Future Energy Directions Workshop - New Zealand's Energy Outlook to 2030: Scenarios

I mentioned in my first presentation that the sensitivity cases did not suggest any obvious solutions for New Zealand's Energy challenges. That started us thinking more broadly, and in particular, looking at new technologies that might be in the pipeline.

But first we had to define what we were looking for.

Slide 1: Seeking Solutions

Assume that New Zealand is seeking an energy system which is:

• Reliable and Resilient
  • Limited dependence on world oil and gas markets
  • Highly reliable electricity supply
• Environmentally responsible
  • NZ becomes achieves significant reductions in greenhouse gas emissions
  • Local environment protected
• Fair and Efficient
  • NZ economy remains internationally competitive
  • Consumers maintain high standard of living without spending significantly more on energy services

These scenarios assume that New Zealand is seeking an energy system which is reliable and resilient, environmentally responsible, and fair and efficient. These are the government's standard sustainable energy objectives. Since I am sure we will be talking about these terms more this afternoon, I won't go into them more right now.

Slide 2: General Approach for Both Scenarios

• Looking ahead 25 years requires making many assumptions, especially regarding cost
  • Costs are highly uncertain, especially for new technologies
  • Research advances and mass production should bring down the cost of new technologies
  • We will make assumptions which are 'optimistic', but not 'unrealistic'

Looking ahead 25 years if, of course, a challenge that requires making a number of assumptions.

Future costs are highly uncertain, especially for new technologies. We expect research advances and mass production to bring down the cost of at least some new technologies. We commissioned a report by PB Power on "Emerging Supply-Side Energy Technologies" which looks at emerging energy technologies, and provides future cost estimates for them. This report is available on our website.

Based on PB Power's projections, and other sources, we have made assumptions which we believe are 'optimistic', but not 'unrealistic'.

Slide 3: The Two Scenarios

• Both scenarios assume significant improvements in energy efficiency
• Renewables Scenario
  • Renewable electricity
  • Biofuels for vehicles
• Carbon Capture and Storage
  • Electricity from Southland lignite (soft coal) with capture and geological storage of CO₂ emissions
  • Plug-in hybrid vehicles

The two scenarios we looked at both include significant improvements in energy efficiency.

The first of the two scenarios is built around renewable energy. It assumes we move toward a renewable electricity system, and toward biofuels for transport.

The second of the two scenarios is built around carbon capture and storage technology. It assumes that electricity could be produced from Southland lignite (or soft coal), with the carbon dioxide emissions captured and stored in geological structures. The transport system would move toward plug-in hybrid vehicles, powered primarily by electricity.

Slide 4: Getting Started – Improving Energy Efficiency

• Both scenarios assume NZ can achieve an additional 1% per year reduction in energy demand beyond 'business as usual'
• This is more modest than the present NEECS goal and there would be more lead time for making the changes

Both scenarios assume that New Zealand can achieve a 1% per year reduction in energy demand compared to 'business as usual'. As I mentioned earlier, our results suggest that energy efficiency is about the only policy that can both reduce costs to consumers and reduce greenhouse gas emissions.

The 1% per year reduction produces a 25% reduction in demand compared to the Base Case by 2030. We excluded air and sea transport and heavy industry from this reduction, since the technologies they use are largely driven internationally.

We think this is a realistic goal. This 1% per year over 25 years is a more modest goal that the present National Energy Efficiency and Conservation Strategy (NEECS) goal, and there would be more lead time for making the investments (since this is a 25 year goal rather than a ten year goal). We have technologies that are 25% more efficient today, and they are only going to get better and cheaper over the next 25 years.

Slide 5: Assumptions of the Renewables Scenario – What's Out

• Coal-fired generation phased-out by 2014
• Coal replaced with gas or biomass in industrial boilers by 2019
• No gas imports

So let's look at the Renewables Scenario first.

We assume in the Renewables Scenario that coal-fired generation would be phased-out by 2014, and that coal would be replaced with gas or biomass in industrial boilers by 2019. There would be no gas imports.

Slide 6: Assumptions of the Renewables Scenario – Electricity

• Ocean wave electricity generation becomes available after 2015 at a cost of around 10.2c/kWh (at low end of PB Power range)
• Wave electricity still more costly than conventional generation, but emits no carbon and would diversify the generation mix

Photo courtesy Ocean Power Delivery Ltd.

