The Ministry for Business, Innovation and Employment recently released the Indicative Business Case (IBC) for the New Zealand Battery Project. However, the IBC has raised more questions than it has answered.
Last month, Energy and Resources Minister Megan Woods announced that the New Zealand Battery Project will move forward to a detailed business case, on two favoured options: pumped hydro at Lake Onslow and a portfolio option of alternative technologies. The portfolio option includes the combustion of biomass, a new geothermal plant used flexibly and interruptible hydrogen electrolysis. Despite this, the emphasis will be on the Onslow option, which Minister Woods is a strong advocate for.
However, it is evident that the IBC had limited scope, which devalues its findings. A good business case should compare the proposal against the counterfactual or status quo. Instead, the government compared the pumped hydro at Onslow and portfolio approach against a 100 per cent renewable electricity case, which tilted the playing field to predetermine the outcome.
The 100 per cent renewable electricity target is a distraction. Last year the Boston Consulting Group’s report “The Future is Electric” found that New Zealand will reach 98 per cent renewable electricity generation by 2030. BCG advised against the 100 per cent target because the exorbitant cost could not be justified.
The estimated cost of the pumped hydro option at Onslow is $16 billion, plus $3-4 billion for an additional Cook Strait cable that will be required. Large government projects have a tendency to go over budget and time. We only have to look at the City Rail Link in Auckland, where the expected cost has blown out by $1 billion. And the earliest Onslow would come on stream is 2037, so what is the dry-year solution in the meantime?
Minister Woods argues that the $16 billion cost of Onslow is justified because the status quo would cost $1 billion to keep the lights on in a dry year using fossil fuels (status quo). We can expect two dry years per decade or $200 million per year. The cost of capital of the $16 billion project would be around $800 million each year, or four times more than the status quo.
I would have thought that the additional $600 million for Onslow would be better spent on healthcare.
We also have to remember that as more renewable generation comes online, hydro generation will transition from baseload to dispatchable. This means that when the wind isn’t blowing and the sun isn’t shining, hydro generators will essentially keep the lights on. However, when it is windy and sunny, hydro generation will decrease, holding back water which will go a long way towards solving our dry year issue.
Energy projects are inevitably expensive long-lived assets and investment decisions should be based on the best available information, but this is not how the Battery Project has arrived at its recommendation.
As the Opposition Energy and Resources Spokesman, I have already ruled out a Government-built pumped-hydro scheme at Lake Onslow.
I do not blame officials for the shoddy process as they were following instructions. But, when there is almost $20 billion of taxpayers’ money on the line, we must do better than this.
