Alternatives to Onslow

A speculative post by PaulL, occasional poster and commenter.

Sources of electricity in NZ are back in the news, and the Lake Onslow pumped hydro is being considered as a privately funded scheme. I have no particular problem with people spending their own money on this hoping to make a return, but I do agree with those on here who suggested that ultimately they’ll be looking for Govt to underwrite them somehow – committed contracts or some sort of bailout.

This post considers alternatives to cover NZ’s key electricity generation needs, and suggests an alternative approach.

Firstly, why do I think Onslow seems marginal? It’s being sold as dry year insurance – implying that we store water in good years to use in a dry year. The storage capacity is approximately 5TWh, enough to deliver around 1 GW of output for several months. 1 GW is roughly 10% of NZ’s generation capacity (slightly over 10 GW currently). At 1 GW output, it could run 24 hours per day for about 200 days – covering most of a dry year.

However, the capital cost is around $12B, and a commercial proposition would presumably require a return over 30 years (perhaps even over 20 years). I assume an annual operating cost of $100M, giving a 30 year operating cost of $3B. There is also a funding cost, I’m assuming 6%, so in total we have a PV of $13.37B. If we have a dry year every 5 years, and in the 30 year period all those costs must be returned, then we need approximately $5.5B of revenue in each of the 6 dry years.

If we deliver the full 5TWh in those dry years, that implies we’re delivering power at about $1,000 per MWh, or $1 per KWh. Yes, power prices do peak that high in dry years, but they aren’t that high 24×7 for 200 days. And the point of Onslow is to lower the peak prices, if the model is based on selling 5TWh at that peak price, it’s not really achieving the intention.

In short, this scheme to me feels like one you use when you plan for our power prices to be increasing over time. I think that our intention should be dramatically lower energy prices over time, thereby increasing the wealth of NZers (energy being a major input into basically everything good).

But what is the alternative?

Let’s start with what we need as a nation:

• Over time we need quite a bit more generation that is able to be consented, doesn’t consume land area, and isn’t overly ecologically damaging.
• We will have an increasing volume of intermittent renewables – solar and wind in particular, so we need short term dispatchable power (peaking) to cover gaps in these.
• We need coverage for a dry year – ultimately we need lower reliance on hydro in our overall electricity mix
• We need more generation in the North Island, close to our major consumers, avoiding excessive transmission costs

My proposition is based around these needs.

We need a lot more baseload power, and we need it to be cost competitive. My proposition is that we build a lot more conventional geothermal, of which we have plenty of potential sites, mostly in the North Island, close to our major consumers. This should largely displace hydro as our baseload generation. Geothermal has a small land use footprint, and doesn’t create the issues for other river users that new hydro would have. Yes, our current consenting structure makes this onerous, but the new fast track process could simplify consenting greatly.

We should convert our hydro from baseload to peaking power, in particular the Waikato and Tongariro schemes. The Waikato River chain currently has about 1 GW installed capacity; the Tongariro scheme adds another ~350 MW. This means consenting substantially increased flows, and doubling the turbines on each dam (or at least the key stations). These schemes currently deliver 1.3GW peak, doubling the turbines would give 2.6GW peak dispatchable power. We’d then run these 8 hours a day at 2.6GW (and 16 hours at, say, 500MW), instead of 24 hours a day at 1.3GW. The river flow would go up and down accordingly, which arguably is better for the river health anyway. In dry years, we’d squeeze this generation – perhaps 2GW for 8 hours, 250MW for 16 hours, preserving water.

We should invest heavily in advanced geothermal (EGS and closed loop systems), as this has the potential to greatly improve the economics and power delivery of our geothermal investment (by unlocking more sites and improving efficiency even outside the traditional Taupō Volcanic Zone hotspots).

Medium term, we need to keep our eye on modern nuclear. The new Terrapower Natrium reactor that is (partly) funded by Bill Gates recently received its NRC construction permit for the site in Kemmerer, Wyoming, and is very interesting. It has a nominal output of 345MW, but has associated molten salt storage, and can draw on that storage to deliver up to 500MW for a few hours. I know nuclear isn’t popular in NZ at the moment, but if it’s proven safe and economic, that could be a great alternative way to get baseload power.

This would all combine with the existing solar and wind buildout. These are a problem when they’re a large proportion of the grid. In an environment where solar effectively displaces hydro, and our hydro is largely used for peak power, the more solar we have the more we preserve our hydro storage. Effectively solar becomes somewhat of a hedge against dry year. With hydro no longer being our baseload, hydro storage and dry years are less critical in our overall energy mix.

There are of course numerous barriers to this scheme. However, I don’t see those barriers being higher than the barriers to the Onslow scheme working. More importantly, this scheme explicitly targets lower power prices and abundance over time, whereas the Onslow scheme seems predicated on ongoing high power prices.

I of course am not a power system engineer. I’m very interested in commentary on how this plan would stack up as compared to Onslow, and what other options we have that are different than what I propose here.