The Government has set a target for New Zealand’s economy to be net-zero emissions by 2050. Does our current approach stack up?
Methanex – adding 15% to national electricity demand?
In a recent submission to the Ministry of Business, Innovation and Employment (MBIE), Methanex, New Zealand’s largest single gas user suggested that should the company transition from gas-based manufacturing of methanol to electricity, this would increase New Zealand’s national electricity demand by around 15% (5,800 gigawatt-hours). In other words, there would be a Rio Tinto Aluminum Smelter-sized electricity user in Taranaki.
Methanex currently consumes around 88 petajoules of gas and 84 gigawatt-hours of electricity and produces about 2.4 million tonnes of methanol per year.
Located away from New Zealand’s main generation sources, this would place increasing pressure on the North Island generation mix. With only limited new baseload generation planned for the North Island, electrification of methanol production would require more coal and or gas being used by thermal generators.
Methanex says that should conditions become nonviable to remain in New Zealand, they would relocate to China. Because of China’s current generation mix and energy sources, this could increase global emissions by four to six million tonnes of carbon dioxide a year.
The hydrogen solution
Last year the New Zealand Government signed a memorandum of understanding with Japan to develop hydrogen production in the Taranaki region with the view to pave the way for a transition away from Natural Gas and LPG.
However electronic hydrogen production will further strain the New Zealand energy system as 41.4 kWh of electricity is required to produce 1 kg of hydrogen from water.
In a recent article, Centrica (owner of British Gas) warned a move to make the gas grid run on hydrogen is “unlikely to be practical”.
Centrica chief executive Iain Conn said natural gas would be “crucial” in the transition to reducing carbon emissions, and that Britain and other countries would need to start using more of it before it could wean off the fossil fuel.
“It is quite clear that we cannot get from A to B without using more natural gas,” he said at a speech at the Aurora Spring Forum in Oxford.
“I don’t believe in the mass use of pure hydrogen, I think it highly unlikely to be practical,”
Iain Conn
Conn said, but said he was open to injecting around nine per cent hydrogen into the grid.
“We have done a lot of decarbonising power generation, but heating and cooling will be key,” he added.
Heating and Cooling in Britain
The remarks come just a week after chancellor Philip Hammond announced a plan to ban fossil fuel boilers from new homes built after 2025.
“We will introduce a future homes’ standard mandating the end of fossil fuel heating systems in all new houses from 2025, delivering lower carbon and lower fuel bills too,” Hammond told parliament during last week’s Spring Statement.
Conn said that heat pumps would eventually start taking British homes off the gas grid. He also said the world would be able to add around one gigawatt of renewable power capacity each day for the next 30 years.
Heating and cooling in New Zealand
Heat pumps in New Zealand have only added to electricity demand in recent years as more are installed and being used for cooling in Summer as well as heating in Winter. While more efficient than electric fan heaters, gas heaters and oil column heaters, the added cooling load has counteracted the savings in many cases as large numbers of New Zealand homes are moved away from wood burners.
These concerns were echoed in New Zealand by Paul Goodeve, First Gas Chief Executive, saying that, “A key element is affordability. We need to find affordable ways to meet winter electricity peak demand and maintain the competitiveness of large industries that use gas for production. Would New Zealanders find it palatable to pay substantially more for their electricity to upgrade infrastructure which will be underutilised to cover large energy use sectors and peak winter use? These are considerations we believe policymakers need to take carefully into account when making decisions.”
Throughout history technological advancement and change that has lasting impacts on humanity has largely come about through critical mass. As a child, I distinctly remember visiting a friends house and seeing their newly installed solar PV system on the roof. 25 years ago, this seemed like the future as I had only seen photos of such things in books about NASA and science fiction.
While some technologies are adopted quickly into day to day life, it seems to be taking an age for solar systems to become common place. Obviously cost is major driver of this but then so too is how seamlessly technology can be integrated into how we live.
