The Price Path is made up of 16 scenarios which reflect different combinations of demand growth, gas prices, carbon prices, whether the Tiwai Pt smelter stays or goes, retirement of major thermal plant, and the rate at which new generation is built. Each of these scenarios in run for at least 15 years into the future with 90 years of historical inflow data for our hydro lakes and 40 years of historical wind and solar data for wind and solar farms existing and forecast. This gives a total of 1,440 long-term scenarios.
In this blog, we look at two of these scenarios: the Base Case in two different versions, one in which Tiwai closes in 2025 and one in which it remains indefinitely.
The chart below shows the total emissions in thousands of tonnes in the scenario in which Tiwai closes, averaged over the 90 inflow years making up this scenario: in dry years emissions are higher and in wet years the emissions are lower, as indicated by the vertical error bars. Emissions initially fall when Tiwai closes, due to less fossil-fueled generation, and then slowly rise throughout most of the forecast.
The next chart shows the average annual emissions factor for electricity generation in grams per kWh of generation. The shaded region shows the range of annual average emission factors across all 90 inflow years.
Emissions never fall to zero, even with 100% renewables (our scenarios get to 95% or higher, but not 100%), because geothermal generation has emissions due to CO2 from deep beneath the ground being released into the air when the geothermal fluid reaches the surface. None of our scenarios reach 100% renewables because the direction and timing of government policy is not yet clear around developments such as the proposed Lake Onslow pumped hydro scheme.
The next two charts show emissions and emission factors for the scenario in which Tiwai remains in the market indefinitely. The steps in emissions occur when major fossil-fueled generation plant retires, Genesis Energy’s Huntly coal-gas-fired station in 2030 and then Genesis’ combined cycle gas turbine plant in 2038.
Somewhat counterintuitively, the emissions end the forecast period lower in the scenario where Tiwai remains than when it closes in 2025. This is because the higher demand in the Tiwai-remains scenarios causes prices to remain higher, which spurs a higher rate of build of new renewable generation. With Tiwai gone, prices fall, and then there is little new generation built for several years after it closes.
Which brings me to two key points: first, taking the widest possible view of future scenarios for the development of the market, the rate at which emissions fall is primarily determined by the rate at which new renewable generation is built to displace fossil-fueled generation.
Second, the scenario in which Tiwai stays is more-or-less identical to a scenario in which Tiwai closes, but then its load is replaced by a combination of data centres and a green hydrogen plant in Southland. It is currently looking likely that a large data centre will be built in Southland, but at this moment it is difficult to tell how likely a green hydrogen plant will be.
Taken overall, the key to reducing emissions is to build more renewable generation, and the only uncertainty around this is the timing.