted.

That means NZ may now only have about nine years supply left, at current consumption rates, which would take us through to 2030.

Gas prices have risen this year because of an unexpectedly fast decline in production from the country’s existing fields.

That is one reason why Genesis Energy has been burning vast amounts of Indonesia coal at its Huntly power station to produce electricity.   Another, arguably, is a failure by the power industry to invest soon enough in additional renewables, but the  issue there  is  whether the  investment  is  economic.

According   to  reports,  Woods appears concerned that shutting off new connections to the gas network from 2025 could undermine infrastructure the country may want later to distribute greener fuels.

So how short-term is this problem?

The Gas Industry Company, an industry body reporting to  the Energy Minister  forecasts tight supply will last at least until the middle of next year and perhaps into 2023 and 2024.

There may be faster supply after that, but then question would be, for how long?

The challenge of matching demand and supply in a declining but capital-intensive industry where ocean rigs have to be brought in from overseas is, by its nature, only likely to get harder.

So the current short-term production problem could prove to be one of a number of short-term problems that together look much more like a major medium-term problem.

The   difficulty  arises – when cutting back on gas – in gauging whether and when  producers will have with enough confidence to invest to ensure continuing supply.

If Methanex permanently closed one or both of its two larger methanol plants, a large amount of supply (the company said in 2019 it accounted for 45 per cent of gas demand) would be freed.

But the Gas Industry Company has warned that could that kill investment in production, reduce security of supply, and lead to something of a domino effect.

One of those dominos, which the industry body describes as “the worst case scenario”, might mean gas not being available for Genesis to burn at Huntly to see the electricity market through any dry years from 2026.

It said Methanex was the only buyer large enough to underpin production investment over a long enough timeframe to make investment in production economically viable.

Point  of Order  sees  Woods  as  one  of  the  more effective  ministers in  the Ardern  government,  but  suspects   the issues   she  confronts  in  the  energy  sector   are  so  complex   she will  continue to struggle to resolve them.

Despite  the  winter  energy  payment   the  government  introduced,  consumers  will  have to  brace themselves  for rising electricity prices, like  other prices in the  energy sector.