Micro grids have been spoken about in energy circles for some time, but it is only now that the step change in the supply and purchase of energy appears to be gathering momentum as more and more end users are installing solar systems and battery storage.
Contact, Trustpower and Vector have all been trialing various strategies relating to this in Wellington, Tauranga and Waiheke Island respectively. Some third party companies are taking a slightly less traditional approach allowing end users to buy and sell energy directly between each other underpinned by blockchain technology removing the need for a “middle-man” so to speak.
The following post from Centrica has direct parallels with the New Zealand energy market.
Suzanne Schutte is a supermarket worker – and an energy pioneer.
The mother of two from Wadebridge, Cornwall is the first householder to have solar panels and cutting-edge battery technology installed as part of a £19 million trial that aims to help unlock further renewable energy use across her part of south west England.
What makes this scheme different to thousands of other rooftop solar schemes across the world – and what makes Suzanne a pioneer – is that the electricity generated by the solar panels and stored in her battery won’t just be used by her home or sold back into the grid.
Under the Cornwall Local Energy Market, homes and businesses will eventually be able to trade electricity with each other directly. This gives them greater control over their energy use and greater access to cleaner and cheaper electricity.
By taking part in the scheme, Suzanne joins a select band of people in communities across the globe trialling new ways of using and trading energy that are underpinned by the latest digital technology.
Rerouting Renewables
The need for schemes like the Cornwall Local Energy Market has been created by the rise of renewable energy and the inability of existing power grids to move this energy around efficiently.
In most western countries, power transmission networks were developed nearly a century ago to transfer electricity from large coal-fired plants over long distances across the country. However, the map of electricity generation in these countries has changed dramatically over the past decade. For example, renewable energy sources, dominated by wind power, now account for nearly a third of all the electricity generated in the UK.
And microgeneration – where energy is generated by homes or businesses and distributed locally – accounts for 17% of electricity generation.
Government incentives and the falling cost of technology has encouraged many to generate their own power with more than a million homes in the UK using solar panels for their electric and heating needs.
Old-style grids – such as that found in the UK – are not designed to move electricity from thousands of small power plants over short distances. Instead, electricity continues to be fed over long distances to central points in the grid, then fed out again.
This can create curious anomalies. Around the country, many wind farms have had to reduce their power output because of an excess of energy on the grid – due to strong winds and low demand – while major energy consumers including nearby factories have no way of accessing that extra electricity.
Being able to store and move electricity at a far more local level can help smooth out supply and demand, and address many of the problems caused by the intermittent nature of renewable electricity generation.
Going Local
The UK’s National Grid predicts that by 2050 up to 65% of the country’s electricity generation capacity could come from local sources. That means that something needs to change in the way electricity is moved between those producing it and those consuming it.
And this is where schemes like the Cornwall Local Energy Market come in.
The scheme is being funded by Centrica and the European Regional Development Fund, with support from partners including the local distribution network operator and academia. All of the organisations involved regard it as a critical test case for how energy markets around the world could operate in the future.
“The Cornwall Local Energy Market is an important test of how we can better integrate renewable technologies into local areas,” says Ed Reid, Head of Strategy for Centrica Business Solutions.
Reid adds that the opportunity today isn’t only to make the energy system more efficient, but also to give both producers and consumers greater involvement and control.
“The existing energy system is based on 1950s technology and treats the consumer as a passive recipient,” he says.
“It’s far less dynamic than other markets, and I think going forward what we’re seeing with new technologies is that it is allowing customers to be more involved in energy and take better control.”
The Airbnb of Energy
When energy industry experts like Reid talk about making energy more dynamic the way it is in “other markets”, they are referring to the kind of transformation that is currently taking place in sectors such as finance, travel and hospitality.
Specifically, it is the ability for digital technology platforms to enable so-called “peer-to-peer” transactions. In finance it can be seen when, for example, those seeking foreign currency for their holidays can trade their own currency via an app with other travellers.