We assume that ocean wave energy becomes available commercially after 2015, in addition to continued growth in geothermal and wind power. PB Power's report identifies wave energy as one of New Zealand's most promising emerging supply-side energy technologies.

Wave energy would be more costly than conventional generation, but would emit no carbon and would diversify the generation mix.

Slide 7: Assumptions of the Renewables Scenario – Transport

• Biofuels available at a price competitive with oil
• Millions of 'flex fuel' vehicles already on the roads in Brazil and North America
• Would be produced from waste in early years, and easily grown crops (such as switchgrass, willows, toi toi, radiata pine or algae) in later years
• Shell pilot plant in Canada producing bioethanol from cellulose (in this case, straw) at cost of US$20-30/barrel
• US DOE goal to reduce cost of bioethanol to US$0.50/litre by 2010

We also assume that biofuels become available at a price competitive with oil.

The biofuels could be used in flex-fueled vehicles, capable of automatically adjusting themselves to burn whatever is in the tank, whether it be petrol or biofuel. There are millions of these vehicles already on the roads in Brazil and North America .

The biofuels would be mixed with petrol in small quantities at first, and in larger concentrations in later years.

In New Zealand, they could be produced from waste in the early years, or from easily grown crops, such as switchgrass, willows, toi toi, radiata pine, or algae, in later years.

Biofuels are the subject of major research programs in the U.S., Europe, and other countries.

Note that we are assuming a second generation biofuels technology, which could produce biofuels from any type of cellulose plant material—which means most any vegetable matter—not the biofuels from grain technology that is commonly used today. This second generation technology should be much more efficient in its land and energy inputs requirements.

Slide 8: Renewables Scenario: Primary Energy Supply Results vs. Base Case

Figure 2: Biofuels Up, Oil Gas and Coal Down

This slide shows the impact of the Renewables Scenario on primary energy by fuel type. All figures are percentage changes compared to the Base Case. A bar above the zero line is an increase compared to the Base Case, while a bar below the zero line is a decrease compared to the Base Case. The dotted line shows the overall change.

As expected, biofuel use increases quite dramatically, replacing oil. Wave power production, however, remains fairly modest. With the hypothesized energy efficiency improvements, there is actually little need for new generation.

Total primary energy use declines slightly less than the 25% hypothesised improvement in energy efficiency by 2030, since this improvement does not apply to the heavy industry or the air and sea transport sectors. However, this reduction in energy demand results in significant reductions in coal and gas demand, and adds to the reduction in oil demand.

Oil use declines dramatically by 2030. In absolute terms, 2030 oil use is about half what it was in the Base Case and about one-third lower than in 2005.

Slide 9: Renewables Scenario: Electricity Generation Results vs. Base Case

Figure 2: Wave, Wind and Hydro Up, Coal and Gas Down

This slide shows the impact of the Renewables Scenario on electricity supply by fuel type. As hypothesised, wave and wind energy replace coal and gas. The higher price of electricity also brings in some additional hydro. Although there is still a small amount of gas-fired generation, by 2030, electricity generation is over 95% from renewable sources.

Slide 10: Renewables Scenario: Energy Price Results vs. Base Case

Figure 3: Electricity Prices Up, Gas Prices Down

This slide shows the resulting changes in consumer energy prices under the renewables scenario. Wholesale electricity is about 15% more expensive, reflecting the additional cost of the renewable sources used. The rise in consumer prices is lower. Given that we are assuming a 25% improvement in the energy efficiency of homes and appliances by 2030, most consumers are actually better off despite the electricity price increases. Electricity-dependent industries would be somewhat worse off. However, if we assume the same general price trends are taking place world-wide, there should be little loss of competitiveness for New Zealand industry.

Gas is generally cheaper, reflecting reduced demand. This scenario has no impact on the diesel (or petrol) price, or the coal price, since they are assumed to be set in world markets.

None of our cases assume any charge for carbon. If there were some type of market for carbon, these price renewables scenario results would be more favourable relative to the Base Case.

Slide 11: Renewables Scenario: Greenhouse Gas Emission Results vs. Base Case

Figure 4: Oil, Coal and Gas Emissions Down

This slide shows the big payoff from this scenario: a reduction in greenhouse gas emissions of about 45% compared to the Base Case by 2030. In absolute terms, emissions are about 30% lower than 2005 levels. With the ongoing switch from oil to biofuels by 2030, which could be extended to off-road vehicles, there is every reason to expect this downward trend to continue in later years out to 2050.

Slide 12: Assumptions of the Carbon Capture and Storage Scenario – What's Out

• Coal-fired generation without carbon capture phased-out by 2014
  • Huntly Power station converted to carbon capture and storage by 2015 as early demonstration of the technology
• Coal replaced with gas or biomass in industrial boilers by 2019
• No gas imports
• Conventional renewables still available, but no wave generation

Now let's look at the carbon capture and storage scenario. It starts off the same way as the Renewables Scenario, including the 1% per year improvement in energy efficiency over 25 years.

In this scenario, coal-fired generation without carbon capture is phased-out by 2014. However, we assume that the Huntly Power Station, currently New Zealand's only coal-fired power station, is converted to carbon capture and storage by 2015 as an early demonstration of the technology.

As in the renewables case, coal is replaced with gas or biomass in industrial boilers by 2019. There are no gas imports. Conventional renewables are still available, but we did not assume that wave power or biofuels are available.

Slide 13: Assumptions of the Carbon Capture and Storage Scenario – Electricity

• Electricity generation from lignite with carbon capture becomes widely available by 2020 at a cost of 10.3 cents/kWh
  • Based on estimates prepared for us by CRL Energy
  • Still more costly than most conventional generation
• New Zealand has enormous resources of lignite
• Major research programs on carbon capture and storage in the U.S., Australia, and elsewhere
• US program seeks to reduce cost to US$10/tonne of carbon emissions avoided (US$2.72/tonne of CO₂ )

In this scenario, electricity generation from lignite with carbon capture becomes available by 2020 at a cost similar to the cost of wave power that we assumed in the renewables scenario. These costs are based on estimates prepared for us by CRL Energy, and again, are somewhat more costly than conventional generation.

New Zealand has enormous lignite resources—enough to power the country for at least 50 years, even without the use of other fuels.

Carbon capture and storage technology is the subject of major research programs in the U.S., Australia, and elsewhere.

Slide 14: Assumptions of the Carbon Capture and Storage Scenario – Transport

• Vehicle fleet gradually converted to plug-in hybrids
  • Plug-in hybrids like conventional hybrid vehicles, which have motors and batteries for propulsion
  • But plug-in hybrids have larger batteries, allowing them to be recharged from grid electricity
  • Since most car trips are short, even modest size batteries (good for 32 km) could allow a vehicle to operate on electricity the majority of the time
• In electric mode, plug-in hybrids use one-quarter the energy of a comparable petrol vehicle
  • $0.17/kWh electricity equivalent to $0.40/litre petrol

For transport, we assume that the vehicle fleet would gradually be converted to what we call "plug-in hybrids". These are similar to today's hybrid vehicles, which have batteries and electric motors to power them, however, they have larger batteries than can be charged using utility electricity. Since they can run on either electricity or petrol, they would not suffer from the range limitations of conventional battery electric vehicles.

Since most car trips are short, even modest size batteries (good for about 32 km), could allow a vehicle to operate on electricity the majority of the time.

In electric mode, plug-in hybrids use one-quarter the energy of a comparable petrol vehicle (although, of course, there are losses in producing the electricity to begin with). However, electricity at today's $0.17/kWh average residential price would be equivalent to petrol at $0.40/litre.

Slide 15: More Assumptions of the Carbon Capture and Storage Scenario – Transport

• Plug-in hybrid technology available today, however, cost of batteries still too high
  • Once production volume reaches 100,000 vehicles per year, cost difference with conventional hybrids should drop to a few hundred dollars per vehicle (as per EPRI)

Plug-in hybrid technology is available today, however, the cost of the batteries is still too high to make them commercially marketable. However, according to estimates of the Electric Power Research Institute, once production reaches 100,000 vehicles per year, the cost difference with conventional hybrids should drop to a few hundred dollars per vehicle.

