Bryan Leyland & John Raine: The Energy Storage Elephant

Christopher Luxon announced the LNG Storage Terminal plan on 9th February 2026. By 28th February, the USA and Israel had attacked Iran, and we were forcefully reminded that New Zealand’s is one of the most vulnerable advanced economies to oil supply disruption. We are geographically isolated, fully import‑dependent for refined fuels, and exposed to geopolitical upheaval and chokepoints like the Strait of Hormuz.

The energy storage behemoth has been in the room for a long time and was stamping around when the Marsden Point Refinery was closed in March 2022. Successive governments and the energy industry sector must take responsibility for a failure of long-term planning dating back decades. The Coalition is now paying attention, and Shane Jones has made blunt calls in parliament for a pragmatic approach to energy and climate change.

An earlier article [1] outlined a realistic and resilient energy future for New Zealand. Looking now at energy storage, adding far more tank storage for refined fuel is a priority. The LNG terminal makes technical sense as a buffer for imported gas, but a politically unlikely cross-party accord is urgently needed to catalyse new exploration for oil and gas locally.

The Future Energy Mix

Fossil fuels will remain essential for aircraft, long haul marine transport, farming, much heavy road transport, some industries and the petrochemical industry sector. If new EV battery technology arrives, it would speed the uptake of electrified transport, but it could not replace diesel for most heavy transport and agriculture.

The electricity industry expects major increases in electricity demand from electrification of transport and industry, and from data centres. The prevailing view is that wind and solar power, smoothed out using battery farms, and batteries associated with domestic rooftop solar and EVs, can do the job at an acceptable price. Increasing the operating range of existing hydro storage and periodically shutting down industry and commerce are also expected to help. Jen Purdie [2], aligning with this scenario, advocates for the Lake Onslow pumped hydro storage scheme instead of the LNG storage facility. The numbers, however, tell a different story.

The Seasonal Problem

A key issue with pumped storage is seasonal variation in energy supply and demand. Critically, electricity demand is highest in winter, when hydro lake inflows fall to 63% of peak and solar power falls to 47% of peak. Windpower drops by about 10% during late autumn and early winter. In dry years, hydro generation drops by about 10% of current demand. The present 4TWh of hydro storage can cover most of the shortfall, but only if lakes are full in the early autumn. Increasing hydro lake levels, where possible, would help.

The Climate Change Commission has projected that by 2050 total generation capacity will be ~22 GW. 11.4 GW would come from wind and solar power, with 2.3 GW of battery storage. The available generation would only meet likely demand if all the wind and solar power is used, or stored for use when needed. This requires huge amounts of low-cost storage.

Consider two extreme scenarios in a future grid thus dominated by wind and solar:

Scenario one - too much power: On a windy summer afternoon with moderate demand, the system could be generating 14 GW against a demand of just 8 GW. Batteries fill up quickly, leaving enormous surpluses with nowhere to go, driving down wholesale prices. The batteries envisaged by the Climate Change Commission require 5.5 GWh for charging and deliver 4.5 GWh. Once they are fully charged there will be a surplus of 36 GWh available for storage just for that day. If there are five windy and sunny days in succession, and the batteries are discharged every night, there will be a need for 180 GWh of extra storage. Even more storage will be needed to store the electricity generated in summer for use in the winter.

Scenario two - not enough power: On a cold, calm winter's night, demand could reach 11 GW. Wind contributes almost nothing, solar contributes zero, and even with full hydro output the system delivers 8 GW, falling 3 GW short. Under current plans, batteries could cover this gap for less than two hours. The result: shortages, price spikes, and rotating blackouts.

This is an unreliable foundation for a modern economy, and international evidence shows that countries with a high percentage of solar and wind power such as Germany and the U.K. have the highest consumer price for electricity. This is due to the short 15 - 25 year life of wind and solar plant, and the need for ~40% capacity in high inertia turbine systems as back-up (e.g. coal, gas, geothermal, hydro, nuclear) to stabilise the grid when there is a high percentage of solar and wind generation.

Why Batteries Can't Solve This

Using current battery technology to store, say, 180GWh of electricity to bridge five low-generation days, would cost roughly $72 billion, about a third of New Zealand's entire GDP. If it transpired that 5% of the energy generated by wind and solar needed to be stored from summer to winter the cost would be about $600 billion – twice annual GDP! This expenditure would have to recur every 10 - 15 years to replace the batteries. Capital and operating costs would amount to at least $60 billion per annum.

