'New Zealand energy crisis drives home case for offshore wind'

New Zealand is blessed with abundant renewable energy resources alongside an already largely green powered electricity grid.

In a world with increasing corporate commitments to ESG and decarbonisation goals, New Zealand could be selling this competitive advantage globally, attracting business investment to our shores with our green credentials.

Instead, after years of underinvestment, we find ourselves in a so-called energy crisis. Record gas and power prices are forcing businesses to close their doors or curtail production at a time when our economy can least afford such losses.

The message from some quarters is that this is just a short-term fuel supply problem. This hides the full story. After all, if we built an energy system reliant entirely on solar generation, would it be acceptable to state that we have a daylight problem when the lights go out at night?

The blackout event in 2021 was a clear signal that our system was already tight and needed more investment. With the country generating most of its electricity through hydropower, it needs to plan for dry years – regular events that are likely to become more common due to climate change.

‘Never let a good crisis go to waste’

The government is currently looking at importing LNG to ease the energy crisis and, as someone who spent much of their career working in gas, I’ll be the first to acknowledge it will play a central role as a transition fuel.

But we have long known gas supply will become increasingly scarce and we should not delude ourselves that an LNG import terminal alone will ensure a well-functioning electricity system.

As they say, never let a good crisis go to waste. Rather than limiting ourselves to short-term solutions, let’s set New Zealand on a course to harness its abundant resources to create an energy system that ensures affordability, reliability and sustainability.

If we bring electricity prices down while expanding our highly renewable grid, we will create an attractive investment environment for international corporations, supporting our economy into the future.

In addition to securing gas supplies in the short term, we need to get on with building renewables at a rapid pace, and it should start with a vision that New Zealand will take its competitive advantage and use it to build a thriving economy for the future.

With power prices as high as they are, conditions could hardly be better to invest in new green generation. But we have recently seen only a modest set of project Final Investment Decision announcements – hardly the growth we need to electrify New Zealand.

Offshore wind can play ‘critical role’ in energy mix

While streamlining consenting processes should support more developments moving from pipeline to reality, the primary issue we need to solve is offtake.

To reach financial close, large renewables projects need long-term offtake contracts (10-15 years) with a stable price. Those are hard to find, and in their absence, good, consented projects will drift into no-man’s land, failing to get built.

Other countries have used contracts for difference (CfD) auctions, which de-risk investment, to solve this conundrum. Through these auctions, governments avoid having to provide capex to build new generation facilities, and asset owners can’t make huge profits at the public’s expense.

First, we need to set a target for how much new renewable generation we want to enable to support the decarbonisation and growth of our economy. For example, 500MW a year of new capacity is a number most people seem to agree on, so let’s start there (although, we’ll need more).

Then, we can set some boundaries for how much of that total capacity we want to come from wind, solar and geothermal, and how much support we might need from batteries, with annual auctions tailored to bring through a diverse mix of technologies.

Offshore wind, which can be built at scale, close to demand centres and with higher capacity factors, can play a critical role in the future energy mix.

Yes, offshore wind is likely to be a little more expensive than most onshore renewables for the foreseeable future. But it will still provide power well below recent market prices, while locating turbines off the coast can mitigate negative social impacts.

In any event, building only the cheapest new generation will not bring down wholesale market prices – what is required is to build enough new generation to rebalance supply and demand in the market as a whole.

By building out renewable generation capacity backed by storage in a coordinated and programmatic way, project costs will fall and business certainty will grow, giving the economy a much-welcome boost.

New Zealand has a bright future ahead of itself. Let’s set an ambition to harness our competitive advantage, become a green energy powerhouse and grow our economy to create a future we can be proud of.