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NZ energy future needs discoveries, technology - or coal

By Michael Daly of NZPA

Tuesday 22nd August 2006

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Newly-published Government documents suggest New Zealand risks becoming even more dependent on volatile world energy markets unless major new discoveries are made here, or technological leaps are made.

Alternatively the country could turn to coal for electricity and liquid fuels and be free from the tyranny of overseas oil producers, but that approach raises issues about greenhouse gas production.

According to a Ministry of Economic Development (MED) report looking at the country's energy outlook, New Zealand's oil use will grow by 35% in the 25 years to 2030 under a business-as-usual scenario.

Overall energy supply would also grow by about 35%, electricity use would be up 40%, wholesale electricity prices would increase by about 35%, and greenhouse gas emissions would be up about 30%.

Under a renewables scenario, using among other sources ocean wave energy and large amounts of biofuels, the wholesale electricity cost would be 15% above the business-as-usual base case, and greenhouse gas emissions about 30% lower than in 2005.

Another scenario looks to coal, with carbon capture and storage technologies and the successful commercialisation of plug-in hybrid vehicles.

In that scenario wholesale electricity prices would be 5% above the base case, and greenhouse gas emissions would be about 25% lower than 2005.

For both those alternatives, a 1% reduction in energy demand compared to the base case was assumed.

But the MED acknowledged putting energy efficiency into practice had so far been more difficult than expected.

The residential sector was particularly problematic, as this country's energy consumption per person was already the lowest in the OECD, the report said.

As New Zealand homes tended to be under-heated, at least some of the benefits of improved residential energy efficiency would be taken in the form of warmer and healthier homes, rather than reductions in energy demand.

The report said slightly above half the consumer energy used in this country came from oil, mostly used in transport.

The world oil market was inherently vulnerable to disruption and opinions varied about how secure supply was, but most observers would support, at the very least, prudent preparations for oil emergencies.

With gas, the country could be facing a gap between supply and demand sometime in the 2010s, with the biggest uncertainty about future supplies being the level of additional discoveries, the report said.

If needed, enough gas should be available from overseas for the foreseeable future, but a supply disruption affecting the oil market could also have an impact on the world gas market.

When it came to coal, New Zealand had "enormous resources by any standard", considering the country's energy consumption levels.

Simple calculations suggested this country had enough of the soft coal lignite to supply all its energy needs for at least the next 50 years, even if no other forms of energy were used.

Coal was also plentiful in many other parts of the world and neither resource constraints on production nor a cartel in coal were unlikely in the foreseeable future, the report said.

In fact, so much cheap coal was available in the South Pacific that New Zealand consumers might find it cheaper to import coal rather than to buy it domestically.

If the New Zealand resource was used, lignite resources could support large scale electricity generation at a favourable cost.

With nearly all the lignite at the bottom of the South Island, and for economic reasons needing to be used close to where it was mined, extra transmission capacity would be needed.

"There are probably no physical constraints on the amount of coal-fired generation that could be built in New Zealand," the report said.

Under so-called clean coal technologies now being developed the greenhouse gas carbon dioxide could potentially be captured and stored in a geological structure.

When it came to the long-run marginal costs of new generation, modest amounts of low cost cogeneration, wind and geothermal should logically be added first.

After that significant amounts of three types of generation were clustered in an 8-10c per kilowatt-hour band - gas, coal and wind - along with a small amount of hydro.

The report also said the potential resource of wave energy was huge, but so far costs were high and commercial applications limited.

It was also possible liquid fuel could be produced from lignite, with preliminary studies by company Solid Energy indicating all of this country's needs could potentially be supplied and could be economic at oil prices above $US40 ($NZ63) to $US50 a barrel, compared to present prices above $US70 a barrel.

Although the plant would be a significant greenhouse gas emitter, it could be built in such a way that carbon capture and storage could be added when the technology was commercialised, the report said.

Alternative transport fuels liquefied petroleum gas (LPG) and compressed natural gas (CNG) were unlikely to be adopted on a wider scale unless major new gas discoveries were made.

Biofuels were a promising renewable alternative to oil-based transport fuels but waste and by-product feedstocks were limited and it was unlikely biofuels from those sources could meet more than 10% of the country's needs.

In the longer term, emerging technologies that allowed biofuels to be economically produced from easily grown non-food crops, such as switchgrass, toi toi, willows and radiata pine, could provide the basis for a biofuels industry in New Zealand.

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