Better to burn Huntly’s ‘giant mountain of coal’ than import, renewable energy advocate says

Source: Radio New Zealand

The country would be better off burning the coal it has in reserve than building a billion-dollar liquefied natural gas terminal, a renewable energy advocate says.

The government said this week it would proceed with plans to build a liquefied natural gas (LNG) import facility in Taranaki, with the estimated $1 billion capital cost spread across all electricity users through a levy.

Energy Minister Simon Watts said that it would result in overall savings to households, because it would help to lower electricity premiums during dry years.

A rapidly declining domestic gas supply – with availability half of what was expected three years ago – had left the electricity sector exposed during such years, when hydro lakes ran low, Watts said.

Several reports, including one commissioned by the government, have found that LNG would be a feasible but costly option, and should only be used as a last resort.

Rewiring Aotearoa chief executive Mike Casey said there was no disagreement that New Zealand had a dry-year energy security issue that needed to be fixed urgently.

In the long term, large-scale renewables along with small-scale household and business solar would solve the problem, he said.

“The issue is how do we solve it in the next few years, because we can’t see what happened [in 2024] when prices spiked and businesses started shutting down.”

LNG was the wrong solution, because it had an expensive upfront capital cost and locked the country into yet another imported fossil fuel option, he said.

Instead, the country should be eyeing diesel and “our giant mountain of coal” at Huntly Power Station, Casey said.

“What’s the cheapest capital option to keep the lights on in New Zealand, keep power prices lower and to increase our energy security?

“To me, that is probably a combination of the coal seam that we already have available, the coal that we already have in the country, combined with potentially diesel peakers, which is running those peaker power plants using diesel.”

Casey acknowledged the “mild” irony of a renewables advocate pushing for coal and diesel.

“But we’re in a situation, through an energy system that hasn’t been serving New Zealanders for so long … where unfortunately we do need some fossil fuels,” he said.

“The way we get out of it is not investing in more fossil fuels, it’s using the fossil fuels that we currently use, and figuring out how to reduce that consumption as fast as we can.”

Late last year, the Commerce Commission granted permission to the four gentailers – Genesis, Meridian, Mercury and Contact – to stockpile coal at Huntly Power Station.

The government considered, and rejected, diesel peakers as an option but did not provide detailed reasons for doing so in its announcement on Tuesday.

Additional details would be available when the relevant Cabinet paper was published, a factsheet accompanying the announcement said.

Diesel was more expensive per megawatt-hour, but had “much, much cheaper” upfront capital costs, Casey said.

“I think the diesel peakers solve the dry-year problem. Marsden Point is set up – it’s already got all the cables going away from it, that’s where all the diesel comes into New Zealand.”

The peakers could then be sold when long-term energy security had been locked in through the pipeline of renewables, he said.

A Boston Consulting Group report commissioned by the gentailers last year said diesel was “easily accessed and [could be] used immediately in current facilities for generation”.

It found that LNG would be cheaper – but only if the capital cost was spread across the entire electricity system through a levy, similar to the one now proposed by the government.

“Importing LNG is then not economically justified when LNG fixed costs are recovered via fuel, knowing diesel would be cheaper and entails lower capital and infrastructure risk.”

The cost-comparison to diesel, and the projected savings to households, were not at all guaranteed, Casey said.

“The price of LNG is very volatile. We saw the prices spike massively when Russia invaded the Ukraine.”

Casey believed the government was also overstating the dry-year benefit.

“I think dry-year is also solved very conveniently with an LNG terminal, but this is really about prolonging industry use of gas, prolonging household use of gas.”

Diesel peakers would not solve that problem, and the government needed to pay attention to how to transition large industrial users off gas as fast as possible,

Analysis from the Energy Efficiency and Conservation Authority (EECA) showed about two-thirds of current industrial gas use could be electrified.

“A third of it could be electrified with no subsidy, and for the billion dollars that they’re suggesting that they put on the LNG gas terminal, that could be put towards the electification of a lot of our industry, which would free up an awful lot of our domestic supply.”

The government had “lambasted” the now-scrapped Government Investment in Decarbonising Indiusrty (GIDI) fund as corporate welfare when it was in opposition, he said.

“I can agree with that argument but on the other side of that, we’re now basically forcing New Zealand’s electricity consumers to subsidise another solution that also costs a billion dollars – and this time it’s to keep gas going for longer.”

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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand