Wednesday, March 31, 2004

Some thoughts on energy policy

Here's a few semi-coherent thoughts sparked by Aqua's demise:

Firstly, contrary to the hysteria from the business community, we are not facing any sort of electricity shortage in the near-term. According to these figures from the Minister of Energy, there is 685 MW of new generating capacity planned for the next three years (I'm deliberately excluding reserve generation from this figure). This compares well with our projected demand growth of 150 MW a year.

Secondly, in response to the comment from Comalco that it seems that "no-one is responsible" for electricity planning: this is what happens in a market. The business community wanted markets for everything, and (thanks to Max Bradford), they got one for electricity. It seems a little rich for them to compain about it now.

(IMHO electricity generation is an area which would benefit from centralised planning. The invisible hand seems to spend too much time scratching its head over uncertainties in other markets (see below), or rubbing its invisible partner with glee at the thought of windfall profits from shortages, rather than providing an efficient network with sufficient slack to deal with dry years and maintenance downtime. But a market is what we have, and I don't think we can get rid of it, so we'll just have to try and make the best of it).

Thirdly, while we don't seem to have a short-term problem with generating capacity, we do have a signficant medium-term problem: Maui. 21% of our electricity is generated by burning natural gas, the bulk of it from this field. It will run out in the next few years, leaving us with a significant shortfall. While there are other fields, they are much smaller, and will only extend things for a few extra years (and at a much higher price). And because Maui gas was rediculously cheap, it discouraged exploration for twenty years, meaning that there are no major fields in reserve. While there's some promising steps being taken to resolve this problem (by the market, even), it's still an enormous source of uncertainty. Unless there's a major find in the next two years, we will need to switch our gas-fired stations over to coal.

(Interestingly, Project Aqua was having the same effect as Maui, even before it was built. It could produce electricity cheaper than any alternative (mainly because there's no rental on water), and this discouraged other companies' plans for new generation.)

Burning coal for power is like rolling in your own excrement. It's dirty, causes acid rain, and is not particularly energy efficient. On the carbon front, it generates about three times as much CO2 per MegaJoule as gas, so in order to meet our Kyoto obligations we will need to plant a lot more trees. Unfortunately, we have shitloads of it, so it's the natural fuel of last resort (I'm with Mike in regarding the prospect of using nuclear power in New Zealand as laughable).

Can we avoid having to return to a nineteenth century fuel? Probably not, at least in the short term. But we can go a long way towards reducing its necessity. According to the Ministry of Economic Development's report on Power Generation Options for New Zealand, there is significant untapped geothermal capacity (a few hundred MW worth). There is also "at least 1000MW - and possibly 2000MW" of additional hydro capacity with "limited environmental impact" (though MED reccommends a serious study of resources in this area, since the last studies were done back in the 80's). And finally, there's wind, which seems to be the obvious choice. Wind turbines are cheaper than hydro, cost-competitive with coal, can be installed quickly, and have few environmental issues. They are also modular, allowing them to easily cope with growth in demand. The total available resource is estimated at 8000 GWh/yr, about twice the total currently generated by natural gas, so there's plenty of room for growth.

So in the long-term, we can achieve a green mix of hydo and wind supplying baseload, with peak "firming" and dry-year generation supplied by geothermal and coal (or gas). But in the short-term, we will probably have to burn some coal. We can reduce this amount by encouraging wind now, and to some extent the government is already doing this. We can also to some extent rely on the incentive structure set by the RMA. The cost of gaining resource consents for a coal-fired plant in both time and money are likely to be significant; the costs for a windfarm are much less (Meridian's Te Apiti site took a mere four days to gain its consent; I expect a coal-fired plant to be bogged down for years). This alone should encourage our electricity generators to do the right thing.