Arguably the most famous example comes from the hospitality sector, where Airbnb has enabled millions of homeowners to make extra income from renting out their spare rooms.
“Companies like Uber, Airbnb, have really changed the way that we think about business,” says Lawrence Orsini, Founder and CEO of energy blockchain pioneer, LO3 Energy.
“The very same things are happening now at very early stages in energy. We’re seeing more generation on rooftops in our communities, in businesses and that’s going to change the way that business works in the energy industry. It’s really distributing a lot of the power and control to members of communities, and putting more control in the hands of consumers at the edge of the grid.”
Orsini’s company will supply the blockchain technology through which participants in the Cornwall Local Energy Market will be able to trade with each other directly.
LO3’s blockchain for energy empowers consumers to set preferences for energy consumption including local energy produced by neighbours, commercial businesses and farms.
In Brooklyn, residents of the Park Slope and Gowanus neighbourhoods are connected with each other via a virtual microgrid using rooftop solar panels. LO3 has found that consumers want a choice in their energy and believe in creating a stronger, more resilient community focused on local values.
Trading with Blockchain
A blockchain is a database that is shared across a network of computers. It acts as a record of transactions. And because records of those transactions are stored on multiple computers and updated simultaneously, it’s much more secure and harder to hack than a centralised system.
Each transaction is a block, and when the transaction is complete the block gets added to a chain of previous transactions, providing a clear public history of those transactions.
In local energy markets and microgrids, tokens equal to the market value of electricity are traded and logged as transactions or “blocks”. This use of digital tokens means the trade between energy user and producer can happen instantly, without the need for bank approval of the transaction.
For Orsini, this kind of digital communication of data is the key to how grids will function in the future.
A lack of data is one of the main barriers that is stopping people from trading on microgrids, he explains.
“Our devices need to be able to speak to each other about what’s happening on the grid, in order for them to make choices about when they charge, when they discharge, when they produce electricity, how they move electricity. In order to manage the grid of the future, we have to have a significant amount of data. In fact, the grid of the future doesn’t run on coal or natural gas, or wind or solar; it runs on data.”
The Power Plant Next Door
The data vital for energy users and producers to trade locally won’t just come from the supply side. Local energy markets will also be able to understand electricity demand at a far more accurate level than ever before.
UK energy start-up Verv has developed an AI-powered smart hub that sits in people’s homes and learns how much electricity is used by individual devices in the home.
In a trial on a housing estate in Hackney, east London, Verv installed its smart hubs in 40 flats. The information from these boxes is being combined with a blockchain-enabled microgrid that trades the electricity generated by the housing estate’s rooftop solar panels and stored in a communal battery system.
This trial delivered the UK’s first peer-to-peer energy trade using blockchain in April 2018. Verv chief operating officer Maria McKavanagh says having highly detailed knowledge of electricity demand will enable local energy markets to behave like the current wholesale energy market. And that will increase the accuracy of future energy deals.
“We know which appliances are on in real time, how much they’re costing, what’s been used in the past and, therefore, we can predict your future energy requirements much better than we would be able to with smart meters alone,” she says.
That allows customers to buy the amount of energy needed based on a really accurate forecast. Similarly, for the person selling their solar energy, they will be able to ensure they’ve stored enough energy for that day’s needs, and only sell on the excess.
Whether you produce energy or not, schemes like those in Hackney, Brooklyn and Cornwall show how one day we could all become the power plant next door.
The following post was written by Bryan Leyland for KiwiBlog. Bryan is an engineer with over 60 years experience in the energy sector and regularly comments on various topics. He is a strong believer in a single payer market and Carl Hanson, former head of the Electricity Authority argues against this here.
At Total Utilities, we track the competitiveness of contestable costs and been doing so for nearly 20 years. While this data is representative of our customer base (which is made up of small and large commercial and industrial customers and does not include residential customers) we have not seen large “energy” price rises over time. In fact, over-the-counter retail pricing has been relatively flat since the end of 2012 and akin to pricing in 2006. Much of this has been due to increased retail competition in the market providing customers with more alternatives than the traditional “big 4” generator/retailers.
