Brian White, Executive Officer, New Zealand Geothermal Association
Brian White reviews changes to what has been a domestic hiatus in this renewable area.
THE NEW ZEALAND GEOTHERMAL industry has seen some tremendous growth over a 10-year period, essentially ending two years ago. Since then, like most of the energy industry, the geothermal industry has been experiencing a domestic hiatus. That is about to change.
Announcements by Genesis, Mighty River Power and Contact about the closure of 1000MW of fossil-fuelled power station capacity (half by the end of 2015, the rest in 2018), coupled with an expectation that 2016 may be the driest year since 1950, sets up the electricity market for an interesting period. If price signals for new generation were missing before, they may appear sometime this year.
Annual geothermal electricity generation continued to climb for the year ending June 2015 averaging 820MW or 17 percent of all generation. This is second only to hydro and, for the first time since 1975, exceeds gas (15 percent). Next year’s generation should be higher again as teething problems with new geothermal plant have been addressed.
I have been looking back at our history and seeing some interesting patterns repeating.
1950 is significant for the geothermal industry. The country was experiencing rapid electricity demand growth, frustrated by dry years affecting hydro generation. The proposed solutions included new thermal stations (long closed), an HVDC line to enable access to additional South Island hydro generation, and the leap of faith to geothermal generation at Wairakei.
Since then the geothermal industry has had several growth and hiatus cycles. Our first hiatus came in the early 1970s when a combination of recession (which had flattened electricity demand), commissioning of the HVDC link, hydro construction and Maui gas field discovery were having an effect. To encourage development of the gas field, the government committed to New Plymouth and Huntly stations (with dual-fuel capability to help leverage price negotiations) and had plans for other Auckland generation. The government also encouraged electricity demand growth through commissioning of Glenbrook steel plant and Tiwai Point aluminium smelter. The table opposite sets out the remarkable similarities of geothermal response.
The intervening years have seen other cycles, but the major change has been the establishment of an electricity market. While geothermal energy has many positive features (eg, base load capability, independent of weather, low emissions), it is price that has driven the recent growth within this market. The market can send necessary signals for new investment, and is likely to do so.
Another change since 1970 is the development of clear and enabling regional development policy: both Waikato and Bay of Plenty Regional Councils have adopted policies and rules protecting some geothermal systems while enabling long-term use of others in a way that minimises adverse effects and provides certainty to resource users and the community. Consenting timeframes have been reducing.
The industry has retained its readiness for the next phase of growth. Both Contact and Mighty River Power have recently announced withdrawal from international investments in what may be a renewed focus on domestic markets. Some specific geothermal consents are in place for new development. In addition to those listed in the table for direct use, Contact is still of the view that 250MW Tauhara II geothermal power station will be one of the best future prospects, though this may be staged and some capacity could go to direct use applications. Eastland Energy has consents for the Te Ahi O Maui geothermal station at Kawerau. Top Energy has consents for the next two 25MW stages for Ngawha in Northland. All companies will be carefully evaluating market signals, transmission constraints and location factors, exchange rates and capital costs as they approach decisions around plant commitment.
There are still many uncertainties. What will happen to Tiwai in the longer term, how will disruptive technologies like photovoltaics or battery storage affect demand and distribution, and what will be the uptake of electric vehicles?
Price signals will have multiple effects. Tiwai will likely cut back consumption to relieve price pressure. Spikes in price will help to justify further investment in gas peaking plant. These signals may also spur on demand response options which create virtual peaking stations. As prices rise above Huntly’s short run marginal cost, Huntly generation will pick up until it is finally closed. Higher prices generally will drive new commitments to geothermal and wind in particular.
The New Zealand geothermal industry is poised and ready.