Meridian Energy is pushing back against criticism of its proposed green hydrogen plant in the far south.
The Parliamentary Commissioner for the Environment, Simon Upton, is bothered by the large energy losses involved in using renewable electricity to split water so the resulting hydrogen can be transported, with considerabledifficulty, and then converted back to electricity to propel vehicles.
"Once all these losses are added up hydrogen has an end-to-end efficiency of only 30 to 40 per cent," he said in a letter to the ministers of energy, finance and climate change. "By comparison battery electric vehicles have an end-to-end efficiency of around 60 to 70 per cent."
The 600MW plant Meridian and Contact envisage would rely on export markets, at least in its early years, to provide the scale investors would require. And that leads to Upton's other main problem with the idea, the opportunity cost: that withholding a whole lot of renewable electricity from the domestic market would make it more difficult and expensive than it need be to decarbonise the New Zealand economy.
Meridian's response to the point about energy losses is that fuel cells in vehicles are not the only potential use for green hydrogen, although for heavy vehicles such as trucks, the alternative, batteries, might well be prohibitively heavy.
There are other sectors where carbon emissions are hard to abate, says Meridian's general manager (development), Guy Waipara.
One is fertiliser, where the hydrogen in the ammonia used to make urea currently comes from natural gas. Another is steel, where hydrogen can be used instead of fossil carbon to prise iron from its ore.
Waipara, an electrical engineer and former Transpower executive, also points to the energy losses involved in pushing electricity long distances through a national grid, most of which uses alternating current.
The transmission system was built with the Manapouri hydro scheme and the Tiwai Point aluminium smelter offsetting each other, he says. "If you just turn off Tiwai, a lot of that energy is actually lost because it has to find its way to the upper North Island. By the time you have got it to where it needs to be used, you lose between 20 and 25 per cent of the energy [in transmission losses]. "The more you can use electricity as close as possible to where it is generated, the less you lose. It's a function of the physics."
So what about Upton's objection that committing renewable electricity to a hydrogen plant would make it harder and more costly for New Zealand to meet its climate change commitments?
Meridian chief executive Neal Barclay argues that on the contrary, it would make it easier to deal with a major problem besetting the decarbonisation goal.
That is the risk of drought.
Maintaining security of electricity supply is only going to get more challenging as:
• The country gets drier because of climate change • Renewables' share of generating capacity increases from already high levels • And the demand for electricity for electric vehicles and industrial heat climbs.
Demand response could play a crucial role in meeting that challenge, Barclay says. That is having large electricity consumers, like a green hydrogen facility, which can be turned off when the hydro lakes are low, so the power they would use is made available to the rest of us.
"Assume NZAS [the smelter] turns off and we don't replace it with hydrogen, what is the counterfactual? Effectively you would see the retirement of some thermal stations in the upper North Island, which would actually mean a loss in security as an energy sector. So it doesn't help transition to 100 per cent renewables. You get supply and demand back in balance but you would still be exposed to drought conditions in the South Island as you are today."
Indeed, during the drought down south earlier this year — a drought severe enough to see Southland's Awarua wetlands on fire — for several weeks only one of Manapouri's seven generating units was running.
Meridian chief executive Neal Barclay. Photo / Supplied
Barclay sees the demand response feature of the proposal as key to its economics.
"We are expecting the value of the generation we provide to match the cost of the next new renewable generator in the region."
That might make for relatively expensive hydrogen compared with that from a solar array in the Australian desert, for example.
But offsetting that would be compensation for providing the dry year insurance, and the prospect of selling the power foregone into the electricity market during times of hydrological stress at the elevated wholesale prices which would then prevail.
At least that's the theory. Whether it can be made to stand up commercially remains to be seen. A final decision on whether to green-light the project is not expected until the second half of 2024. It would then take about three years to build.
The list of potential counterparties to develop the project has been whittled down to two Australian companies, Woodside Energy and Fortescue Future Industries. Meridian and Contact expect to choose between them by the end of August.
"This a complex project in a relatively new global market and both the final counterparties have given us confidence that an economic project is achievable," Barclay said.
"Both have demonstrated that global markets for green hydrogen and green ammonia are imminent and both are engaged in discussions with customers about buying the large volumes that the Southland plant will produce."
It should not be assumed that such a plant would necessarily replace the smelter, though. "It could be a replacement or we could get both," he said.
The latter would mean developing Southland's large wind power resource. "It hasn't been tapped because there has been this overhang about whether 13 per cent of the country's demand side will suddenly turn up as a surplus."
Meridian's current contract to supply the smelter runs until the end of 2024. Lately, as the metal price has recovered, the smelter's management has been making optimistic noises about its future beyond then.
"They are certainly putting in the groundwork in terms of sorting out their environmental issues. They are talking to everybody and trying to build back relationships," Barclay said.
"But we haven't engaged in any conversation about this and I wouldn't even hazard a guess as to whether they still be around in 2025, other than the fact that they clearly want to."
The smelter's majority shareholder Rio Tinto has committed to halving its own emissions by 2030 and is investing billions of dollars in that effort. "In that context it would not seem sensible to be closing one of your renewable smelters," Barclay said.
Closing words
After some 40 years in journalism, former Herald economics editor and now financial commentator Brian Fallow is retiring. This is his final column for The Business.
