NZ Battery Project

The dry year problem

New Zealand’s ‘dry year problem’ is when our existing hydro-power catchments don’t receive enough rainfall or snowmelt and the level of the storage lakes runs low. When this occurs some form of back-up is needed, and this is currently provided by fossil fuel generation.

As we transition away from fossil fuels and increasingly rely on hydro, wind and solar, the dry year problem may expand to become a dry, calm and cloudy problem.

‘Dry years’ usually last for a few months, and it’s not possible to predict when one might occur, or how long it may last. They are more likely to occur in the colder months when inflows to hydro lakes are lower due to rain being bound up as ice and snow. This is at the same time as when there is increased electricity demand for heating homes and other buildings. 

Dry years are also very hard to predict. Historically they have occurred around twice per decade. In recent years, we have experienced dry years in 1992, 2001, 2003, and 2008. So a dry year solution would likely be used more frequently than twice a decade.

Based on 89 years of hydro inflow records, the NZ Battery Project estimates there can be an energy deficit of between 3 and 5 TWh in the worst dry years. This is about 10% of our current annual energy needs.

Climate change is likely driving changes in water inflow patterns in our hydro lakes and may also affect ‘normal’ winter demand for electricity. However, these changes don’t materially alter the 3–5 TWh energy gap that is currently being met by fossil fuelled generation.

Finding a solution

The NZ Battery Project has been set up to explore ways to solve the dry year problem in New Zealand without using fossil fuels and support a pathway to 100% renewable electricity generation.

The name, 'NZ Battery', refers to the manner in which the intended solution may provide stored energy for New Zealand’s electricity system, similar to the way a battery stores energy until it’s needed.

The NZ Battery Project is a 3-phase, multi-year project.

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Phase 1

Phase 1 (December 2020 to February 2023) focused on evaluating the viability of pumped hydro schemes of various sizes at Lake Onslow, and identified one further location in the North Island that has the right geographical features suitable for a smaller pumped hydro scheme.

Phase 1 also identified the 3 most promising alternative approaches that individually, could provide a partial dry year solution.

Phase 1 activities included:

• analysis into the nature of New Zealand’s dry year problem – and how it could change in the future
• technical investigations into different technological options to address the dry year problem and their applicability to New Zealand
• investigations into the environmental impacts and other impacts of different options, with a focus on pumped hydro at Lake Onslow
• research into the electricity market integration and power system implications of long-term, large-scale storage
• exploration of consenting pathways, with a detailed focused on pumped hydro at Lake Onslow
• early engagement with iwi and other key stakeholders
• securing land access for environmental, cultural and geotechnical investigations for the Lake Onslow option
• a geotechnical work programme in the Lake Onslow area
• nationwide scan of other possible suitable locations for a pumped hydro scheme
• analysis of the three most promising alternative technologies: hydrogen, biomass and flexible geothermal energy.
• initial discussions with iwi on a pumped hydro scheme in the central North Island.

In February 2023, Cabinet Ministers reviewed the findings from Phase 1 and the indicative business case. They agreed to continue investigations on both the Lake Onslow option and the ‘portfolio approach’ that looks at combining smaller alternative solutions. Cabinet also agreed to continue discussions with iwi in the Upper Moawhango area on whether to undertake a pre-feasibility study on a smaller pumped hydro option in the central North Island.

The Cabinet Paper, Indicative Business Case and its Appendices are in the ‘Key documents’ section below.

Phase 2

By the end of Phase 1, we knew more about the Lake Onslow option than the multi-technology portfolio approach. The first few months of Phase 2 focused on the portfolio approach to reduce this imbalance of information.

This work showed the continued viability and potential of the portfolio approach. Neither Lake Onslow or the portfolio approach appeared clearly preferable than the other, and in July 2023, Cabinet Ministers agreed to progress both to the Detailed Business Case stage.

The detailed business case framework considers 5 cases: strategic, economic, commercial, financial and management.

In this stage, the NZ Battery Project team will develop more detailed designs of both options, and preferred models of procurement, operation and ownership. Further exploration of the cultural, environmental and social impacts and mitigations will also be undertaken.

