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Energy Efficiency Technology (ENEN90011)

FINAL REPORT

Geothermal Energy in New Zealand

24TH October 2013

Group 10
Name

Student ID

Lorena Gallardo
Yuxiang Ma
Harry Smithers
Andre Costa
Tengku Azrai Redza

613776
630337
391880
647254
368816

Image on cover is Wairakei Power Station. Sourced from google.com

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ABSTRACT
This report investigates the barriers and opportunities to exploiting geothermal energy in New
Zealand as a renewable energy source for producing electricity. The report includes relevant
background information regarding geothermal energy as well as summarized technical
information about geothermal energy generation.
The report applies the Triple Bottom Line (TBL) method of considering the social,
environmental and economic aspects of geothermal energy in order to evaluate its
sustainability and viability for further development. It is shown that from an economic
perspective, geothermal energys capital costs are mostly related to the high risk it represents
and the long periods of time taken to obtain revenues. However, geothermal electricity has
low operational costs and therefore, it is cheap to use, it is also reliable, provides funds for
taxes and generates employment. From a social point of view, geothermal energy represents
an opportunity to enhance equity in the New Zealand population. The revenues obtained from
this activity can provide benefits to local and indigenous communities such as the Maori.
Also, as New Zealand is a world leader in geothermal energy, this acquired knowledge is a
form of human capital that brings positive outcomes to the society. Finally, from an
environmental perspective, geothermal energy has low or almost zero carbon emissions
compared to fossil fuel energy sources which contributes to the reduction of greenhouse
gases emissions and therefore, to minimizing climate change. Nevertheless, geothermal
energy plants can cause environmental impacts such as water pollution and subsidence in
land. Therefore, it is necessary to use the available and appropriate technology to avoid these
impacts. At the end of the report, recommendations and conclusions are presented which are
essential to take into account to understand the importance of geothermal energy in producing
electricity in New Zealand.

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Table of Contents
ABSTRACT................................................................................................................................................ 0
1.

AIM .................................................................................................................................................. 3

2.

INTRODUCTION ............................................................................................................................... 3

3.

TECHNICAL ASPECTS AND APPLICATION......................................................................................... 4

4.

COMPONENTS FOR ANALYSIS ......................................................................................................... 7


4.1 Economics of Geothermal Energy ................................................................................................. 7
Financial Barriers............................................................................................................................. 7
Risk Evaluation ................................................................................................................................ 9
Risk Mitigation .............................................................................................................................. 11
Financial Benefits .......................................................................................................................... 12
4.2 Environmental Impacts ............................................................................................................... 14
Geothermal Energy Generation Impacts ...................................................................................... 14
Environmental Impact of Different Suppliers of Electricity in New Zealand ................................ 17
4.3

Social Barriers and Opportunities ......................................................................................... 20

The opportunity to lead the world The potential for New Zealand to become a world leader in
Geothermal ................................................................................................................................... 20
Geothermal: Delivering benefits locally........................................................................................ 22
Impacts on Culturally Significant Sites .......................................................................................... 24
5.

RECOMMENDATIONS.................................................................................................................... 25

6.

CONCLUSION ................................................................................................................................. 26

REFERENCES .......................................................................................................................................... 27

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1. AIM
The aim of the report is to identify all barriers and opportunities in regards to operation of
geothermal plants used to utilize the aforementioned source of renewable energy into
meeting New Zealands populations electricity demand. Taken into consideration are the
externalities, production efficiency and quantity of the energy source, specifically in the
chosen country. With the results from the analysis, it is hoped that this report will
determine the feasibility of geothermal energy in New Zealand, and whether or not
further growth for the renewable source is to be encouraged.

