Big jump in 'committed' renewable electricity projects

Those are key findings of a new report for the Electricity Authority (EA) from Wellington energy analysts, Concept Consulting.

The report coincides with an announcement by Clarus – the renamed FirstGas – that it has entered a joint venture with UK-based Harmony Energy to construct what it "expects to be New Zealand's largest solar farm".

Capable of delivering 150 megawatts (MW) into the national grid, the Tauhei solar farm is expected to be in production by 2026 and will generate electricity on a 182-hectare site on the Hauraki Plains, near Te Aroha.

The project was one of a number that received fast-track resource consents under special covid-era legislation, the absence of which in the future is one of a number of factors Concept noted would slow the otherwise swift pace of new renewables development intentions.

The project is expected to generate about 270 gigawatt hours of electricity annually, or 5.4% of the approximately 5,000GWh of new renewable generation identified as “committed” by Concept.

That compared with just 2,600GWh of committed new renewables 18 months ago, although the new total was “only slightly more than the amount of generation required to displace the uneconomic thermal generation on the system”.

To meet projected demand growth by 2027, the report estimated a further 2,700GWh of new renewable generation would be required as old thermal – mainly gas-fired – power stations were retired.

The current rate of development was nonetheless “three times the rate achieved between 2011-2020”, said Concept, and the demand growth rate was not clear.

A 'slight elephant'

One potential generation developer had described as a “slight elephant in the room” the fact that actual demand was more or less flatlining versus forecasts of growing demand.

Concept said the cost of building a new renewable electricity kit has risen from a mid-point price of about $84 per megawatt-hour (MWh) to about $90 “due to tight supply chains (especially for wind), and higher interest rates”.

However, various risks meant costs could be as high as $104 per MWh on the range of possible build costs, “although some parties we spoke to considered the cost of supply to be significantly higher”.

“Capital costs for NZ wind generation projects have risen markedly since 2019,” the report said. “In $/MW terms, the cost for [the] most recent project was up 28% compared to average project costs pre-covid” and was 36% higher for the most recent project.

While the NZ electricity futures market showed a “declining forward profile” for wholesale electricity prices, Concept warned futures prices were nonetheless “well above our estimated cost of new supply to 2027”.

Wholesale price signals

"The increase is meaningful because capital costs typically account for 80%+ of the total levelised cost of energy (LCOE) for wind generation", with new wind generation being the backbone of intended new renewables.

The survey of known participants in the electricity generation sector found that committed generation capacity had risen to 5,000 gigawatt hours.

However, the gap was narrower for South Island generation than in the North Island, where there appear to be concerns about the capacity to despatch sufficient backup electricity from gas and coal-fired plants at times when renewable sources are running short.

The report also found evidence of a “slew of projects at (or close to) final investment decision” and “possibly waiting on an announcement regarding the future of the Tiwai [aluminium] smelter”.