Non-contestable costs, primarily those that relate to the transmission and distribution of energy around the national grid and local grid infrastructure on the other hand, have continued to rise. These monopoly-based costs vary considerably around the country, for example, a typical split nationally between contestable energy and non-contestable pass-through charges is around 60/40. In Top Energy in the far north, it can be the reverse of this. Conversely, Auckland and Wellington the cost split can be 70/30 and in Christchurch 50/50. Regional networks, in the North Island particularly, due to its geographic shape and population imbalance suffer from covering large areas with lower customer density compared to main centers. As such maintaining the network over what can be very rugged and mountainous terrain is expensive.
So where does this leave us, the fundamental issues of the system still remain.
In a normal year, we have enough generation to meet current demand, however dry year future proofing remains an issue given current Government policy.
Natural Gas which is seen overseas as an answer to coal-fired electricity generation will continue to increase in price in NZ as we exhaust current drilling permits and fields come offline.
The Government is looking to try to accelerate the uptake of Electric Vehicles but not talking about the cost of the required upgrades to network infrastructure to support rapid charging. As most rapid charging will be done outside of main centers, this will put increased pressure on more remote areas of the Government-owned Transpower network and local network operators.
The cost of building and consenting new large-scale generation infrastructure well exceeds current wholesale prices that generators can charge. Gas-fired thermal generation or Geothermal generation is far easier to build than a new hydro scheme or wind farm due to the size of its footprint and lower impact on the visual landscape.
Distributed generation such as Solar remains unsuitable for many parts of the country due to a lack of sunshine hours. Businesses would only realise a payback on outlaid capital after 15-20 years in most areas. Batteries are still carbon intensive to manufacture and costly to buy.
There is no magic bullet to ensure long-term security of supply at competitive pricing
The Electricity Price Review has revealed that residential electricity prices have increased by about 80% above inflation since 1990. Why did this happen? We were promised that privatisation and the electricity market would reduce power prices.
An objective examination of the whole electricity industry and the effect of the reforms leads to some interesting conclusions.
Cross subsidies
Before the reforms many power boards cross subsidised residential consumers by overcharging commercial and industrial consumers. The removal of these subsidies is a factor in the increased residential prices.
The market
The Wholesale Market Electricity Development Group made a mistake when they rejected the recommended market model and chose a market that pays all generators the price bid by the most expensive generator selected to run. This would have been a good choice if New Zealand relied entirely on fossil fuel generation. New fossil fuel power stations produce cheaper power than older ones so such a market encourages the construction of new and better stations.
In New Zealand, the cheapest generation comes from old, low cost, depreciated hydro stations. The choice of a fossil fuel market structure pays these stations the much higher price needed by the most expensive fossil fuel station. Hydro stations then rack up their asset values to camouflage the fact that they are making windfall profits
The recommended market model would have ensured that consumers would have continued to get low-cost electricity from the hydro stations that they had already paid for and built new stations that would give the lowest system costs in the long run.
The chosen market structure has led to wholesale prices increasing when they should have decreased to reflect the major reductions in operation and maintenance cost that followed on from privatisation.
Control of peak demand
Before the electricity reforms all electric water heaters in New Zealand were remotely controlled by the lines companies to reduce system peak demand by more than 10%. The reforms destroyed this world leading system. Most lines companies abandoned water heater control because the reforms did not allow them to fully recover of the costs of operating, maintaining and expanding the hot water control system.
As a result of abandoning hot water control, new power stations and a $960 million 400 kV line into Auckland were needed and millions more were spent on reinforcing transmission lines and distribution systems. All this to meet a peak demand that would not have existed with the recommended market.
Assets revalued
The reforms also allowed Transpower and lines companies to massively revalue their assets and use this increased value to justify charging consumers millions of dollars more for assets that consumers had largely paid for already. This is a major factor in the increased cost of electricity.
Traders and retailers
The electricity market also brought us traders and retailers who, it can be argued, serve no useful purpose whatsoever. The recommended market model did not need them.
In our market, traders often compete to get selected to generate. But when generation is in short supply competition is virtually non-existent and the price that they bid is “a trade-off between greed and guilt”. (On several occasions in the last few weeks wholesale prices have spiked to more than 10 times the normal price for no apparent reason.) As two retiring CEOs pointed out, the way to make money in the New Zealand market is to keep the system on the edge of a shortage. With the recommended market the system operator would have ensured that sufficient generating capacity was available and selected the generators that would give a reliable supply at the lowest cost.
Retailers increase consumer costs by spending millions of dollars trying to steal consumers from each other and pretending to compete in selling a commodity that is identical for everyone.
Conclusion
So what of the future? It does not look good. Transpower has warned that the risk of serious shortages and high prices in a dry year is rapidly increasing and no one has plans for new power stations that would mitigate this risk.
The government ignores dry year risk because it is hellbent on shutting Huntly down and limiting gas supplies and believes that exploiting wind and solar power will solve all the problems. Never mind that they are much more expensive, require backup when the wind doesn’t blow or the sun doesn’t shine and don’t make any useful contribution to meeting peak demand.
The best and cheapest way of mitigating the risk of blackouts in dry years is to ensure that Huntly continues to provide dry year reserve with two or three generating sets and 1 million tons of coal available.
The government should be taking steps to make sure that we have an economical and reliable supply into the future. If it wants to reduce CO2 – a gas that promotes plant growth and benefits our agricultural industries – it should contemplate the construction of a major and very expensive hydro pumped storage power station in the hills above Roxburgh that would solve the dry year problem. Only then can it ditch Huntly.
The New Zealand electricity market is a classic example of what happens when the politicians and the decision-makers do not understand power systems and how difficult it is to provide a reliable and economic supply. Choosing the wrong market model has cost the customer dearly.
I joined the energy industry 11 years ago this week, the time has flown by and a lot has changed since 2007. Technology has been the driving force and is currently revolutionising the energy market. While the fundamental mechanics remain similar, the way in which pricing is determined for end users (customer) has evolved rapidly and the future only suggests more change with Solar and other distributed generation becoming more cost-effective, battery storage, electric vehicles, blockchain peer to peer energy trading through to the potential of multiple retailers supplying energy to a single ICP connection.
The Mysterious Case of the Power Factor
Power Factor remains somewhat like a dark art in the industry, it’s a small charge often hidden on one line of your power bill, there is no graphical data on the bill that tells you about it and it often sneaks past the accounts payable or finance team as they just see the whole invoice cost and when it is due. Energy Retailers typically know very little about it if questioned, the common line is that “it’s a pass-through charge that we don’t control, you need to talk to your network.” Which is usually met with, “you need to talk to your energy retailer” from the network.
For the basics on power factor, my article What is Power Factor is recommended reading.
Power Factor Pricing
Some distribution companies (local area electricity network owners), mostly in the North Island, have been charging large commercial and industrial customers reactive energy charges for some time. These networks have typically centred around the central North Island, Hawkes Bay, Bay of Plenty, Waikato and Auckland. While the networks do apply this charge differently, typically it averages out to be $7 per reactive kilo-volt amp per month ($7/kVAr/mth). In addition to this, some networks charge a peak kVA demand charge as well and if power factor is low during peak demand intervals customers are hit with a double whammy as a poor power factor inflates the kVA reading.
In the last couple of years, there has been quite a bit of discussion within the market from distribution companies about the way in which they price and how they will maintain large network infrastructure in a distributed generation environment. For the most part, the bulk of all electricity customers pay a cents per kWh charge to distribution companies as a way for them to recoup the cost of maintaining the network. This pricing structure is simple, which meets the requirements of residential and small business customers as it is easy to invoice and easy to understand. However, this way of charging was designed before smart metering, before the digital revolution even. The smart meter rollout across the country is by and large complete, which opens the door to time of use pricing in order to try and drive better usage behaviour from customers.
