Analysis: The Government is looking to tackle the critical flaw in New Zealand’s power system – the dry year problem, which keeps us reliant on fossil fuels. Marc Daalder reports

For more than 50 years, at least half of New Zealand’s electricity has been generated renewably. At times, as much as 80 or 90 percent of the country’s power was produced without the burning of fossil fuels.

So what has stopped us from knocking off those last few percentage points? The critical flaw in our electricity system: the dry year problem.

The country’s electricity supply is over-reliant on hydroelectric power stations. In dry years, when less water flows through the more than 100 hydropower dams that sit on New Zealand’s many alpine lakes, the coal and natural gas burners at Huntly power station have to fire up to make up the slack.

While the country has come a long way from 1980, when 84 percent of the country’s electricity came from hydropower (the figure today is closer to 60 percent), we have yet to satisfactorily resolve the issue of dry year shortages.

That’s why the Government has announced a plan to invest $30 million into the consideration of a major infrastructure project that could put dry year fears to rest once and for all.

Pumped hydro storage

The idea is fairly simple and it has been previously entertained in New Zealand, as well as successfully implemented overseas. On the face of it, pumped hydro storage looks like just another hydroelectric station. What’s unique about this one is that it would run off a man made reservoir.

When power prices are cheap, the station would suck electricity from the grid to pump massive amounts of water from a lake into the reservoir. Then, when power prices peak due to demand or dry year shortages, the reservoir would open up, allowing the station to produce power even when other hydroelectric stations are parched.

The Government wants to investigate building a pumped hydro storage facility on Lake Onslow in Otago, something recommended by the Interim Climate Change Committee (ICCC) in 2019. According to Energy and Resources Minister Megan Woods, the project would be the largest infrastructure project carried out in New Zealand since the 1980s.

“The project could create thousands of jobs, make wholesale electricity cheaper in the long run, and it would decarbonise the grid as we wouldn’t have to rely on coal and gas to make electricity,” she said.

The Lake Onslow plan would cost billions of dollars, take four to five years to build and another two years to fill the reservoir, and could employ at its peak as many as 4,500 workers and indirectly produce thousands more jobs. The development of the business case alone will cost $30 million, Woods said.

“If a business case stacks up pumped hydro would be a game changer for securing sustainable, cheaper, low-emissions electricity for the long term. This would be transformative for our energy system, and we would no longer be reliant on fossil fuels for meeting our electricity demand.”

A completed Lake Onslow pumped hydro station could store at least 5,000 gigawatt hours of electricity, according to ICCC modelling. That could replace 11 percent of the country’s annual electricity generation, if needed.

Diversifying the sector

Dougal McQueen, a longtime electricity market consultant, urged the Government to expand its inquiry beyond just Lake Onslow. Modelling he undertook showed there are several promising sites for pumped hydro facilities in New Zealand.

“There is definitely potential for pumped hydro and there are a handful of prime sites across New Zealand. I am pleased that the Government is going to do the investigation, but I think that confining the scope to the Onslow scheme is premature,” he said.

McQueen was hopeful that pumped hydro could address peak power prices and the dry year problem. However, he said dry year shortages could also be somewhat alleviated if New Zealand continued to diversify its generation assets to wind, solar and a distributed grid.

That’s a call echoed by Ralph Sims, an emeritus professor on sustainable energy at Massey University, who wants to see New Zealand continue to reduce its reliance on hydropower.

While he sees pumped hydro as an opportunity to decarbonise the country’s electricity system, Sims also wants the Government to consider all of its options.

“The pumped hydro is certainly worthwhile looking at and the Government’s going to look at it closely. But my argument would be, let’s not look at it exclusively as the only solution, because there are other options,” he said.

“Making the grid more flexible, having demand-side management so people can be paid not to use electricity in times of peak demand and energy efficiency coming in to a much greater degree are all alternatives to building a multi-billion dollar project. But maybe there’s a combination of those.”

“Caution shouldn’t be thrown into the wind when it comes to building a massive project, because it has the potential for an outcome similar to the Think Big projects of the 1980s,” McQueen agreed.

Business case crucial

Woods said in her statement that the Government would continue to examine other options as well.

“While pumped storage was recommended for further investigation by the Interim Climate Change Committee, it is important a range of options to solve the dry hydrological year problem, and find ways to decarbonise the energy system, is explored,” the statement read.

Big generators reacted enthusiastically to the news the Government was pursuing pumped hydro.

“As fossil fuelled generation plants retire, pumped hydro would provide a smooth and reliable transition to a 100 percent renewable system alongside customer investments in solar and other technologies,” Vector’s group chief executive Simon Mackenzie said.

“Any solutions for New Zealand’s dry year risk that can provide deep energy storage at affordable prices are welcomed. This would help New Zealand reach its wider emissions targets and reduce the pressure on Huntly Power Station to provide backup support to all market participants,” Genesis CEO Marc England said.

Genesis owns and operates the Huntly station.

However, Sims said eagerness for a dry year solution on the part of big generators should not be seen as eagerness to pay for the project.

“The other question that’s going to be on Government’s mind is the business plan. Who’s going to pay for this? The generators won’t want to invest in it because it might not be used for years.”

The $30 million business case will address the issue of funding, as well as potential environmental impacts, early engagement with iwi and plans for consenting.

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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