Alternative approaches to the dry year problem

Phase 1 – long list of alternatives

Early in Phase 1, an initial long list of alternative approaches was developed. The long list was screened against criteria and feedback received through targeted external engagement, and in consultation with the Technical Reference Group.

Alternative technologies were identified as having the technical potential to help manage dry year risk. They were assessed for their ability to provide long-term, large-scale renewable energy storage and their applicability in a New Zealand context.

A pre-feasibility options analysis was conducted into 12 non-hydro technologies, which were identified as possible solutions to the dry year problem.

These alternatives can be categorised into 5 broad technology types: air storage, bioenergy, flexible geothermal, flow batteries and hydrogen. 

From this options analysis, 3 technology types – hydrogen, flexible geothermal generation and biomass – were recommended for further feasibility assessments.

Further analysis was conducted on these 3 technology types to test their technical and commercial feasibility. The following report considers key considerations, including possible risks and opportunities, and cost estimates, based on ‘base case’ scenarios.

Phase 1 – portfolio approach 

None of these 3 options is likely to solve the dry year problem on its own, as they can’t practically store enough energy to meet the electricity needs during a dry year event. However, they each show potential in contributing to a multi-technology solution, or ‘portfolio approach’. The ‘portfolio approach’ is being further investigated in Phase 2.

Phase 2 – portfolio approach

Following the Phase 1 investigations, there were a number of key uncertainties that needed to be resolved to determine the viability of a portfolio approach as a way to address the dry year problem.

Further work in the first half of 2023 identified potentially viable delivery models. In July 2023, Cabinet Ministers agreed the portfolio approach continued to show potential and that there was not yet evidence to identify either this option or Lake Onslow as a preferred option.

Cabinet Ministers agreed to progress both options through the Detailed Business Case stage in Phase 2.

This means further work will be done to develop detailed designs, and a preferred model of procurement, operation and ownership. It will also include further exploration of the cultural, environmental and social impacts and mitigations once specific technologies and locations are known. 

A preferred option, either the portfolio approach or Lake Onslow pumped hydro, is expected to be identified by mid-2024. The preferred option will progress through the remainder of the detailed business case.

Base case scenarios

During Phase 1, experts were commissioned to investigate at a high level, how flexible geothermal energy, combustible biomass and hydrogen could contribute to dry year cover.

Further work in early 2023, found relying on hydrogen (for storing energy as green ammonia and providing demand-response services in a dry year) presented some unresolvable risks. In the Cabinet report-back in July 2023, Ministers decided the NZ Battery Project will not continue investigating large-scale, Crown-constructed and owned green hydrogen as a possible, or partial, dry year solution.

This doesn’t discount hydrogen having a role to play in a dry year solution, or playing a valuable role in the energy system more broadly. But it is not something that is being actively investigated in order to develop the portfolio approach.

The below descriptions offer hypothetical designs of how flexible geothermal energy and combustible biomass may be considered as part of a portfolio approach to the dry year problem.

These are conceptual scenarios that provide a baseline from which the opportunities, challenges and uncertainties of the portfolio approach can be explored.

The portfolio approach may not necessarily involve these technologies or at these scales. The NZ Battery Project will engage further with the electricity industry in Phase 2 to understand other energy projects that may feed into a dry year solution.

Biomass

A Phase 1 base case scenario considers how biomass – such as heat-treated wood pellets or chipped logs – could be used to generate electricity in a dry year. Other types of bioenergy, such as ethanol and biogas, were found to be less suitable than wood products because they can’t provide the same scale of stored energy.

This base case involves sourcing, processing and storing sustainably managed exotic logs, and critically, replanting what is used as fuel.

This scenario could reasonably supply 1 TWh of electricity in a dry year, and could conceivably scale up to 4 TWh. Storing enough logs to be able to generate 1 TWh of electricity in a dry year would take about 560,000 tonnes of sustainably managed logs out of circulation, which is about 1.5% of New Zealand’s annual exotic log harvest.

Felled logs have a useful lifespan of about 3 years, so this option raises questions about what to do with stored logs if they’re not used in a dry year, and also ensuring enough supply if there are consecutive dry years.

This design considers a single power plant that would have a generation capacity of approximately 500 MW, providing the potential to deliver 1 TWh over 3 months in a dry year. However this could be scaled-up if further power plants are built.

Geothermal energy

Unlike solar and wind energy, geothermal energy is continually available. To be used in a dry year, unconventional methods would need to be developed so that geothermal reservoirs could be  ‘turned down’, and then ‘turned up’ as needed.

Research commissioned during Phase 1, investigated how geothermal energy could be developed to operate to help provide dry year cover.  

The base case involves building multiple new geothermal plants that would run at 25% capacity during normal years, and at full capacity during dry years.

In a dry year, these plants would produce an additional 0.6 TWh of energy over a 3-month period.

Geothermal energy produces some CO2 emissions – about 25% of the emissions compared to fossil gas, and 10% compared to coal.

To minimise emissions, the CO2 would ideally be extracted from the fluid extracted from the ground and then reinjected back into the reservoir. Geothermal generators in New Zealand are already starting to introduce this capability – though it is not guaranteed to fully mitigate geothermal emissions.

Demand response

In Phase 1, the Project explored whether large-scale, planned load reduction, or ‘demand response’, can play a role in addressing the dry year problem. This would involve forming agreements with large electricity consumers to reduce their demand when supply is scarce, such as during a dry year event.

Demand response is most commonly used as a short-term solution for periods of low supply, usually for hours or days. The large-scale, long-term nature of the dry year problem requires a much longer and sustained response. There are a few niche instances where consumers could contribute to that response on a committed basis.

The project team is considering if there are ways to extend the contribution of demand response in dry years. In Phase 2, the project team will engage further with the electricity industry on demand response options that could contribute to a portfolio approach.

Overbuilding renewables

Wind, solar and geothermal generation are existing technologies in the New Zealand electricity system. Given their costs and relative maturity, these technologies are expected to see increased investment in coming years. One option for solving the dry year problem in a 100% renewable electricity system is to rely almost exclusively on these technologies to meet increased demand for electricity and replace fossil-fuelled generation.

To solve the dry year problem through overbuilding renewables alone, we would need to build a lot of renewable energy resources to ensure we could maintain supply to consumers despite the deficit in hydro generation that occurs in a dry year. As overbuild would need to cover this deficit – of between 3 and 5 TWh – in years when the lakes are full we would have a lot of wasted energy.

Relying solely on overbuilding renewables is also problematic as a dry year solution because it is not stored energy. The energy from wind, solar and run-of-the-river hydro needs to be used as it’s generated. Solar and wind are susceptible to calm and cloudy periods, which will likely increase the volatility of the electricity market. Also, there may be limited commercial incentives to build generation whose output will often be ‘spilled’ and hence receive no revenue for it.

Large batteries can be used to store some energy generated by renewables, and could play a role in balancing the short-term market, like storing electricity during the day for use at night. To use them for storage across years to solve the dry year problem would be very expensive. Their storage also degrades over time, and so are not appropriate as a long-term solution.

Counterfactual scenario

During Phase 2, the NZ Battery Project will further develop its understanding of what will happen in our electricity market if there is no ‘NZ Battery’ solution.

This is the counterfactual scenario, which will provide a baseline for comparing against the Lake Onslow option and portfolio approach.

The counterfactual scenario assumes fossil fuels, such as coal and gas, continue to have a role to play in providing dry year cover, and as peakers, for very short periods of high demand.

However, gas reserves are declining and further work is required to understand the reality, costs and feasibility of continuing to rely on gas in a dry year.