Benefits of Demand-Based Pricing
While time of use capacity and demand-based pricing has been a staple of some distribution companies for large commercial and industrial customers, it is likely that we will see this type of pricing extend to medium and small commercial customers in the future. This type of charging will assist the network operators to ensure the security of supply as more customers install solar panels and batteries throughout the grid, reducing the amount of volume (and revenue generated from variable usage charges) being transmitted throughout local area electricity networks.
We are already seeing this happen as PowerCo Western (New Plymouth) has introduced a nominal power factor charge for small/medium time of use metered customers in the last couple of years. This mirrors the way in which Vector (Auckland) re-introduced power factor charging in 2010, pricing was gradually increased over a period of 3 years allowing time for customers to see the power factor charges appearing on their invoices and make steps to rectify the issue. WEL Networks (Hamilton) recently introduced nominated capacity charges for low voltage customers where customers are required to set their expected capacity requirements, like the gas industry’s maximum daily quantity, if the customer demand exceeds the nominated capacity then expensive excess demand charges apply. WEL also recently changed from charging peak kW demand to peak kVA demand, further underlining to customers that they need to keep tabs on their power factor or face paying more on the monthly power bill than they need to.
Power Factor Doesn’t Have to be Mysterious
In large measure, power factor is a relatively simple fix if you know who to talk to about it. It can be one of those easy savings made without having to change behaviours, train staff or make a structural change to the way in which you do business. There are other benefits too, such as increasing the effectiveness of energy requirements and negating the need to upgrade supply if you are short on capacity. It can also improve the lifespan of sensitive computer-controlled equipment and improve harmonics. While it can seem like a bit of wizardry is required to rectify power factor issues, those in the know don’t need a magic wand, it’s pure science.
It is well known that in New Zealand, energy generation is largely renewable. Around 65% of generation is hydro-based mainly in the South Island and around 15% is geothermal based through the central to the eastern side of the North Island. In the following series of articles, we will look at the pros and cons of commercial solar installations in the New Zealand market.
During the last National-led Government, there was little emphasis placed on increasing the uptake of large-scale Solar (with the current Labour-led Government this may change) as it was seen merely as converting from one form of mostly renewable generation to another with little overall benefit to New Zealand’s energy generation emissions. This is because the vast bulk of our thermal based load is only utilised during times of long-term dry weather (mostly during Winter periods) or intermittently when other generators are out for short-term planned or unplanned maintenance.
While Solar energy generation has been around for well over 30 years, it has only recently that economies of scale in efficiency and cost have meant that generating energy for photovoltaic panels is a realistic option for some businesses to reduce their reliance on the main transmission and local distribution grids.
A recent study published by Statistics NZ and the Ministry for the Environment concluded that sunshine hours are increasing in most areas across the country. However, there are areas throughout the country that have a more natural fit for installing Solar due to a combination of sunshine hours and the costs of energy and transmission and distribution energy pricing.
The recently announced ban on offshore oil drilling and gas exploration will have a major impact on the energy requirements of the country. From the generation perspective, Genesis’ Huntly power station will be most affected. While the original Rankine units are expected to be operated through to around December 2022, the newer 400MW combined cycle generator may have an uncertain future. From an end user perspective, food manufacturing will be most greatly impacted by a lack of gas supply or higher costs due to imports which is most likely lead to manufacturing moving offshore or higher prices for consumers. However, I digress, although the above will most likely have a positive impact on the feasibility of distributed generation.
Regulatory change and reform have always had a large impact on New Zealand’s primary sectors, and since deregulation of the energy system in 1999, successive governments have used the market for political capital by consistently tinkering and influencing the market. With the upcoming wide-ranging government inquiry into power pricing in New Zealand, the newly created Climate Change Commission and the Transmission Pricing Methodology Proposal one thing is for certain is the constant potential for change.
