Our electricity market is radically growing. A dam you’ve never heard of could have changed it forever

The current Coalition government has been in the news repeatedly for doing things that will make climate change worse. 

They have made it possible to drill for oil and gas, made electric cars more expensive and gas guzzling cars cheaper, and removed agriculture’s responsibility to pay for pollution.

All of this warms the world, puts more of Wellington and Aotearoa at flood risk, makes cyclones like Gabrielle more likely, and endangers more people’s lives. 

These do get covered in the news cycle – and they have a big impact on our transition to no carbon pollution. However, there are some big projects that the Coalition government cancelled which you’ve probably never heard of. 

One I wanted to explore today was the NZ Battery Project – which would have been a pumped hydro dam at Lake Onslow. According to the Parliamentary Commissioner for the Environment, it would have fundamentally changed the future of our electricity system and made the least polluting system possible as we move all our energy needs to be powered by electricity. 

What the hell is pumped hydro?

Pumped hydro is an adaptation of your typical hydroelectric dam. Like a typical dam, it stores water in a big reservoir and lets water out past turbines to generate electricity. 

Unlike a typical dam, it’s not fed by a natural water source. It uses pumps to fill its reservoir instead. When the sun shines and the wind blows, electricity is cheap. Pumped hydro uses that cheap electricity to pump water high up into the dam. It stores that water for when you need to make electricity. It is a giant, watery battery. 

Why did we need a new type of dam?

Even though electricity generated by the sun, wind and water is cheap, it has a fundamental flaw. It’s intermittent, meaning that it only generates under certain conditions. Solar panels on the roof won’t generate much power when it’s night time. 

To account for that, you need dispatchable power sources – power you can switch on or off at any point regardless of the conditions. That’s the incredible power of fossil fuels – oil, gas and coal are able to be switched on and off at will depending on demand. Dams can also do this, except when we have unusually dry years because they don’t have as much water in them. This means they’re more unreliable, and the system is more likely to run into blackouts. 

Pumped hydro fixes this problem. Lake Onslow was designed to hold a lot of power – meaning that if there’s significant demand and not enough intermittent power available, you can turn the dam on like you can turn on a coal plant. 

When you don’t have a renewable source that works this way, you have to keep fossil fuel plants open and serviced just in case the worst happens. You have to have a way to make power – and burning coal, oil and gas is the most realistic way to do it. The alternative is conserving energy, rolling blackouts or paying industries like smelters to close when demand is high (which is very expensive). 

Yeah but like how would it have fundamentally changed the electricity market?

On first glance, it looks like just swapping like for like. Instead of creating dispatchable power with coal we make it with fun pumped water. What’s the fundamental change?

It comes down to what we mentioned before – Onslow only pumps water when it’s cheap. That single mechanism seriously changes power prices in the future. 

Firstly, it means that there’s a cheap and abundant way to produce electricity when demand spikes. By turning Onslow on to generate power in winter, there’s enough electricity supply to meet higher demand and power prices go down. 

In fact, Onslow would have significantly lowered power prices in winter peaks compared to other future electricity scenarios. It wouldn’t require emergency use of coal, oil or gas which would save hundreds of millions of dollars a year. 

But beyond that, it also would have put a “floor” on power prices. Let’s say we have a day where the sun shines for 13 hours, the wind is strong and the dams are full. There’s an abundance of power. New Zealanders don’t need all that power – so Lake Onslow would have bought all the extra power to store water for future power generation. Power prices would be lower but wouldn’t go so low that there’s no money in electricity. 

That last point is SO important. If producing electricity has zero profit, under our system, that limits the amount of money businesses like Meridian have in their pockets to build more solar and wind. Onslow would protect the revenue needed to build more solar and wind in the future. 

The Parliamentary Commissioner for the Environment estimated that Onslow would have made the average power bill approximately $150 cheaper a year by 2050 – and shrunk the wild swings in power prices over time. Without Onslow, power prices are more expensive, more unstable and cost more.

Overall, Onslow would have meant our electricity prices become more stable, cheaper and more secure to weird weather. But it got canned.

Regardless of Onslow, our electricity system will grow more than it ever has in its history. 

On a lot of metrics, the $15 billion it would have cost to build the NZ Battery Project feels worth it for the resilience and stability of the electricity system it would have provided over its hundred year lifespan. It would have fundamentally changed the cost of electricity and the incentives for building more renewable energy. 

But I have to stress, our electricity system will undergo massive change whether Onslow is built or not. 

According to this report, if nothing changes about our electricity market we will still see a game changing growth in solar and wind power over the next two decades. That’s because carbon pollution is expected to get more expensive, and solar and wind power is the cheapest form of energy. With no change, our capacity to generate electricity will double. The carbon emissions from electricity will drop from 3.5 megatonnes to 2.56 megatonnes. 

Onslow would have dropped that to 2.3 megatonnes – and over its lifespan would have generated $13 to $29 billion in revenue from power generation. That’s the profit after the $15 billion cost of construction and maintenance. 

Unless there are seriously bad decisions made (e.g. subsidising coal generation), the economics of energy means that New Zealand will be at least 96% entirely renewable electricity by 2050. And that will be achieved while simultaneously doubling the amount of electricity we make to power things like transport which we use petrol for now.

Onslow was a fascinating idea that would take a long time to achieve. It would have stabilised prices, eliminated the need for fossil fuels entirely, and provided a significant financial benefit over its lifetime. 

But, politics is a nasty beast. Instead of investing for the long term stability of electricity prices, the government chose the short term savings. 

In markets like electricity, renewables are the present and future. There’s no going back to a time when coal makes financial sense. The transition will happen. 

The question becomes: what kind of transition will our leaders choose? Onslow’s pumped hydro was one way to future proof the electricity system. To make that happen, it would have cost $15 billion and taken a decade to get finished. 

There are other transitions leaders can choose. Doing nothing will lead to incredible growth in renewables, but deliver more expensive winters and blackouts when solar and wind can’t make power. Closing the Tīwai Point aluminium smelter will immediately give us an opportunity to stop using coal for electricity now, but cost jobs and livelihoods in the South Island. 

This is the tricky reality of climate change: trade offs. Changing our society to run without needing fossil fuels can happen in a hundred different ways. It is up to politicians to choose the path we take.

The question becomes, what choices do we want them to make?