By Robert McLachlan 02/05/2019

We know what we have to do to beat climate change: electrify everything, and stop investing in things that burn fossil fuels.

In New Zealand, that has been hard to do. Thirty years of climate policy have left us with only two main tools: the Emissions Trading Scheme, and an ‘aspirational’ target of 90% renewable electricity by 2025.

The ETS has failed to reduce emissions. Although the carbon price has now risen to $25/tonne, and a 50% discount for large emitters gradually unwound, the price is not high enough to have an effect. It’s adding 5c/l to petrol, and in theory it’s adding 2.5c/kWh to coal-powered electricity and (and 1.25c/kWh to gas). Gas peakers, which can be turned on every evening when the spot price is high, are still being used and even built.

The short story of new electricity generation in New Zealand is that we massively invested in fossil  fuel power stations in the 90s and early 2000s, and then began to unwind that with a move into wind and an expansion of geothermal power in the decade to 2014. But  in the past 5 years, that effort has come crashing to a halt.

Generation capacity in New Zealand. There is also 5200MW of hydropower, which has not changed for decades. Note that the capacity factor of geothermal is 85% while wind is 37%. Thus geothermal can produce 18% of New Zealand’s electricity while wind only produces 5%. However, geothermal is only moderately low carbon. In New Zealand it averages 0.11kg CO2/kWh, and the geothermal stations emit almost 1 million tonnes of CO2 annually. Lest we feel too smug, note that Norway (same population as NZ) has 31000MW of hydro and 800MW of wind, and Iceland (pop. 300,000) has 1930MW of hydro and 800MW of geothermal.

The result is that emissions have remained stubbornly high, jumping another 2% in 2017:

For a period of intense international focus on climate change, and an urgent need to start reducing emissions, that’s pretty frustrating. We kept hearing about the 3000MW of consented wind power just waiting to be built – when the demand was there. We also heard about consents for new fossil-fueled power stations (1240MW planned), an old 377MW plant at Stratford that was up for closure that instead got a $45m makeover in 2017, a new 100MW gas peaker to open in New Plymouth in 2020, and the closure of the 500MW of coal-fired capacity at Huntly, originally set for 2018, extended first to 2022 and then to 2030.

Indeed, why would anyone build wind today? Wind power takes any price it can get. In a flat market, adding more wind will depress the spot price and hurt existing operators. Hydro owners would not suffer particularly – when the wind is blowing they can save their water for later – but fossil owners would be worst off, as they would face both lower prices and lower demand.

In this context the decision by Mercury to start building the Turitea wind farm is a welcome surprise and is striking in a number of ways.

1. It’s big. The first stage, committed now, has 33 3.6MW turbines, totalling 119MW. It adds 20% to New Zealand’s wind power. The turbines will be the biggest yet installed in New Zealand. (They are Vestas V112s, which are normally 3.45MW, but are available in a 3.6MW ‘power optimized’ option, presumably for very windy sites.)

2. It’s bigger than expected. The original consent was for 3MW turbines; Vestas has been able to deliver 20% more power in the same site with the same tower height.

3. It has big potential. Mercury is building the transmission lines for the full Turitea project, and for the additional Puketoi farm further east, now. The whole package totals 500MW. Although they’re not committing to the full thing now, surely this makes it likely to go ahead.

4.  It’s highly efficient. Mercury and Vestas are claiming a 45% capacity factor, even higher than the New Zealand average of 37% which is already among the world’s highest. Presumably this is due to a combination of the site and engineering improvements.

5. It has global significance. Vestas will service the wind turbines for 25 years – longer than the usual certification of 20 years. In return they will also get access to data on the operation of the farm in this extremely windy area.

6. It’s cheap. The capital cost is $256m and Mercury have said their total operational costs are 1.3c/kWh. If finance is 7%, then the overall cost of generation is 5.1c/kWh, well below the typical spot price of 7-8c. That’s cheap for new build generation in New Zealand.

Why, then, are they going ahead, when I argued above that no more wind was going to be built? Part of the reason must be the change in government and the strong signals that a Zero Carbon Bill is coming, that the price of carbon will rise, and that more renewable generation will definitely be needed. But the (partly private, partly arms-length state-owned) electricity industry is not compelled to respond to any of this.

A conference call on the day of the announcement contains this important detail from Mercury CEO Fraser Whineray: “We’re also interested in where this will go for co-optimisation with our same island hydro scheme, that being the Waikato hydro scheme, which is the biggest peaker in the North Island.”

So that’s the clue. Mercury owns a lot of hydro. 1078MW on the Waikato, which is 58% of all North Island hydro. When the wind is blowing they can save their own water for later without bleeding income to other companies. (They do risk spilling water when they run out of storage, but they will have modelled that thoroughly.)