2. INTRODUCTION
With the rise in anthropogenic climate change and increasing greenhouse gas (GHG)
emissions, it is becoming essential to shift the reliance of producing electricity via fossil
fuel to renewable energy sources. Currently, 74 percent of electricity used in New
Zealand is generated from renewable sources. 11 percent of it originates from geothermal
energy.
This report involves a sustainability analysis of geothermal energy in New Zealand by
applying the Triple Bottom Line method. The 3 main components of economic effects,
social impacts and environment effects applicable to geothermal energy are extensively
discussed. The perspectives and roles of all parties both directly and indirectly affected by
geothermal energy usage and development are included in the discussion build up.
Comparisons are drawn between other energy sources, namely fossil fuels, wind turbines
and hydropower.
A description of the technical aspects and application of geothermal energy is presented
to provide sufficient background information to assist with the feasibility analysis as well
as introducing the technology. Finally, a conclusion for geothermal energys future in
New Zealand is drawn from the TBL investigation which also encompasses
recommendations for efforts to further develop the energy source if it is considered to be
a viable source of energy to the country.

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3. TECHNICAL ASPECTS AND APPLICATION


As well as some historical context, this report also aims to provide information on the
technical functioning of geothermal energy and more specifically, electricity. This
information is required to assess the technical benefits and problems caused by geothermal
energy, thus aids in reaching the reports aim.
The Earth generates and stores important amounts of thermal energy which is commonly
known as geothermal energy. This natural heat is located in the different layers of Earth:
core, mantle and crust. Some studies show that the temperature of the crust and the centre of
the Earth vary, having up to 1000 C in the former and up to 4500 C in the latter
(Fridleifsson and Freeston, 1994b). Geothermal energy has consistently been known as a
renewable energy resource since the centre of the Earth has a stable heat flow. This statement
is correct when the extraction rates are considered which means that there is a net balance
between what it is extracted and replenished. In a human time scale this may not be the case
(Fridleifsson and Freeston, 1994b).
Geothermal resources are usually located in the areas of the Earths crust where higher heat
flux cause the heating of existing water in reservoirs at depth (Barbier, 2002). These
reservoirs are mainly formed by permeable rocks that let water to flow through and permit
heat exchange from rock formations with higher temperatures to reservoirs at reachable
depths for successful extraction. Also, the surface formation cold water needs to be separated
in a natural form from the fluid in the reservoirs (Fridleifsson and Freeston, 1994b).
Permeability should allow or prevent fluid movement by varying approximately four orders
of magnitude within sedimentary basins. However, in order to define an entire geothermal
reservoir it is not enough to know the temperature field in an area (Huenges and Ledru,
2010).
Conduction is the mechanism that allows heat move from the interior towards the exterior.
This mechanism makes the temperature rise as the depth increases in the crust, reaching
temperatures of 25 to 30 C/km on average (Fridleifsson and Freeston, 1994b). The thermal
properties of the rocks as well as thermal boundary conditions control the temperatures that
can be found in the crust. As mentioned above, it is possible to get a probable geotherm in
average if there is enough information of the mantle heat flow and heat production in the
crust. However, as the crustal composition is so heterogenic, it causes local variations
obtaining extremely high temperatures at a few kilometres depth (Huenges and Ledru, 2010).
Nevertheless, the depths where most of the earths heat is stored are too big and therefore,
hard to be reached by humans (Fridleifsson and Freeston, 1994b).
Utilization of geothermal energy is usually divided into two types: direct (i.e. thermal) and
indirect (i.e. electric production). Direct utilization has many advantages compared to
electricity production from geothermal energy. One important benefit is that it achieves
higher conversion efficiency values that vary around 50 to 70% as opposed to 5 to 20% for
traditional geothermal electric plants. Also, direct applications development generally takes

