Where is the demand?

Annual electrical energy consumption in NZ remains flat or falling, despite some changes in peak use. What has happened to the forecast rapid electrification and subsequent demand uptick?

I remember it being released with some fanfare. Transpower’s Te Mauri Hiko report, first released in 2018 was somewhat of a decade defining thought piece. I think it played some role in encouraging the resurgence in renewable generation build that has been happening in NZ over the last seven years.

The report was rightly optimistic about our electric future. Its main thesis was that New Zealand could expect our electricity demand to more than double to 90 TWh by 2050. This forecast was built on the back of robust predictions of electric vehicle uptake and industrial process heat electrification. The new demand would be met by new wind and solar plants, fossil fuel use would decline dramatically and our greenhouse gas emissions would fall as a result. We’d all be living in electric utopia.

I’m on board with this vision. I remain a huge EV fan, and in the long run, I think the economy will electrify. The key question is will the predicted demand actually eventuate, and if so, when?

The report includes a chart for predicted electricity use through to 2030 - the base case scenario. I’ve taken the liberty of extracting these data and overlaying actual consumption data from MBIE through to year end 2024.

As you can see, Transpower’s actual forecast had predicted that the NZ economy would be using nearly 50 TWh by now, whereas in reality demand has fallen slightly to below 40 TWh. I think their forecast at the time was plausible, so it’s worth asking the question, what happened to the forecast demand?

I believe there are four main reasons it didn’t eventuate:

• Sluggish electric vehicle uptake

• Limited industrial electrification

• Existing industrial demand destruction / demand response

• Rooftop solar

Let’s go through these one by one.

Despite modern EVs being superior in almost every measure to combustion vehicles, and way more fun, uptake in NZ remains poor, and lags far behind most other industrialised nations. EVDB does a great job reporting and tracking monthly sales data. EVs currently make up less than 2% of the light vehicle fleet in NZ and have been averaging about 8% of new car sales in recent months.

By contrast, over 90% of new vehicles in Norway are electric. In many other European countries, the share is over 40%. China which is leading the way in EV production and use is now recording over 50% of new car sales as either PHEVs or EVs. Electric vehicle adoption continues to accelerate worldwide and sticker price parity with ICE vehicles is very close.

The main barrier to adoption in NZ appears to be that sticker price and the fact that NZ is a nation of drivers of second hand Japanese imports. Not that many people purchase new cars. However, many of those that do appear to be captured by misinformation about EVs. I’ve written previously about why EVs are so awesome, so I won’t recant the info in this post. Suffice to say, it continues to mystify me why new EV uptake is so low in NZ.

Transpower had modelled EV charging as adding ~13 TWh to annual demand in NZ by 2050. Some of that was expected to be here by now, but hasn’t eventuated. A rough calculation suggests that current daily EV electricity charging demand is 637 MWh. Annualised this is 233 GWh, which is meaningful but still less than the output of a large renewable plant and about 0.6% of NZ’s annual electrical demand. It is yet to make an impact on total demand.

Industrial electrification is sighted as the next major factor to cause significant load growth. There are a lot of coal and gas fired boilers throughout the country, and many of these could be converted to high temperature heat-pumps or electrode boilers. How much of this is there? Well, according to EECA, there is 28,000 GWh of fuel demand for process heat. If this were converted to electricity at 100% efficiency, then you can see that this has the potential to increase our electrical demand by nearly 75%.

However, it’s not one for one - heat pumps have a coefficient of performance which means that for every unit of electrical energy, you get at least three units of heat. Therefore, even if all this process heat were converted to electrical, it would definitely use less than 28 TWh of electrical energy. The actual potential may be more like 10 TWh, perhaps more, depending on the ratio of heat pumps to electrode boilers.

In any case, despite a few high profile announcements, the rate of electrification is clearly not happening fast. There are some major deterrents for conversions, primarily the high upfront capital cost of the conversion, versus the sunk cost of the existing fossil fuel infrastructure, and secondly the price of electrical energy, which has not been compelling as a case for operational cost savings.

Process heat can and must eventually decarbonise, but the pace this is currently happening is not meaningfully impacting our demand.

There have also been some high profile large industrial demand drop-offs in the past year or two. For example, Tiwai was asked to reduce demand in their agreement with Meridian - it has only recently been returned to full output. The Kinleith Mill has also shut up shop.

Lastly, one shouldn’t under-estimate the impact rooftop solar is having on all of this. There are presently 336 MW of embedded rooftop solar systems producing an estimated 450 GWh of energy annually (15% capacity factor assumed). Rooftop solar is also growing rapidly and it is more than keeping up with the increase in energy demand from electric vehicles - I expect it to continue to do so.

In summary, electrical energy demand in NZ is not increasing, in fact it has slightly decreased in recent years. There are some plausible paths to suggest that it might increase in the future, but based on the history and recent trends, it seems unlikely that we will see any significant increase in electrical demand on the grid for some years to come.