Engagement with iwi and the electricity industry will be key in the next stage of work.

Work will also be done to investigate a scenario where there is no ‘NZ Battery solution’. This will allow for a comparison with the 2 options and further inform the strategic case for investment.

There are crossovers between this next stage of work with other energy policy work underway within MBIE, such as developing the New Zealand Energy Strategy and Gas Transition Plan, and Electricity Market Measures that is investigating the challenges and potential responses to delivering the energy transition. The NZ Battery Project will work alongside these other work programmes.

It is expected that the preferred solution will be identified in mid-2024. The detailed business case will be completed on that option.

Following the completion of a detailed business case, decisions will be sought by Cabinet Ministers on whether to take the preferred option through to the Final Investment Decision stage.

Indicative project timeline

This timeline is indicative only and will be updated as the project progresses and key decision points further refine its focus.

Phase 1 – feasibility study

Scope and decision-points

Investigation and evaluation of long-term, large-scale renewable energy storage options, including pumped hydro and a range of other dry year storage solutions. The project explores in detail the feasibility of pumped hydro at Lake Onslow, including geotechnical investigations.

Cost: approximately $30 million

• Progress report – Project overview and key preliminary findings to date. 
  May 2022

• Update and decision-point – Early analysis and update on feasibility studies. Decisions on focus areas for the remainder of Phase 1.
  Late June 2022

• Feasibility decisions – Technical, commercial and environmental feasibility studies of the Lake Onslow option compared to feasibility studies of other options, and indicative business case. Decisions to follow on which option or options should be further investigated in Phase 2.
  February 2023

Phase 2 – Detailed Business Case, Final Investment Decision

Decision-points

• Progress report – Update on all options. Decisions required to begin work on detailed business case
  Estimated timeframe: July 2023.

• Detailed Business Case – detailed designs and analysis, and undertake work to further inform the potential operating models of the preferred options and their impact on the market. Preferred option to be identified after developing the economic case with further work to follow to develop an investment case for that option.
  Estimated timeframe: report-back to Cabinet in mid-2024, part-way through Detailed Business Case stage.
  Estimated cost: Up to $69 million

• Final Investment Decision – pending approval following the detailed business case, undertaking further refinement of design, cost, scheduling and finalisation of the procurement/delivery approach for implementation.
  Estimated cost: dependent on the options chosen and the scope of preparatory work

Phase 3 – Implementation

Decision-points

• Implementation of preferred option or options.
  Estimated cost: Unknown until dry year solution or solutions selected

Pumped hydro storage

In its 2019 ‘Accelerated Electrification’ report, the Interim Climate Change Committee (ICCC) recommended further investigating pumped hydro as a possible solution to the dry year problem and mentioned Lake Onslow as a possible site for the scheme.

The lake’s potential for a pumped hydro scheme was first identified in 2005 by University of Waikato researcher, Associate Professor Earl Bardsley.

Because Lake Onslow’s potential was known from the outset of the project, the NZ Battery Project’s investigations into this option throughout Phase 1 and into Phase 2 were more advanced than the alternatives.

Pumped hydro schemes are used internationally as a way of storing a large amount of energy when power is plentiful and prices are low, to use at a later time when power is scarce and prices are high. As such, they are a renewable alternative to the flexibility provided by fossil fuel generation.

Pumped hydro can generate to provide additional energy from stored water in the upper reservoir when there is high electricity demand and/or low levels of renewable generation. Conversely, when there is low electricity demand and/or high levels of renewable generation, water can be pumped up hill for storage and later use.

Where is pumped hydro storage used?

Pumped hydro storage is used throughout the world as a stored energy option for hydroelectricity with large schemes in the US, China and Japan. Scotland has 2 pumped hydro storage hydroelectric power stations. Australia is currently building a large pumped hydro storage project, Snowy 2.0, and is also pursuing smaller schemes.

Read more about the Lake Onslow option

Smaller pumped hydro

In early 2021, NIWA was commissioned to run a scan over the country’s waterways to identify potential sites for a pumped hydro scheme with the potential for storage of 1TWh of energy or more. Upper Moawhango in the central North Island was identified as potentially having the necessary geographical features.

