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Ambition, urgency needed in renewables thrust - Refining NZ

Monday 11th March 2019

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New Zealand needs to get its renewables build underway if it is to maximise the economic benefit of shifting industry and transport to lower-carbon energy, Refining NZ chief executive Mike Fuge says.

The country has the engineering capability to deliver new projects – everything from wind farms to hydrogen – but risks being held back by policy uncertainty.

Firms, including the refinery, are ready, willing and able to invest to help meet the country’s 2050 climate change targets and have the skilled staff to deliver on that, he says.

The Marsden Point refinery has a strong cadre of process engineering but there is a generation of younger skilled workers there and around the country that need more challenge. Without a sustainable level of on-going development activity the country risks further erosion of its specialist technical capabilities.

“We must excite that next generation,” Fuge told BusinessDesk.

“If we don’t provide them that excitement then they will go overseas. If we don’t, we are going to lose them.”

Refining NZ is the country’s only oil refinery. It employs about 650 staff and contractors and produces about three-quarters of the petrol, diesel and jet fuel used here. It is a major electricity and gas user and is also the country’s biggest maker, and user, of pure hydrogen.

The firm last year signalled its interest in increasing its hydrogen production, potentially tied to solar or other renewable generation, either for local transport use or export. It is aiming to detail that in a strategic plan expected mid-year.

Fuge joined the company in August, having spent four years running Melbourne-based Pacific Hydro. The firm, acquired by China’s State Power Investment Corp in 2015, has developed wind, solar and hydro projects in Australia, Chile and Brazil.

Fuge has seen the premium that Australia’s energy policy debacle has added to sovereign risk there. And he’s worried that constant changes to the business “playing field” in New Zealand risks doing the same.

The government’s offshore exploration ban “came out of left field” and has spooked investors, he says. Nor does he believe the Electricity Authority’s transmission pricing reform is worth the delay it has already caused to renewable development or the risk premium he believes it has probably added in the minds of international investors.

A potentially drawn-out reform of the Resource Management Act risks further delay to projects the government needs to be getting underway to meet its long-term climate change targets, Fuge said.

“They need to focus less on 2050 and focus more on actually making a start,” he said.

“If they want to get things underway here they are going to have to make some significant bets, of which one or two may not pay off.”

New Zealand has more than two gigawatts of consented wind, geothermal and marine energy projects available for development. Two gas-fired power stations have been shut since 2015, but demand has been flat the past decade and the latest big wind farm was the Mill Creek project Meridian Energy completed in 2014.

Genesis Energy says the 100 MW wind farm it is planning with Tilt Renewables at Waverley will be the next. Meridian is reworking consents so it can deploy larger turbines at its Maungaharuru project north of Napier. Contact Energy says it can build modules of new geothermal production at its Tauhara geothermal field near Taupo to replace gas-fired plant or meet contracted demand from industry wanting dedicated renewables supplies.

Fuge says most of that 2 GW of consented capacity is controlled by incumbent generators who have little incentive to develop new plant.

If industry doesn’t move fast enough, he says the government could invite tenders for a new block of renewable generation – as Victoria’s state government did in 2017. That initiative will see almost 930 MW of solar and wind generation commissioned in the state by late 2020.

“If they want to get renewable projects off the ground they may have to incentivise new entrants,” Fuge said of the Labour-led coalition here.

A power purchase agreement from the government could seek 500 MW of renewable capacity and require a minimum local content of 60 percent.

“They will be pleasantly surprised by what they get.”

Fuge is a fourth-generation Northlander and worked as a student at the refinery. He is unashamedly ambitious for the plant which has continued to innovate to stay competitive with Asian plants that are 10-times its size.

But Refining NZ isn’t the only one who can see hydrogen potential. Ports of Auckland and TIL Logistics are eyeing its use in straddle carriers, tugs and trucks respectively.

Pouakai NZ has also sought a loan of up to $20 million from the Provincial Growth Fund to test the feasibility of a combined power, hydrogen and fertiliser plant in Taranaki.

Fuge says the refinery would need “a bit of a leg up” to expand its hydrogen activities.

But the long-term export potential through neighbour Northport is strong. And New Zealand firms – be they at Culham Engineering in Whangarei or Fitzroy Engineering in New Plymouth – have the skills to deliver the renewable energy required to make it happen.

“Will we build the next 9 GW of renewable generation - or is it 18 GW and we support a hydrogen export industry?

“The big thing is to do something.”

Not acting, he says, risks further erosion of the country’s technical capability and will see more of the country’s renewable energy designed, supplied and built overseas.

“Build this or watch the Chinese build it for you.”

(BusinessDesk)

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