Don’t export our electricity. We need it here!

Tom Powell – Climate Karanga Marlborough
Tim Jones – Coal Action Network

​Meridian Energy is considering a proposal to make green hydrogen with the electrical power that would be freed up by the possible closure of the Tiwai Point aluminium smelter in Southland, and export it around the world.  At a time when New Zealand is running short of electrical power, this is a very bad idea.  We need this power to stay here!

As you have probably read, there is lots of talk about green hydrogen in the domestic energy industry. It can be made from ordinary water using electricity, creating few pollutants and little greenhouse gas in the process.  Although its overall energy efficiency relative to batteries is low, it can be compressed and carried in tanks, making it one of the few fuel options available for long haul trucking, transoceanic shipping and aviation. Overseas markets for green hydrogen are forming. 

As you might have also read, New Zealand came dangerously close to running out of electricity this last winter.  As early as June this year, Transpower, the nation’s state-owned enterprise responsible for electric power transmission, warned that domestic supplies of electrical power from the various independent generators were not keeping up with demand.  Just last month (September), Transpower again called on generators to make more power available.

Part of the blame for this situation can be reasonably placed on New Zealand’s ‘competitive’ power generation market.  The market was originally designed to create competition between generators, so as to provide consumers and industry with the cheapest power available.  As with many good intentions gone wrong, though, the market instead incentivises power shortages, giving generators the highest market price when electricity supplies are short.  So, generators get more for their electricity when demand is high and aren’t keen to add new generation unless the power market is ‘tight’ enough to assure them a reasonable price. 

It is little wonder that the average wholesale price of power has been steadily rising.  The average wholesale price of electricity for the first quarter of 2018 was $87 per megawatt-hour (abbreviated “/MWh” – enough to power a little over 1000 homes for an hour), while the average price was $174/MWh during the first quarter of this year.  Little wonder, too, that power generators have been reporting strong profits in recent years.

However, the Tiwai Point smelter reportedly pays Meridian a bargain price of only $35/MWh as of January last year, so it makes sense that Meridian might want more money for its power.  But it doesn’t want to put this power into the domestic market because the extra power would cause the wholesale price of power to drop. Remember, the generators get a higher price when electricity supplies are in high demand.  Thus comes Meridian’s interest in someone building a green hydrogen plant to take the power at a higher price when its contract with the smelter expires in 2024, and keep that power off the domestic market.
 
In comes the Southern Green Hydrogen project, with two Australian firms vying to become the lead developers. The project is touted to become the largest green hydrogen project on the planet, which analysists say could earn hundreds of millions of dollars in export revenue while helping decarbonise economies here and overseas. 

There will only be a small market for green hydrogen in NZ so, in essence, the plan is for our power – power which New Zealand taxpayers paid for in the Manapouri Hydro Scheme and still 51% owned by the government – to be exported in the form of green hydrogen for profit, while the rest of the country endures winter power shortages. 

And this is no small amount of electricity.  The Manapouri hydro scheme represents 13% of NZ’s electricity generation.  Imagine what lower and more stable electricity prices would do for New Zealand households and industry, if Meridian instead released that electricity to the national grid.

It is clear that, in our present situation, this proposal to export our electricity as green hydrogen doesn’t make sense.  No less than Simon Upton, the Parliamentary Commissioner for the Environment, has told the government so.  With the government pushing for more electric vehicles on the roads and for industries to replace fossil fuel-fired boilers with electric furnaces and electricity-driven heat pumps, the country is going to need a lot more electrical generation in the future. Selling what excess power we have as green hydrogen overseas when the country is facing power shortages is the epitome of bad planning! 
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It is time this government developed a coherent energy strategy to guide our communities and our economy into the uncertain energy future ahead.  Supporting the use of this precious resource for another export industry would certainly not be a good start.