Slide 16: Carbon Capture and Storage Scenario: Primary Energy Supply Results vs. Base Case

Figure 5: Lignite Up, Oil, Conventional Coal, and Gas Down

This slide shows the impact of the Carbon Capture and Storage Scenario on primary energy by fuel type. As expected, lignite replaces oil, gas, and conventional coal. As in the Renewables Scenario, total primary energy use declines slightly less than the 25% hypothesised improvement in energy efficiency by 2030. This reduction in energy demand results in significant reductions in conventional coal and gas demand, and adds to the reduction in oil demand.

Oil use has declined dramatically by 2030 – although not as dramatically as in the Renewables scenario – from 38% of New Zealand's primary energy in the Base Case to 29%. In absolute terms, 2030 oil use is about 40% lower than it was in the Base Case and 20% lower than it was in 2005.

Slide 17: Carbon Capture and Storage Scenario: Electricity Generation Results vs. Base Case

Figure 6: Lignite and Hydro Up, Conventional Coal and Gas Down

This slide shows the impact of the Carbon Capture and Storage Scenario on electricity supply by fuel type. Despite the additional electricity used by the plug-in hybrid vehicles, total electricity use still declines by about 8% by 2030 compared to the Base Case. Overall, electricity use is still about 25% higher in 2030 than in 2005.

Slide 18: Carbon Capture and Storage Scenario: Energy Price Results vs. Base Case

Figure 7: Electricity Prices Up (Slightly), Gas Down

This slide shows the resulting changes in energy prices under the Carbon Capture and Storage Scenario. Wholesale electricity is about 5% more expensive after 2020. As in the Renewables Scenario, gas is generally cheaper, reflecting reduced demand. There is no impact on diesel or petrol prices, however, consumers would be using less oil products generally.

Slide 19: Carbon Capture and Storage Scenario: Greenhouse Gas Emission Results vs. Base Case

Figure 8: Oil, Coal and Gas Emissions Down

This slide shows shows that, like the Renewables Scenario, the Carbon Capture and Storage scenario has a big payoff in reducing greenhouse gas emissions by over 40% compared to the Base Case by 2030. In absolute terms, emissions in 2030 are about 25% lower than 2005 levels. With the ongoing switch from petrol to plug-in hybrid vehicles, this downward trend is likely to continue in later years.

Slide 20: Oil Requirements: Base Case and Two Scenarios

The next three slides compare the results of the Base Case and the two scenarios. This one shows oil requirements. As you can see, the Base Case shows a steady rise in oil requirements, while either of the two scenarios manage to reverse the trend. Renewables does a little better, primarily because switching the vehicle fleet to use biofuels would be quicker and easier than switching the vehicle fleet to use electricity.

Slide 21: Greenhouse Gas Emissions: Base Case and Two Scenarios

Looking at greenhouse gas emissions, we see that once again, either of the two scenarios can reverse the upward trend. There is little difference between the two scenarios. Both get us back to about 1990 levels by 2030.

It is worth noting that energy efficiency really drives the results of both scenarios as much as new technology. It is fair to say that energy efficiency is what can stop the growth in greenhouse gas emissions. New technology is what can then make emissions go down.

Slide 22: Wholesale Electricity Prices: Base Case and Two Scenarios

This third slide shows the comparative wholesale electricity price results. Both scenarios result in prices that are a bit higher than the Base Case since there is a cost to reducing greenhouse gas emissions.

Contrary to a couple of the media reports I have seen on Energy Outlook, I would not regard the price difference between the two scenarios as very significant. There is huge uncertainty regarding what the costs of these technologies will be in 2030, so these price differences are really in the noise.

Slide 23: So In Conclusion…

• Both scenarios reduced greenhouse gas emissions and oil imports without major increases in consumer energy costs
• We made optimistic assumptions, but
  • We actually could choose either of these approaches or combine them, depending upon how the R&D turns out
  • We did not consider other new technologies, which are also promising
• Critical role of energy efficiency

So in conclusion, both scenarios reduced greenhouse gas emissions and oil imports without major increases in consumer energy costs.

We made optimistic assumptions, but we actually could choose either of these approaches or combine them, depending upon how the R&D turns out.

We did not consider other new technologies, many of which are also promising.

In both cases, the big impacts come from combining energy efficiency and technology.

This site uses cookies to track and analyse usage.