Friday, June 14, 2019

Why hasn't New Zealand been building more wind farms?

New Zealand needs to decarbonise its electricity supply, while also increasing it to cope with the extra demand from electric vehicles. Wind energy is an obvious solution for this: we have an excellent wind resource, and its cheaper than fossil fuels. Yet we haven't been building it. Why not? One reason is that demand has been decreasing lately, so we haven't needed to. But an article on Newsroom also offers another reason:

Without storage wind electricity producers will accept prices given to them. For companies with fossil fuel plants this drives down the price their fossil-fuelled electricity can demand, as well as not making them much money.

For electricity companies who have gas or other non-hydro facilities, wind risks driving their profits down.

“That’s my theory why no one was doing it. You would need a new company to come in and build it whereas if an existing company built a wind farm it would be eating into its profits.”

Our two biggest electricity gentailers are Genesis and Contact. They're also the two with the highest investment in fossil fuels: Genesis owns Huntly (which it infamously is reneging on shutting down or going coal free), and Contact owns the Stratford power station in Taranaki. So they have no incentive to build wind farms, and unsurprisingly, they haven't. Instead, its all been built by Mercury and Meridian, who are exclusively renewable. Even then though they don't want to build too much, because everyone gets paid the price of the marginal supply, and if that's fossil, then they get more money than if its wind or hydro. Once again, the invisible hand of the market is figuring out ways to screw us (and the planet) rather than making life better.

As for how to fix it, the solution is obvious: a generation-focused SOE with the specific purpose of building wind plants to expand supply and drive fossil fuels out of the market. Basicly, a "KiwiWind". The more renewables we have, the less coal and gas gets burned, and that in turn drives up the price (because the fixed costs of the generator must be recouped over less time), which provides stronger financial incentives for industrial users to avoid high spot prices by changing demand patterns. We don't need much to set up a virtuous cycle here - maybe 500 MW of generation to monster the market and exile coal and gas to dry year / dead of winter backup. And that's not that expensive: wind energy costs ~$1.5 million / MW of installed generation, so we're talking about $750 million over five years, or an investment of about $150 million a year. Its not peanuts, but its not huge either, and if they do the maths right, pays for itself through electricity sales.

If the government is serious about its renewables target, and doesn't want to just leave it to the market, it needs to invest to make it happen. If they fail to do this, we can draw our own conclusions about their seriousness.