Mood of the Boardroom: Huntly has place in a renewable world

Marc England. Photo / Brett Phibbs

The electricity supply is likely to be at least 95 per cent renewable within 10 years but New Zealand still needs a sound backup plan, says Marc England, CEO of Genesis Energy.

As the country transitions to an even higher level of low-carbon renewable electricity, the
thermal back-up will remain essential to maintain security, even though it will be used less often, he says.

Genesis' forecast shows New Zealand's electricity generation will be 96-98 per cent renewable by 2030, through hydro schemes, wind farms and solar panel systems. But there will still be times when it doesn't rain, the wind doesn't blow and the sun doesn't shine, England says.

The gas and coal-fired Huntly power station, built in the late 1980s, will continue to play an important role in providing security to the renewable system day to day while the country's energy consumers decarbonise over the long term.

"Without Huntly, given we rely so much on the weather for electricity, power would be less reliable," he says. "The security Huntly provides needs to be supported by appropriate commercial agreements, or market design changes may be needed to avoid a shortfall in the future.

"Market reforms are being implemented overseas to secure back-up generation through the renewable transition. We have the opportunity now to discuss reforms and market settings and design to ensure an orderly transition."

England warns it will be expensive to get to 100 per cent renewable.

"We have to make sure the Resource Management Act reforms ensure renewables are built without barriers in place, and the new generation meets demand.

"A bigger prize is using electricity to decarbonise energy more broadly — such as electrification, electric vehicles, converting industrial boilers and using alternative renewable sources such as biomass."

The energy system needs to balance three factors — cost, reliability and decarbonisation. It's a situation the industry refers to as the trilemma.

There's even the World Energy Trilemma Index; last year NZ was ranked ninth equal to the United States; Sweden, Switzerland and Denmark made up the top three.

The index provides an objective rating of national energy policy and performance across three dimensions — security, equity and environmental sustainability.

"We've had a well-balanced trilemma over the past 10 to 20 years. We have escaped the energy crisis. Retail electricity price rises last year were below CPI inflation — while prices have gone up 100 or 200 per cent elsewhere," says England.

"We are protected. We are an energy-independent country on the whole with wind, sun, water, geothermal and gas. Our only connectivity to the world is coal which we import.

"If our trilemma gets out of balance, then we knock ourselves off course. Huntly has a role to play in the long term. The power station may burn less coal and more gas to help decarbonisation, and it could run on biomass but that's a 10-year journey.

"Biomass needs to be produced in New Zealand because it is not economical to ship it in."

England says Genesis' fixed price gas supply contracts and coal purchased well in advance of global supply issues have so far cushioned New Zealand's electricity system from price shocks seen elsewhere in the world. More recent rainfall has also added to a healthy level of hydro energy for the rest of this year.

But he warns that the buffer won't last forever. For the long term, Genesis is offering the Market Security Options product for rival generators, big power users and electricity retailers to protect themselves from volatile prices and possible shortfalls in renewable generation.

Genesis has called for expressions of interest by the end of September. The system, a form of insurance, would lock in a guaranteed power supply from the Huntly station when extra generation is needed. Participants would pay a fee to reserve generation and specify when they want power delivered at which time the price of coal would be fixed along with the associated carbon cost.

Power companies have used swap options to reserve backup thermal power but Genesis' "swaption" agreements expire at the end of the year.

Genesis ordered a million tonnes of coal 18 months ago and due to high rainfall in the hydro lakes has a stockpile of 900,000 tonnes. But the price of coal has gone up four or five times. "The Genesis balance sheet couldn't sustain the cash out if we bought another million tonnes of coal now," says England. "We've launched the market security options for others to share the risk with us, and also cap the prices and reduce volatility."

England is leaving Genesis in the middle of next month for electricity distributor Ausgrid in Sydney as chief executive. Christchurch Airport CEO Malcolm Johns replaces him at Genesis in mid-March. Meanwhile, the reins will be held by chief customer officer Tracey Hickman.

Marc England's top issues

• People — retaining staff, particularly in a call centre, LPG drivers and IT specialists

• CEO transition — supporting interim chief executive Tracey Hickman and ensuring there's a smooth handover

• Energy security — having Huntly power station as a vital back-up when renewable electricity runs short.