A lot of things had to line up correctly for this to go ahead. The larger future of New Zealand’s electricity sector will have to await details of the Zero Carbon Bill.

Will the Turitea wind farm reduce emissions? It’s possible that it will. If demand for electricity continues to be flat, then when the wind is blowing the gas peakers will be running less. If the 470GWh of wind power from Turitea entirely displaced gas, that would cut emissions by 235,000 tonnes of CO2 per year – to be sure, a small amount when we need to be cutting by millions of tonnes per year, for many years in a row – but well worth having, in an environment when cuts of any sort are hard to find.

In a few years, then, our electricity capacity might look more like this:

(‘Waverley’ is a proposed wind farm in South Taranaki. No final decision to build it has been made yet, but in October 2018 Tilt Renewables and Genesis Energy formed a partnership to develop the site. Interestingly, it’s quoted as costing $325m for 100MW.)

0 Responses to “A long time between drinks: Mercury will build the Turitea wind farm”

  • At the time of writing this, all the windfarms in NZ are producing zero MW. They are actually consuming power.
    That is why, they don’t build wind. You need reliable power. If the owners/ generators are retailers, they have to buy off the market because the windfarms are not producing, it costs them a lot of money., typically $100 -150 MWh.
    And wind farms aren’t reliable. There are a lot of dead units. They need to get in a big crane to get the motors down so they normally wait until they have 4 or 5 and do it as a job lot. One of the windfarms was shutting down its units when the power price drops because they were losing money. They had to go to the System Operator to get an exemption.
    And don’t plot MW, plot actual MWh pa. The data is there, though it shows wind in a very poor light.

  • so, why is a commercial operation building more Chris?

    I’m assuming they are going to balance the capacity back against their other generation (as stated in the post) but I agree with your earlier and frequent posts on the system problems and cost of wind – are the generators party to a change at Transpower that will improve the system’s capability ot manage the variations in supply?

  • Hi Chris, I agree the intermittency of wind is a major factor, and it can interact with the structure of our electricity market in ways that affect its uptake. Taken as a whole, NZ is in a much better position that other countries some of which are looking to get the majority of their electricity from wind and solar, which is going to need a lot of storage. NZ already has storage in the form of the hydro lakes (although it is arguable that they are not big enough for future needs). The reliability is already factored in, that is part of the 1.3c/kWh maintenance – I think Mercury said 3 full time workers will be needed to maintain the farm. The observed 37% capacity factor is very high for onshore wind and does include the downtime.

    Still, there are special factors that helped this project get over the line and I think it’s too early to say whether many of the other consented wind farms will be built before their permits expire.

    The next big event will be the release of the ICCC report into 100% renewable electricity by 2035.

  • Ashton
    How much pressure came from the majority shareholder for this investment to go ahead? That is what happened when Coalcorp made its disastrous decision to go into wood pelletising.

    Mercury should be able to cover the generation changes within their own portfolio. However, they will lose money not being able to use that tagged generation as short term reserve for the system. If the GTs at Stratford and McKee aren’t running, there will probably be voltage control issues that can be fixed by more money.

    There used to be a big constraint at Brunswick, but I think that has been fixed now so there shouldn’t be grid overload issues. How the SO manages the variations is beyond us mere mortals. Going on the frequency fluctuations we see, it is not well managed at times. They seem to be trialing various methods.

  • Robert
    Was that 37% from actual NZ data to 2019? Or is it another modelled figure? The net annual GWh to rating figures suggests the performance is not as good as claimed. The more important data is actual windfarm generation vrs the spot price at the time. That will indicate the true value of the power and it is a lot lower than the average.

    There is very little storage in the NI lakes outside Taupo and Waikaremoana. The river lakes are only any good for balancing. Other than Benmore, the SI lakes aren’t much better. That is why Meridian pays a lot of money each year for Huntly to be available.
    I have seen inside the wind farm stators when they are being overhauled. Not impressed as they are random round wire wound. Cheap and nasty. That is why they have so many stator failures.
    The staff needed to maintain the plant is misleading. It doesn’t include contractors. The hydros on the Waikato have basically no-one there in operation, but maybe 100 contractors there for three months when a T/G is being overhauled and refurbished

  • Hi Chris, I have recomputed the capacity factors using the total annual generation data from MBIE. For the last 10 years they are 33%, 36%, 36%, 38%, 37%, 37%, 39%, 38%, 35%, 34%, average 36.25%. I don’t understand your second point about the spot price. NIWA has a study on the annual and daily variations of wind speeds – they are minor. For Manawatu, wind speeds are 15% higher in winter and 30% higher in October. Also 15% higher from 12-6pm. (Curiously, for the Cook Strait region, wind speeds are 25% higher during an earlier peak, more like 11-5pm.)

    I agree there is relatively little hydro storage – but we are still in much better shape than most other countries. At some point as we increase total capacity and decrease emissions, it will become a limiting factor. I am not sure exactly where that point is reached.

