As seen this month, the rapid scale and pace of New Zealand’s energy transition creates challenges for our security of supply, particularly in periods of peak demand.

The Electricity Authority (EA) released a decision paper in July on potential solutions for the peak electricity capacity issues. It has decided to pursue a package of six solutions which will support its long-term view of security of supply. In the following paragraphs we summarise the EA’s outlook across the short, medium, and long-term horizons.

Security of supply for the short term (2024 to 2027) 

The EA highlights the role of demand response and battery energy storage systems (BESS)[1] over the next three years.

To combat supply issues in the short-term there are emerging demand side initiatives in the market. Recent examples in the media include New Zealand Aluminium Smelters’ agreement with Meridian to further reduce its demand at the Tiwai Point aluminium smelter, bringing its total demand response to 205 MW, and Methanex’s agreement to reduce production in order to sell gas to Contact Energy and Genesis Energy. Over the next three years, the EA says we can expect to see more trials of such demand-side flexibility tools.

New Zealand’s first grid-connected BESS is now operating at Rotohiko, boasting a capacity of 35MW. Meridian’s 100MW BESS at Ruakākā is expected to be fully commissioned by December 2024 and the EA lists further planned BESS projects from Meridian, Genesis Energy and Contact Energy. We note that Mercury has also since announced the addition of a grid-scale BESS project to its pipeline. The EA has multiple workstreams underway to prepare for the growing investment in BESS, including its consultation on amendments to the TPM to ensure its workability for emerging technologies.

The EA expects that as new flexible capacity increases, existing hydro and thermal assets will continue to firm intermittent electricity generation and provide most of the security of supply for capacity.

There will be retirement of some thermal assets. The EA concludes there is sufficient capacity to meet changes in demand over the short term but there is a need for more firming. Security of supply is likely to remain tight at times and emerging risks will need to be well communicated and mitigated.

Security of supply for the medium term (2027 to 2031)

Between 2027 and 2031, the EA anticipates a rise in intermittent generation increasingly paired with BESS. During this period, a key focus for the EA will be on enabling flexibility.

The EA envisages that BESS and Distributed Energy Resources (DER) will play a significant role in enhancing firming and flexibility. This is while recognising the ongoing need for firming from hydro and thermal assets. The EA’s generation investment survey shows a considerable uptick in the development of distributed generation. This includes not just large utility-scale projects, but also an expansion in mid-scale and small-scale solar activities.

As we move through these years, there will be a growing need for coordination between grid and distribution connected assets. Networks will need to progressively integrate flexibility as their consumers transition into prosumers. This will ensure the full potential value of their DER and demand response is realised.

Security of supply for the long term (2031 to 2050)

In the longer-term time horizon, the EA anticipates significant investments in new generation, flexibility, and storage options. These investments are expected to deliver enhanced security of supply. As we look further into these extended time frames, it is projected that hydro generation will assume an increasingly important role in firming.

Over time, the EA's objectives evolve towards bolstering security of supply and resilience. The aim is to empower consumers and communities to generate and share the value of electricity. Concurrently, efforts will be made to establish electricity infrastructure that is fit for purpose and resilient against extreme weather events, natural disasters, and cyber-attacks.

The immediate electricity situation is concerning and, as the EA report highlights, we can expect more periods of tight supply in the coming years. However, consistent with the EA’s long-term outlook, we are seeing increasing interest in BESS and demand side initiatives, as well as distributed generation.

Please get in touch with one of our energy experts if you would like to know more.

Footnote

1. See Solar + BESS: An answer to New Zealand’s electricity security equation? (minterellison.co.nz) for our view on the potential of BESS.