In July 2023, Cabinet agreed that pumped hydro in this area will no longer be considered by the NZ Battery Project. The technical potential of this concept hasn’t been tested. However, following discussions with the main affected parties, it is apparent this concept comes with unique and significant challenges and will therefore not be advanced for further analysis.

Alternatives to pumped hydro

In Phase 1, a long list of alternative approaches to resolving the dry year problem was generated with the support of industry experts.

Expert engineers were commissioned to identify the options with the most potential to provide large-scale, long-term energy storage. Three technology types were identified: flexible geothermal, hydrogen electrolysis (including as a source of interruptible demand) and biomassenergy. More information about these technology types is available on the webpage below. This webpage includes the ‘Other Technologies Feasibility Study – Feasibility Assessment Report’ that evaluates each of the 3 technology types’ technical and commercial feasibility. 

Alternative approaches to the dry year problem

Concept designs were developed to help understand these technologies’ capabilities, costs and risks. Further work was also undertaken to better understand the potential scale of each of these alternatives, and their complexity, commercial readiness and operating performance.

None of these alternative technologies are likely to solve the dry year problem by themselves. However, they highlighted the potential of a ‘portfolio approach’ that combined possible technologies to address the dry year problem.

In July 2023, Cabinet Ministers agreed to progress the portfolio approach into the next stage, alongside the Lake Onslow option.

A detailed business case is being developed to further understand how a multi-technology solution could work to address the dry year problem, and how it compares to the Lake Onslow option.

Environmental considerations

A renewable electricity battery solution would significantly reduce New Zealand’s reliance on coal and gas, and make major strides towards our climate change goals. However the environmental effects associated with each of the possible options needs to be considered in the course of this project.

MBIE has undertaken an initial study of environmental and conservation values at Lake Onslow and its surrounding area, and how these might be affected by a pumped hydro scheme. This work began in Phase 1 and more comprehensive studies, including further field work, will be undertaken in Phase 2.

The hydrology and ecology at Lake Onslow were also assessed in Phase 1 to understand how these could change if a pumped hydro scheme was to be developed.

The potential environmental effects associated with the portfolio option will be investigated when specific locations or concepts emerge.

The Lake Onslow option webpage has more information about the Phase 1 environmental investigations.

Lake Onslow option

How a ‘battery’ could operate

A dry year solution would need to integrate with the wholesale electricity market, and with the power system. The Project is investigating different potential operational models for large-scale storage, and their relative costs and benefits, as well as possible options for ownership and governance.

In Phase 1, the project team engaged with industry experts to consider various options for operating models. The focus was to ensure there was at least one way in which a solution could operate successfully in, and with, the market. The Project also engaged with Transpower to ensure a pumped hydro scheme at Lake Onslow could be operated effectively within the power system.

In Phase 2, the project team will engage further with the electricity industry on options around governance and operation of a pumped hydro scheme and on the ‘portfolio approach’. It’s important that the battery solution creates maximum value for New Zealand without negatively impacting continuing market investment in renewable generation.

Technical Reference Group

A Technical Reference Group was established in 2021 to provide the NZ Battery Project team with independent expertise, sector knowledge and advice in Phase 1.

The project team is working through the technical support and governance structures for Phase 2, which may need changes to reflect the increase in complexity in the next phase of work.

Find out more about the Technical Reference Group

Procurement

The NZ Battery Project adheres to the New Zealand government’s procurement guidelines when commissioning work. This means work is procured from the relevant All-of-Government panel, when possible. Work that is out of the scope of these panels, such as the field geotechnical studies, are sourced from the open market.

The government’s guidelines also allow for smaller pieces of work to be procured directly from a provider on the All-of-Government panels. Where relevant, we also seek advice from others such as mana whenua, and prioritise local services.

Key documents

Other resources

Energy and Resources Minister media release: Next steps developing clean energy for NZ(external link) — Beehive.govt.nz

MBIE media release: NZ Battery Project Cabinet decision-point delayed

Project management

Updates will be provided on this page as they become available.

If you have any questions please email the project team at: nzbattery@mbie.govt.nz