Raising the next generation of power brokers

By SIMON COLLINS

Last year, Tauranga-based TrustPower invited customers to pay an extra $2 a week on their power bills to help finance a wind farm high in the Tararua Range near Palmerston North.

It was an appeal to pure altruism. The sole benefit would have been cutting New Zealand's carbon dioxide emissions by 83,500 tonnes a year, or 0.3 per cent.

Carbon dioxide emissions are believed to be a major factor in pushing up average world temperatures by 0.6C over the past 100 years.

TrustPower's strategic business development manager, Peter Calderwood, needed 16,100 people to pay $2 extra a week to justify the $60 million to $70 million cost of a new wind farm.

He advertised the project widely. Dramatic pictures on TrustPower's website showed the impact of predicted increased flooding, storms, droughts and a rise in sea levels if global warming continued.

The result was a flop. Fewer than 200 people signed up.

"Some market research we did afterwards showed that Kiwis think they are living in a clean, green country and they don't need to put their hands in their pockets to help it," says TrustPower community relations manager Graeme Purches.

But now the company has another chance. The Government has decided to favour renewable energy projects such as TrustPower's wind farm, and to penalise fossil fuel-burning power stations with a carbon tax.

"I'm guardedly optimistic," says Calderwood, asked if the Government's April 30 package would make the difference.

The Government has decided "in principle" to ratify the Kyoto Protocol, an agreement reached in Japan in 1997 to cut emissions of the "greenhouse gases" to 5 per cent below 1990 levels by the period 2008-2012.

The package to achieve this includes:

A tax on carbon emissions capped at $25 a tonne.

Subsidies for renewable energy such as wind power, building up to $16 million a year over the next four years.

Another fund companies will be able to bid for from next year to cut greenhouse gas emissions by upgrading the efficiency of energy-using equipment.

Negotiated agreements under which companies facing foreign competition can be exempted from the carbon tax on condition that they cut their emissions to "world best practice in emissions management".

The carbon tax will add up to 6c a litre to the price of petrol and up to 9 per cent to residential power bills. It will add up to another $5 a week to the average household budget.

But the exemptions mean it will have little direct impact on big energy users such as Comalco. The Government accepts that there would be no point in driving them overseas to countries that have no carbon tax, because that would not cut world carbon emissions.

Nor will the tax have any discernible effect on our other big carbon dioxide emitters: motorists, who increased their emissions by an astonishing 35 per cent during the 1990s as cheap Japanese imports drove down car prices. Six cents on petrol is neither here nor there in a fluctuating oil market.

The tax should have its biggest impact in electricity generation. Unlike the big energy users, power companies will be forced to pay the carbon tax. After all, there is no chance of them taking power generation overseas.

Although power production from renewable sources - mainly hydro - rose by 6 per cent from 1990 to 2000, power generated from fossil fuels (mainly natural gas) jumped by 54 per cent, largely on the back of the new gas-fired plants opened at Stratford in 1998 and Otahuhu in 2000.

The technology for gas-fired generation has raced ahead of that available for water, wind or geothermal generation. It is therefore more efficient. As a result, the renewable share of our electricity output has slid from 81 per cent to 75 per cent.

The economics of power generation mean there is a "gap" of about 1c a kilowatt-hour between the cheapest fossil fuel projects, such as Huntly, and the cheapest wind farms, such as TrustPower's Tararua scheme.

Carbon tax alone may not bridge that gap. However, there are two reasons why the Government's package may still accelerate a shift to renewables.

First, the price of natural gas is expected to rise steeply. Production from the Maui field is already dropping, and is expected to dry up by 2009. The new Pohokura and Kupe fields are smaller and will be costly to exploit.

Unless there are major new and accessible discoveries, the price of gas-fired electricity is likely to rise to at least 6c a kilowatt-hour.

Add to this the subsidy for new renewable production, although its impact will depend on how thinly the money is spread. TrustPower's Calderwood says his Tararua wind farm expansion is about 10 to 15 per cent too costly at present power prices. He needs a subsidy of $6-$10 million - about half of the money available annually.

The fund will be "contestable", so the $16 million will go to projects that save the most carbon emissions for each dollar.

Meridian, which already has resource consent for its own wind farm scheme just across the Manawatu Gorge from the TrustPower site, says it is "touch and go" whether its scheme will go ahead soon.

Murray Jackson says Genesis plans to double its wind farm at Martinborough, even if the prices do not quite stack up.

"We do it because we want to research that technology a bit more," he said.

Yet for all this, Energy Minister Pete Hodgson still expects the next big power stations to be natural gas-fired thermal ones.

He considered simply vetoing new thermal stations, as former Environment Minister Simon Upton did when he "called in" consents for the Stratford station a decade ago. Hodgson says that would have been unfair.

"Why stop building power stations and not motorways?" he asks.

"You have to have some thermal because we have only six to eight weeks' storage in our hydro lakes."

Although Contact has postponed a decision on a planned 400 MW Otahuhu CCGT plant, Genesis's 400 MW Huntly CCGT plant, which already has resource consent, will go ahead.

"Given electricity growth currently 3 per cent a year in the North Island, you have to have another gas turbine plant probably every three years," says Murray Jackson.

"It's hard to see whether the renewables could deliver that year in, year out."

Natural Gas Corporation, owned by Australian Gas Light, plans a similar 400 MW CCGT plant at Stratford, although that is still subject to appeal.

Grant Smith says Meridian will probably apply this year for resource consents for the 570 MW hydro Project Aqua.

"If the gas price skyrockets, we'd be encouraged to build it flat out," he says.

"The next six months will be quite telling," says Meridian's commercial manager, Grant Smith. "If the gas price comes in at the higher end, we'd say, 'We'll get the early wind farms developed'."

If there is a big, cheap gas find, the prospects for renewables could plummet.

But more likely, as oil and gas get more costly to extract everywhere, market forces will push the world towards renewables.

TrustPower's Calderwood says the Government could have pushed renewables ahead much faster if it had adopted an Australian system of requiring all power companies to buy "renewable energy certificates" from renewable generators if they failed to generate renewable energy themselves.

Hodgson decided against a certificate scheme, because it singles out electricity over other renewables and is less suitable for "large lumpy renewable projects with long lead times", such as Project Aqua.

Calderwood agrees that the Government's project funding approach may get renewable schemes such as the Tararua expansion under way as soon as the first bidding round, expected early next year.

"It may even be better than the renewable energy certificates, because a certificate scheme would have to go through a lot of planning and legislation," he says.

And he believes New Zealanders may be more willing to pay more for renewables through the tax system.

"I suspect it would be different if we were all sharing the burden, because I think there is a lot of sympathy for 'green' energy.

"What I hope the package will do is bring renewables a bit up the pecking order so at least they are competing reasonably easily with the gas."

Climate Change

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