Rush of energy for pumping water uphill
Sceptics fear Govt is rushing into giant South Island hydro scheme without properly considering alternatives
In a winter marked by huge spending promises, Labour’s announcement about a possible new lower South Island power scheme was bold: potentially thousands of jobs and a “game changer” for the electricity sector.
Energy Minister Megan Woods announced that a $30 million study on how to address pressures on the electricity system will look at various options, but with the emphasis almost entirely on just one: Lake Onslow.
Talked about for years, but appearing to gain sudden backing, the scheme would pump water from the Clutha River into a massive artificial lake (on top of the existing, much smaller Lake Onslow) east of Roxburgh.
Unlike conventional hydro schemes, Lake Onslow would pump water uphill to allow it to run back down again later, in and out of the reservoir behind the existing Roxburgh Dam.
While any pumped hydro scheme will generate less electricity than it uses, the dynamics of the wider electricity market mean it could be a viable idea.
In normal conditions, New Zealand’s predominantly hydro-powered electricity system has periods when it has much more fuel than it can possibly use, particularly in the lower South Island where much of the generation is situated.
Pumping water into Onslow during a time of plenty would provide a backup for other periods when rainfall in hydro catchments is low.
This would — potentially — displace the remaining part of electricity generation which is now filled by thermal plants — fuelled by coal and gas — the “dry year” problem.
But it would come at a huge cost; among other things, the scheme is likely to require a 25 kilometre tunnel.
The initial estimates are $4 billion, while observers have pointed to a broadly similar scheme in Australia, Snowy 2.0, running well over budget.
Woods’ statement hyped the potential, even though it announced nothing more than a technical assessment to see if the case could be made for further study.
Presenting the study as a “significant step” in the Government’s “goal for 100 per cent renewable electricity generation”, she was prepared to talk about jobs.
“The full Lake Onslow project at its peak could employ 3500-4500 skilled and semi-skilled workers, as well as thousands more in indirect jobs.” Elsewhere, she said the project could be a “game changer” and “transformative for our energy system” — on the proviso, naturally, that this was “if a business case stacks up”.
For Woods, this was a major change in tone from a year ago.
The issue of pumped hydro storage was covered briefly in a report by the Interim Climate Change Committee (ICCC), which was asked to report on how the Government could chart a course to 100 per cent renewable generation.
Delivered early last year, the report won praise from industry and business groups for its pragmatism; it effectively told the Government its goal was counter-productive.
Achieving 100 per cent renewable generation was possible, the ICCC said, but squeezing out the final few per cent of thermal generation would be so expensive it would slow the electrification of New Zealand’s vehicle fleet and industry.
The report treated pumped hydro almost as an afterthought, saying that while it should be considered, there were obvious challenges.
In a Cabinet paper, Woods echoed the concerns. Any pumped-storage hydro scheme would involve “significant trade-offs with environmental goals” and might counter commitments under the Treaty of Waitangi.
“My view is that while some of these schemes may be technically feasible, it is by no means clear that they would be undertaken.”
In an interview, Woods appeared to suggest the case was growing. “What’s got me excited is the evidence,” she said.
“The evidence is that in terms of dry-year storage, on the face of it, it looks like pumped hydro is one of the cheapest options we have in terms of rectifying the problem and unlocking the potential that our low-cost renewable energy system has.”
Response to the proposal has divided between sceptical and evangelical.
If it were to go ahead, Lake Onslow would be “an engineer’s dream”, Harbour Asset Management’s head of equities Craig Stent wrote in a note titled “are we ‘thinking big again?”, a reference to policies promoted by former Prime Minister Rob Muldoon, many of which failed to generate the promised returns.
Some in the industry expressed concerns that while the study is meant to consider all options, it is heading in one, expensive, direction.
Genesis Energy welcomed a study into the electricity system, but warned the costs needed to be stacked up next to the benefits to the system.
“We hope the terms of reference for this is not just about justifying one project,” said Genesis chief executive Marc England, adding that any study should be very focused on whether such a project is economically rational. “The Government just paying for it doesn’t mean for New Zealand Inc that it’s the right answer.”
Genesis owns the ageing coal- and gas-fired Huntly Power Station and has charted a course away from using coal in the future, but maintains that gas still represents the best transition fuel for the next decade. The company says the best investment to reduce overall carbon emissions would be improvements in the electricity grid to make it easier for industry to move to electric heat.
