The Value of RE in NZEM

September 2011

Bart van Campen

The Energy Centre, University of Auckland

b.vancampen@auckland.ac.nz
 Overview

• Background NZEM (vs Chile-SIC)

• RE-electricity generation & policy targets

• NZ Emissions Trading Scheme

• NZ gas market

• Value of specific RE-sources (geothermal & wind)

• Summary and conclusions

 New Zealand Electricity Market (NZEM)
- Liberalized energy-only market since 1996

- 2 interconnected islands (North & South)

- ca. 42,000 GWh pa; 9,500 MW installed

- 58% hydro, 12% Geothermal, 4% wind

- Limited hydro storage: 6 weeks /10%

- ¾ hydro storage in South Island

- 2/3rds demand in NI (Auckland)

- 33% residential, 44% industrial demand

- Transmission & gas constraints

- Dry year ‘crises’ (2001, 2003, 2008)

- Emission Trading (CO2-price) since 2008

Source: Ministry of
Economic
Development
(MED): NZ Energy
Quarterly, 2011
NZ Spot and contract prices (NZ$/MWh)
 NZEM vs Chile-SIC
NZEM Chile-SIC
Generation
Generation (GWh) 42,000 43,000
Installed capacity (MW) 9,500 12,000
Average Hydro-% 58% 50%
Other renewable-% 16% 3%
Thermal-% 26% 47%
Demand
Max Demand (MW) 6,500 6,400
Residential demand-% 33%
ca. 60%
Commercial demand-% 23%
Industrial demand-% 44% ca. 40%
Demand growth rate (pa) 1-2% 5-7%
 NZ Renewable Energy% growing: why?
• Government target of 90% RE by 2025

• No ‘subsidies’, but emissions trading scheme (ETS); also no

subsidies/support for gas/coal generation

• NZ Electricity system always highly hydro-based (max: 80% in 1980s)

• No more large hydro projects since 2005

• Gas reserves dwindling since 2005 and more expensive (from ca 1.5
US$/GJ to US$ 7/GJ in the last decade

• Coal generation less attractive due to carbon price (ETS since 2008)
and other environmental/pollution/branding concerns

• Large geothermal resources in centre of NI

• Good wind resources (40%+ capacity factor

• More potential from biomass and waste

 NZ-generation by source (GWh pa) & % renewables
(1990-2010)
45,000 90%

40,000 80%

35,000 70%

30,000 60%

25,000 50%

20,000 40%

15,000 30%
Fossil (Gas-Coal-Oil)

Renewable Other (wood, biogas,

10,000 waste) 20%
Renewable-wind

Renewable Geothermal
5,000 10%
Renewable Hydro

- 0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
 NZ Emissions Trading Scheme & other policies
In 2008 Labour government introduces ETS and 90%
renewables target by 2025

New National government in 2008:

- 90% target ‘endorsed within set of priorities’:
- Economic development
- Secure and affordable energy
-Environmental responsibility & efficient energy use

i.e. a certain level of cross-party support for such

policies (incl. light-handed regulation)
 NZ Emissions Trading Scheme

ETS 2008-2012 main parameters:

- Started 2008 (forestry)
- Energy sector (stationary + transport) entered 2010
- All sectors of the economy (incl agriculture) by 2015
- NZ$ 25 price cap until 2012
- 2-for-1 until 2012
- Intensity-based protection of Energy Intensive
Exporting Industries (60% or 90% of base-intensity)
- Forestry units, CER & EUAs allowed

Under review at present, but looks like will continue

(esp if Australia forges ahead as well)
 Carbon prices (NZ$) in EU, CDM & NZ (2010-11)

33.00

EUA Dec 2011

$25 CAP
28.00

sCER Dec
Carbon Price in NZD

2010
sCER Dec
2011
23.00
sCER Dec
2012
NZU spot

18.00

13.00
NZ Emissions Trading Scheme
NZ Gas market limitations
- Gas market not interconnected

- Infrastructure in NI-only

- Only present production in 1 region

- Gas production started in 1970

- Rose on back of 1 mega-field in 1979

- Government participation: industry, long-

term contracts & infrastructure

- Reserves high & gas prices extremely low until mid-2000s

- After 2003-2005 gas crisis/revision => major changes

- LNG import was considered, but rejected

NZ Gas Market Use by sector (PJ pa)
NZ Geothermal generation
- Most potential in CNI
-765 MWe installed
- New projects with over 600
MWe well advanced
• MED expects geothermal l
produce 22% by 2025
•Significant process heat
potential (forestry/dairy
industry)
•In NZ process heat > 60%
of business stationery energy
demand
 Value of Geothermal to NZEM

• Most geothermal potential close to demand and

transmission

• Brown field development on back of government

geothermal exploration & drilling programme in 1950-60s

• Baseload generation

• Low emission intensity

• Lowest LRMC new plant in NZEM: ca. NZ$80 (US$65)/MWh

• Consenting and local consultation has been streamlined

• Original fears of impact on tourism, but now geothermal

power tourist attraction in itself

• Low landscape impact

 Wind energy
- 610 MW installed

- Excellent wind resources: 7.5-8 m/s or higher (40%+

capacity factor)

- Resources regionally distributed, but most built in

lower NI (suppressing Weighted Average Nodal prices)

- Among lowest cost LRMC (but very dependent on

turbine prices & exchange rates

- Low positive correlation between low wind and low

southern lake inflow

- Consenting (esp large wind farms) takes long

 Other renewables: more limited
- Limited remaining hydropower resources, mainly small and Run-
of-River

- No more large hydro due to environmental constraints &

competition for water rights with (dairy) farming, recreation/tourism

- First pre-commercial and tidal current turbine projects in

pipepline: high potential but 10 yrs+ before significant

- Biomass provides ca 6% of NZ heat & 1% of electricity

generation (esp forestry sector)

- Availability of biomass very dependent on forestry cycle; ‘wall-of-

wood’ from maturing forests coming up in next decade =>
cogeneration, co-firing and export of wood pellets
Source: EA/GNS
 Projections new RE to be added

Source: MED
 Value of Renewable Energy in NZEM
• Diversification of energy resources in NZ Electricity Market
• Reduce dependence on coal (import) & gas
• Geothermal: baseload & low in emissions; no correlation with
hydro cycle
• Wind: low emissions but intermittent; low positive correlation with
hydro cycle
• Limited (new) hydro and biomass resources available
• Relatively smaller projects (50-150 MW geothermal, 50-500 MW
wind –staged): stage investments in times of slow and uncertain
demand growth
• Emissions Trading Scheme & growing ‘green appeal’/branding
• Portfolio approach for generation investors
 Policies and challenges
• NZ blessed with plenty RE-potential
• No need for additional subsidies
• Longer term policy stability (cross-party support)
important (after 2003/5 gas crisis and ETS decisions)
• Growing RE beyond 75-80% will push stability/volatility
of the system both technically and financially (esp dry
year back-up)
• Potential need for rethink on capacity payment
schemes, as market does not seem to support
sufficiently (but NZ political philosophy anti-intervention)