The real need is to store the surplus solar power available in summer so that it is available in winter. Batteries cannot do this because of the high cost associated with only one charge/discharge cycle per year. Moreover, much of the electricity stored would be dissipated by self-discharge of the batteries. For the same reason, batteries cannot be used to store energy for dry years [3]. Sufficient batteries to solve the dry year problem would cost $5 trillion - at least ten times New Zealand’s GDP!

Using domestic solar panels and EV batteries as backup is not viable, as domestic solar power costs three times more than that from utility-scale solar farms and is unlikely to expand dramatically. Furthermore, shutting down industry and commerce for demand-side management would be a disaster for the economy, whose lifeblood is a reliable and reasonably priced supply of electricity.

Why Lake Onslow Isn’t the Answer Either

Conventional pumped hydro storage, where water is pumped uphill when electricity is cheap and released through turbines when it's needed, costs about $3000/kW for a station that operates on a daily cycle and has enough stored water to operate at full power for about six hours. Storing much larger amounts of water for use in dry years requires very large upper and lower lakes not far from each other and separated by an altitude of 500 metres or more. Large-scale pumped hydro schemes are very expensive and difficult to find.

With pumped storage, about 25% of the energy is lost during the pumping/generating cycle due to losses in the pumps, turbines, and pipeline. Extra pumping would also be needed to make up for one metre annual evaporation losses from the lake.

The current government wisely abandoned the technically viable 1.2 GW Lake Onslow Project [4], but it is now being reconsidered by a private consortium. This scheme was ruinously expensive, with 24 km of tunnels, a large dam at the top and a small pond at the bottom replenished with water pumped from river flow. It was estimated to cost at least $16 billion ($13,000/kW), more than twice the cost of a geothermal station that generates continuously. To recover that investment, it would need to charge around $1.60 per kilowatt-hour during shortage periods – about ten times the current spot price.

For $16 billion, New Zealand could, for example, build four Rolls-Royce small modular nuclear reactors (SMR) [5], generating ~1.9 GW, located close to where the power is actually needed, and avoid the need to reinforce the transmission from the bottom of the South Island.

Realistic Options

The pragmatic alternative to Lake Onslow is straightforward: maintain a million tonnes of coal at Huntly Power Station as a dry-year reserve. The cost would be around $200 million to purchase plus $20 - 50 million annually, and every time there is a dry year, the coal stockpile would need to be replaced, with a CO2 emissions cost of $25 m. The cost of ~$300 million for Huntly is a fraction of the all-up, say, ~$20 billion for Lake Onslow. Gas is cleaner than coal re CO2 emissions, but with gas availability in steep decline, coal can be an interim solution pending a new local gas supply.

More broadly, NZ needs a sensible, balanced energy strategy:

· Prioritise geothermal and hydropower expansion.

· Use wind and solar energy as a minority contribution, not the backbone of the system.

· Keep coal-fired and fast-start gas turbine plant available for peak demand.

· Invest urgently in large LNG storage and greatly expanded refined fuel tank storage to reduce our vulnerability to global supply shocks.

· Accelerate domestic gas exploration to reduce reliance on imports.

· Consider a new refinery – for strategic resilience rather than as a market-driven choice.

· Plan for nuclear power, as many countries around the world are doing.

Our energy supply vulnerability is not fate, but the product of bad decisions. This can be fixed but requires honest accounting of what storage technologies can and cannot do, realistic pricing of the options, and the political will to act urgently on the answer. The sooner we start the better.

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Bryan Leyland is a semi-retired Electrical and Mechanical consulting engineer specialising in power systems. He has experience in almost every form of generation from nuclear power to wave power.

John Raine is an Emeritus Professor of Mechanical Engineering and a former researcher in alternative and renewable energy systems. He formerly worked in the UK engine and vehicle test plant industry.

References

1. John Raine and Bryan Leyland, “A Realistic Energy Future”, Bassett Brash and Hide, 24th August 2025 https://www.bassettbrashandhide.com/post/john-raine-and-bryan-leyland-a-realistic-energy-future

2. Jen Purdie, “LNG vs pumped hydro: will NZ choose to import risk or build cleaner resilience?”, The Conversation, 31st March, 2026 https://theconversation.com/lng-vs-pumped-hydro-will-nz-choose-to-import-risk-or-build-cleaner-resilience-279552

3. https://unpopular-truth.com/2025/07/25/pro-and-cons-of-utility-scale-battery-storage/

4. https://www.beehive.govt.nz/release/lake-onslow-pumped-hydro-scheme-scrapped

5. Small Modular Reactors https://www.rolls-royce.com/innovation/small-modular-reactors.aspx#/ Rolls Royce, UK, 2026