Friday, June 11, 2021

The economics of killing Huntly

RNZ reports that Genesis Energy's use of coal has spiked over the past few years, as they use to burn it rather than pay for gas:

New Zealand has significantly increased its use of coal in recent years, despite its status as the worst, most polluting fossil fuel on the planet.

In the first three months of this year, the same amount of coal was used to generate electricity as in all of 2016 and 2017 combined. Coal generated 10.35 petajoules from January to March, slightly under the 10.52 petajoules in all of 2016 and 2017, according to MBIE's Quarterly Energy Statistics, released yesterday.

10.35 PJ is just under a million tons of CO2, in three months. And that was in summer, when load should be low. For winter, they've cut a deal with Methanex so they can burn gas, but that's not exactly a clean fuel either.

How much is this costing is? The government is meant to internally value carbon at $150 a ton. So Huntly burning coal for a single quarter costs us ~$140 million. A quarter. Gas isn't as harmful as coal, so its carbon value is only ~$100 million a quarter. And when you start adding that up, its doesn't take long before you're talking Real Money.

(Gensis will be paying some of this cost - ~$40 a ton - through the ETS. But that's a tiny fraction of the social cost of the damage it is causing, and it shows the scale of the effective subsidy we are giving it to pollute)

What could we do with this money? Well, a standard-sized windfarm costs ~$300 million. If Huntly burns coal half the time and gas the other half, you can basicly buy one and half windfarms every year to reduce its emissions. You need about seven to replace it completely, so its economic for the government to completely replace Huntly with wind over five years. And that is exactly what they should do: establish a special purpose SOE solely to build renewables, with the explicit purpose of driving fossil fuels out of the market permanently (and as a bonus, they get a revenue-generating asset). Alternatively, they could just pay existing power companies to bring forward construction of already-consented projects, or to plan and build new ones (which is a good idea, given that a whole bunch of consents will expire in the next few years). And from next year, they'll have a dedicated pot of money from ETS revenues to fund it.

But its also worth remembering that Huntly isn't the only villain here - there are a pile of gas power stations too. And exactly the same logic applies to them: it is economicly worthwhile for the government to replace them in a fairly short timeframe; the only question is exactly how short.