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.
…………………………………………………………………….
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
16 comments:
Good article, one our new minister for energy should read.
With his BA in philosophy he should be able to work out how to keep the lights on.
Our problem Brian is not that the knowledge to do these things is not available, it’s the people in charge who have no clue. Security of energy supply is so far out of their domain of thinking it doesn’t even register, that’s someone else’s problem.
Unless you have a background in power generation you shouldn’t be in charge of the countries energy requirements , it’s that simple.
The wrong people are running the show and it’s been like that for years.
One just has to look at Oz with a far left Labor and Green government to see the cost of wind and solar. The government is hopelessly in debt, and many people cannot afford to heat their homes.
For once some sensible debate. I've been saying this for years, we can have what ever the left want. Fact. Battery, wind, solar power...no problem. Right, now you have to pay for it. The left will hate the reality of the situation they created.
As a comparison Chloe wanted to spend 80 billion over the same period of time on free health dental care. we have massive energy infrastructure issues, and the greens consider certain sections of our society smiles are more important. Shows where the left are really at. Deluded lunatics.
I wonder what Bryan and John think of converting coal to diesel as is done in South Africa.
The electricity price should reduced from a 40c/Kwh kind of all up zone to 25c/Kwh.
This would require a revised approach to generate competition but totally possible in a country with lowest average generation cost average potentially anywhere.
The crony capitalist National party need a jolt to start thinking about market economics.
Another excellent piece by these two authors. Former governments over the years on both sides of the house have done NZ no favours. Their diabolical legacy is now coming home to roost. The current mob is still creating national self harm in its delusional pursuit of Net-Zero. China doesn’t use windmills for energy, they use coal. They build windmills and sell them to stupid people. A nuclear power plant would take at least 10 years to come on stream and possibly a lot longer in Hobbitville with its associated bitching. Forget about the self harming implications of carbon credits and build coal fired energy plants beside existing transmission lines immediately. These can be mothballed some time in the future and replaced by either nuclear energy or more hydro which will take years to build.
Coal to liquid fuel (CTL) conversion has been quite widely used since the development of the Fischer-Tropsch (FT) process in Germany in the 1920s, and then subsequent processes. The South African Sasol process has been used since the 1950s and up to the present day. Technically NZ could do this. The conversion efficiency from coal through to liquid fuel as used by Sasol in the FT process is 35-45%, broadly similar to refining from light sweet crude. The economics of building and operating a CTL plant would likely not stack up compared with importing diesel, so such a decision would be strategic - related to supply protection against geopolitical shocks. Having massive bulk diesel storage is most likely the lower cost answer to this.
Indeed, New Zealand needs a realistic and resilient energy future and we need input from people who have technical expertise. It does appear that much more tank storage for refined fuel is very desirable for our future. Further, it does appear that an LNG terminal will provide an effective buffer for imported gas.
Of course, all of us wish to preserve the high quality of our environment, but some kind of balance must be achieved in this regard, and new exploration for oil and gas is necessary for our economy. Surely, the required balance will mean keeping our industries running while minimising environmental impacts. It can be done, and meanwhile we look for alternative technologies that eventually will reduce greatly our use of fossil fuels.
It would be productive if our mainstream media published a broader range of articles than at present - to include pieces such as this one from Professor John Raine and Bryan Leyland.
The difficulty is to put expert ideas across in a way that is comprehensible, accepting that many, especially our media, are deeply entrenched in particular ideological positions and may not listen or even take time to understand. Articles from excellent people such as Dr. Kevin Trenberth fully deserve exposure in the mainstream media, but even established energy and climate scientists disagree on various technical points; for example, climate scientists disagree on the causes of the Little Ice Age, variously attributed to dimming of the sun, or enhanced volcanic activity, or both. Our energy scientists disagree on technical points too but all perspectives that are proposed by experts should be heard.
The public deserves to hear expert opinion that dissents from current narratives on climate, environment and energy - narratives that if unchallenged will hurt industry and therefore our economy over the long term, and will not necessarily prove any better for our environment.
David Lillis
John,what about waste soft plastic conversion to diesel ,is that a potential solution? Is anyone using this process globally?
Luxon is one of the worst DEI hires the National party’s ever had…and that’s saying something
Unfortunately our neomarxist economy is a basket case - 1st world ambitions with 3rd world abilities have resulted in a $1T national debt
We need to stop using population growth as our main economic tool - and match our population and infrastructure to our economic capability. Low quality immigration or more taxation isn't going to fix it - it requires a major reset which isnt happening.
Good to hear some down to earth discussion on this topic. While pumped hydro is pretty good it must be close to the end user. In NZs case that is Auckland. That is a very long way from Lake Onslow. Best guesses I have heard is about nz$4 Billion to upgrade the electrical grid to handle the extra energy. Plus the cost of building the actual lake.
It makes a nuclear reactor around Auckland sound cheap.
anyone know when the dams reach end-of-life ?
Thank you Bryan and John for another of your enlightening (literally) articles on NZ energy.
You can make an entirely rational argument about our energy resources, complete with numbers that some of us can understand and process.
Sadly, the greater majority of the population will never read this, even fewer will have the background to understand it fully.
At least 10% of NZs people will think Green and vote for farcical Green energy policies.
A prime example of political stupidity was Ardern's " captain's call" to abandon future oil and gas exploration. Will she ever explain that and apologize for our current gas fiasco ?
IMHO, both of you should be the go to engineers that the Government, in particular Seymour, should use as prime consultants.
David has degrees from the University of Auckland in electrical engineering and philosophy.
Before politics, he worked as an electrical engineer in New Zealand and for private sector think tanks in Canada.
This overview from Copilot (there is much more): Yes — commercial plants do exist that convert soft plastics into diesel‑range hydrocarbons using pyrolysis. But economic viability is mixed, highly dependent on feedstock quality, scale, energy prices, and regulation. Conversion efficiency is typically 45–80% liquid fuel yield, but only a portion of that is true diesel‑range material without further upgrading.
Anon 11.53
Dams fail when enough crud builds behind the upstream wall of the dam.
Hydro is not the perfect answer for eco energy. The methane release is horrendous.
See :
https://www.bbc.com/future/article/20240326-how-hydroelectric-dams-are-a-hidden-source-of-carbon-emissions
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