June 1, 2018 / 1:27 AM / 23 days ago

New Zealand push on clean power comes with high political, economic risks

WELLINGTON/MELBOURNE (Reuters) - New Zealand has set out to burnish its clean, green image by becoming Asia Pacific’s first developed economy to stop using fossil fuels to generate power, although the pitfalls encountered by a Maori iwi, or tribe, may signal trouble ahead.

FILE PHOTO: Huntly power station in Waikato province is seen March 30, 2016. REUTERS/Henning Gloystein/File Photo

The 3,000-member Ngaati Kea Ngaati Tuara iwi in Rotorua, when switching to renewables, found local geothermal sources were not hot enough to generate electricity.

So, the tribe set up small hydro units for its meeting ground and dairy farm, but the units struggle to operate during floods and to produce enough power at peak demand, said project manager Eugene Berryman-Kamp. A battery could store energy for periods of high use, but there is currently “no appetite” to invest the more than $10,000 needed, he said.

New Zealand, in its push to be free of power fired by coal and natural gas, would likely face similar problems scaled to national size and potentially billions of dollars in costs.

“If we move too quickly, the risk is to the New Zealand consumer having to pay more for their energy and (this) could make New Zealand less competitive as a market,” said Marc England, chief executive of New Zealand’s biggest energy retailer and fourth-biggest generator, Genesis Energy (GNE.NZ).

Other countries that have turned fully to renewables for power - such as Norway and Denmark - are connected to regional grids that can help back up shortages. New Zealand, in the remote South Pacific, would not have that option.

For graphic on New Zealand power prices are low click reut.rs/2rzuBcn

New Zealand would need large batteries, extra wind and solar power, and might still need to use gas or coal to prevent blackouts. Such investments would send costs soaring and could alienate voters who elected Prime Minister Jacinda Ardern last year, in part due to her pledge to counter climate change.

Ardern said in April the government was also halting new offshore oil and gas exploration permits as part of efforts to convert the nation to renewable energy by 2035.

HUGE INVESTMENTS, HIGHER PRICES

Critics say Ardern’s goals would require huge investments in renewable energy sources, grid expansion, and an overhaul of New Zealand’s biggest export industry, dairy, which relies heavily on coal, driving up power prices.

Sapere Research Group advised Wellington its goals would require wholesale electricity prices to rise by up to 60 percent to around NZ$100 ($70) per megawatt-hour (MWh), making them some of the highest in the world.

That would destroy a key advantage for agriculture and industry in New Zealand, where baseload power futures are currently running about 25 percent less than in Australian states New South Wales and Victoria, where soaring electricity costs have forced some manufacturers to shut.

A backlash from industry and politicians has deepened partisan fault lines that Ardern’s center-left government, installed in October, is trying so smooth over. But the criticism has not stopped her from looking to establish a legacy by combating climate change.

Ardern’s government has set a goal for the country to be carbon neutral by 2050 - emitting no more carbon dioxide than its biosphere can absorb - an effort she compares to an earlier generation standing against nuclear warfare and declaring New Zealand a “nuclear free” zone.

Slideshow (5 Images)

Climate Change Minister James Shaw has set up a panel to develop a carbon neutrality plan by mid-2019, and a public and business consultation is scheduled for June.

“We need to be looking at ... more renewable generation and potentially storage to replace our aging fossil fuel generators, as well as energy efficiency initiatives to better manage demand,” Shaw told Reuters.

NO MORE COAL FOR DAIRY COWS

New Zealand gets more than 80 percent of its energy from renewables, mostly hydropower. Another 14 percent comes from natural gas and 3 percent from coal.

Fonterra Co-operative Group (FCG.NZ), however, the world’s top dairy exporter and one of New Zealand’s biggest energy users, gets around two-thirds of its energy from fossil fuels.

Fonterra is trying to ditch coal, but a change is going to “require significant investment”, said Chief Operating Officer Robert Spurway.

“It’s very important to us that we find ways to do this in an economically sustainable way so that we remain competitive globally,” Spurway told Reuters.

Part of the problem is that while most of the population and industry is on the North Island, most of the hydro stations are on the South Island. That increases the outage risk because of the possibility of damage to the cables connecting the two islands.

“The inconvenient truth in New Zealand is for decades we’ve used coal to back up hydroelectricity,” Genesis CEO England told Reuters. New Zealand’s biggest power plant, Huntly, owned by Genesis, was due to shut its coal units in 2018, but rival generator Meridian Energy (MEL.NZ) agreed to pay Genesis to keep them open as back-up at least until 2022.

WANTED: MORE WATER

Genesis said batteries are not yet an economic option to fall back on through extended droughts. New Zealand lakes have only up to eight weeks of water storage, while hydropower-dependent Norway has about two years’ worth.

Many analysts still say New Zealand’s plan to go green is viable and will benefit the country, although England said switching to electric vehicles (EV) to wean transport off petrol would be better than 100 percent renewable power generation.

“(EV) could be a better economic choice for the market as a whole,” he said.

Berryman-Kamp said power independence has become a point of pride for the Ngaati Kea Ngaati Tuara iwi, and that he gets requests each month from other tribes interested in making similar changes.

“They like the idea that we’re self-sufficient ... They like the idea that we’re minimizing environmental impact.”

Reporting by Charlotte Greenfield in WELLINGTON and Sonali Paul in MELBOURNE; Editing by Tom Hogue

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