    I don’t have any inside knowledge of Vestas but I would assume they are a reputable company. They are the largest onshore wind turbine manufacturer in the world having installed 10GW last year.

    Yes there is a lot of maintenance required – 1.3c/kWh suggests about $6m a year in maintenance out of revenue of say $35m. They were called on this during the Q&A linked in the article, a reporter said other companies were using much lower figures, the reply was that Mercury was drawing the net wider.

    Overall my conclusion is that Turitea will lower wholesale electricity prices and lower emissions. Mercury themselves would have a better idea, but then even Mercury don’t have access to the modelling and decision points for the other generators.

  • Robert
    I have access to the spot generation data and if generation is a proxy for wind speed, the NIWA study is at total variance with the real numbers with regards to daily figures. Trust Power also put out statements in their annual reports saying their income was down because the windrun figures were so much lower.
    I wrote “The more important data is actual windfarm generation vrs the spot price at the time. ”
    When you look at the Haywood spot price, invariably it is very low (>$50/MWh) when NI wind is >400MW. When wind generation is low ($100/MWh )(Haywoods is $111.42). So for the wind generators, when they are long they get little income, when they are short, it costs them a lot.
    Don’t confuse company size with quality. GE are a very big manufacturer and their aero-derivative GTs are having big liability issues now because their components are very unreliable. Plant is built down to a price point.

  • Hi Chris, I would need to have access the data to get a grip on whether the NIWA study is wrong. If there is a time series available of spot price vs NI wind generation please post it. But it’s possible that your second point could be consistent with what I’m saying, namely that more wind drives down the wholesale price, only that I would have expected the effect to be smaller.

  • Our access to live generation data has confidentiality clauses in it. However, you may be able to get it from EMS or even the system operator’s website.
    Averaging even daily data is not sensible for value of generation. MW loads went from 3300-5800MW today and spot prices from $80 to $200 . Wind generation was even more variable. What does an average daily number on that mean? Electricity needs to be able to be generated when needed. That is why there is a premium on dispatchable power.
    Wind only drives down the spot price when the wind blows, until it reaches the tipping point. When the thermal units look like switching off, the grid operator will have to step in and dispatch renewables off like they do in South Australia. When the wind stops blowing, the spot price goes through the roof. Last time was over $500MWh and they had to fire up Whirinaki on diesel. The grid needs need both the inertia and voltage control from thermal plant that wind cannot provide (called misleading ancillary services when in reality, it is critical to stable grid operation).

  • Well done Mercury and their long-suffering Wind Team for finally charging ahead with a project that will help to enable the Waikato River to remain charged up and fully dispatchable at all times…. who cares if some water gets spilt… I worked on the Geothermal teams that built Kawerua, Nga Tamariki and Nga Awa Purua and now live in Australia involved with some decent scale Wind Projects. If New Zealand can’t move towards 100% renewables no one can… Stop talking NZ and just crack on with it….

  • Hi Justin. 100% would be lovely, but is entirely unrealistic. A recent study into the issue identifies the cost of moving from around 95% to 100% as up to a quadrupling in consumer electricty cost.

    As Chris regularly points out, New Zealand’s ability to manage the typical fluctuations in output that derive from wind and solar is limited by the design of the rest of the infrastructure (among other things). This doesn’t mean that wind and solar don’t have a place in the network – just that we need to be mindful of the very real limitations we have in managing the network especially when it is under load.

    Like anything, instantaneous renewables (wind, solar) have a point of deminishing returns – it appears to be around the 90% of peak load mark. This doesn’t preclude the use of tidal, geothermal, hydro and other renewables that have much more stable or predictable generation profiles.

    Load-shedding also has a part to play but is probably a least preferred option for retailers and customers.

  • Hi Ashton, I would be very cautious about accepting the NZ Initiative report without further evidence. They are coming from a neoliberal, pro-deregulation political point of view. Their survey of decarbonization of the electricity sector in the UK and Germany is practically a hatchet job and is certainly not a consensus view of what is happening there. Their most central point, that a single price for carbon is achievable, decarbonizes at least overall cost, and is best overall, is not sound in my view.

    More good news for renewable energy this week – Genesis have signed an agreement to buy all electricity from the proposed Waverley wind farm for 20 years. This makes it very likely that it will go ahead. My guess is that Genesis is hedging against future decarbonization efforts either by themselves or nationally. Once again it looks like a stand-alone wind farm might struggle in the present market. Would love to know what they paid!

  • Robert – Don’t reed the NZI report. Read what Transpower actually wrote in their 2018 Transmission Planning report or the UNI decommissioning one.
    Genesis has also said they want to retain the right to burn coal after 2030 as the dry year reserve with gas likely to run out before then. Looks like Captain’s call is going to be an own goal.