Others are promoting a vision. On the afternoon of the Government’s announcement, BusinessDesk published an opinion piece by Dr Keith Turner, former Meridian Energy
We hope the terms of reference for this is not just about justifying one project. Genesis Energy chief executive Marc England
chief executive, warning of the impacts of Covid and the looming closure of the Tiwai Point aluminium smelter.
“These twin crises offer a real catalyst for ‘nation-building’,” Turner wrote.
Regarded — even by those who admire him — as the type of engineer prone to nation-building ideas, Turner told the Weekend Herald he had pushed hard for the study.
“I’ve been a big driver of this, I don’t mind admitting it, because [Lake Onslow] is a fantastic possibility.”
Turner was a member of the ICCC — which paid little attention to pumped hydro storage — but he is now firmly behind the concept after observing Australia’s Snowy 2.0 pumped-hydro project, as a director of Australian company TransGrid, which is connecting the project to its transmission network.
But he also appears to see the project as being a response to the current economic conditions. “If the country’s going to spend billions maintaining this generation’s consumption, it’s mortgaging future generations to pay for our consumption. You can’t do that for long without creating an untenable problem,” Turner said.
“You can generate a lot of jobs and maintain standards of living if you spend money on creating intergenerational assets.”
While Turner has been closely involved in the push for the Lake Onslow study, others on the ICCC have not.
Dr David Prentice, the ICCC’s chairman and now chief executive of Tauranga-based electricity company TrustPower, learned of the study announcement when he received a call from Woods on Saturday morning.
Other business figures with less obvious energy expertise have been active in promoting Lake Onslow.
Rod Drury, the now-retired founder of Xero, has been meeting energy companies, ministers and even seemingly sovereign wealth funds, “evangelising” the idea that New Zealand’s renewable energy system is a competitive advantage in the future akin to Saudi Arabian oil.
Drury outlined to the Weekend Herald how — given there was no marginal cost to electricity once renewable generation was built — “the more you use it, the cheaper it gets”, pointing to a future of electrified heat, transport and aviation.
Woods confirmed she had met Drury on the plan and while she maintained work was under way before then, she described him as a “critical voice”.
One executive at a major power company described a slightly awkward scene when Drury pitched the idea to industry veterans, who over decades had seen ambitious renewable electricity projects founder for countless reasons, from heated protests to mundane technical issues.
“This is vastly different to anything Rod’s ever done. His vision is a really cool vision, but his grasp of the practicalities is quite limited,” one said.
Drury maintained that there was a groundswell of support for Lake Onslow from the business community.
He did not scoff at the term “think big” (“the alternative is thinking small”) and said the challenge was too urgent to be disrupted by the election.
“Everyone is enthusiastically behind it. This is the stuff that we want to do. We want big, fun projects that are good in the long term.”
And who is everyone? Drury names Trade Me founder Sam Morgan, Warehouse founder Sir Stephen Tindall and former Air New Zealand chief executive Rob Fyfe, the same trio he earlier named as the business leaders who started the process of New Zealand going into lockdown. “People who are out there trying to make New Zealand better.”
Former Green Party MP Kevin Hague, who is now the chief executive of Forest & Bird, dismissed the hype about the scheme. “Not everyone thinks it’s necessarily a good idea. Rod [Drury] and his friends, I’m sure they do.”
Hague said the correct way to solve a problem was to conduct a rigorous examination of what the problem was, generate all possible solutions, analyse them, and then work out which was the best.
“That doesn’t seem to be happening here.
“There hasn’t been that deep understanding of the problem, or the generating of the solution, and my worry about the announcement is that while on the fine print, the ministers are saying ‘oh, yes, let’s look at the alternatives as well’, really, it’s all about Lake Onslow,” Hague said.
“I fear that we may be dealing with a fait accompli.”
Hague was suspicious that proponents might believe the site was simply barren land of little value, when in fact the significance was often greater than native bush.
“We encounter this all the time. People say ‘the Mackenzie [Basin], it’s just dry, barren land. It’s not as valuable for nature as the bush and forest.’ Actually, the biodiversity, number of species in the dry land environment in the Mackenzie or like this one is significantly greater than you find in the forest. They’re just smaller.”
The most obvious solution was more efficient electricity use, as it “costs almost nothing, but it doesn’t have the sexiness of a massive, ‘think big’ scheme,” Hague said.
“Someone’s got his really big, bold, shiny idea and people are pretty enthusiastic about the picture that’s being created of these problems being solved, so are becoming quite blinkered to other possibilities or solutions.”