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shorter periods of time, and usually a lower initial capital investment is involved. Moreover,
direct geothermal energy uses not only the high temperature resources but can also use the
lower ones; hence, it is easier to apply around the world (Fridleifsson and Freeston, 1994b).
Electricity generated from geothermal energy can be obtained by direct intake or condensing
plants. The least expensive and simplest form is the direct-intake non-condensing cycle.
Geothermal well steam is passed through a turbine and released to the exterior: the turbine
outlet does not count with any condenser (Barbier, 2002). The reason is because these cycles
use around 15 to 25 kg of steam per kWh generated. If the amount of non-condensable gases
in the steam is very high (more than 50% in weight) then it is recommendable to use these
systems. Also, due to the high energy demand to remove the gases from the condenser, the
non-condensing cycle is preferred when the gas content exceeds 15% (Barbier, 2002). On the
other hand, when the gas content of the steam is lower than 15%, then the condensing plants
are more adequate. They have condensers at the outlet of the turbine and the cooling towers
consume less steam with values that fluctuate around 6 to 10 kg of steam per kWh generated
(Barbier, 2002).

Figure 1: Simplified diagram of a geothermal power plant (British Geological Survey


2013).

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In order to produce power from geothermal energy, it is necessary to be capable of


transforming the direct buried energy (geothermal heat) to electrical power. This can be
accomplished by exchanging the heat from the inner parts of the Earth to a surface and
creating facilities that can efficiently turn one type of energy into another (Glassley, 2010).
To do so, it is essential to have the appropriate equipment which comprises a piping complex
that is able to take the high temperature liquids from depth to a turbine facility on the surface.
Here, thermal energy is used to rotate a turbine and thus, it is transformed to kinetic energy.
The next step is to transform the obtained kinetic energy into electrical energy and this can be
done by using an electrical generator. A simple equation shows the amount of electrical
energy that can be obtained from the earth fluid:

Where
is the produced power given in watts (Joules/second),
is the efficiency of
the electrical generator,
is the efficiency of the turbine, and Hg is the speed at which
thermal energy is delivered to the turbine (Glassley, 2010).

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4. COMPONENTS FOR ANALYSIS


The components mentioned previously are discussed in the following sections.

4.1 Economics of Geothermal Energy


Applying the economy component of the Triple bottom Line sustainability measurement
allows a substantial evaluation of the financial aspects related to implementing and operating
geothermal energy plants in New Zealand. The discussion method involves highlighting both
financial barriers and benefits of the renewable energy technology. The partys considered to
have direct relation includes New Zealand government, renewable energy investors,
operating companies and energy consumers.

Financial Barriers
Factors contributing to hamper the progress of geothermal energy come from multiple
sources both globally and locally within New Zealand. Identifying these sources will allow a
thorough understanding of the reasons behind the technologys stunted growth and will assist
in producing an answer to whether geothermal energys development is to be pursued.
On a local scale, the role of the New Zealand government and its stand on the technology is
analysed. The government (enforced by Ministry for the Environment) first introduced the
New Zealand Emission Trading Scheme (NZ ETS) in 2008. The plan serves the purpose of
representing New Zealands primary response to global climate change (Ministry for the
Environment 2013). NZ ETS operates by putting value on greenhouse gases (GHG) to
provide an incentive for industries to reduce GHG emissions. However, as stated by Ministry
for the Environment (2013), geothermal energy is considered as stationary energy sector and
is obligated to surrender New Zealand Units (NZU: value of GHG emissions) to the
government and does not receive any allocation of NZUs. This is mainly due to the fact that
products derived from geothermal energy such as power and heat are not entitled to a
premium that can be levied nor enable production of niche products (EGEC 2013).
Furthermore, NZUs are priced at $25 per NZU which contributes to the cost of operating a
geothermal plant (Ministry of Environment 2013).
The global economy is a major factor towards geothermal energys progress as it
significantly influences the financing of the technology. Salmon et al. (2011) has pointed out
that the global credit crunch and economic contraction which started in 2008 had adverse
effects on the renewable energy financing field. The amount of loan losses and bankruptcies
increased which in turn caused many financial providers to be more risk averse, as
geothermal energy is a high-risk venture it was particularly susceptible. This will be
discussed later in this section. Limited financing for geothermal energy in New Zealand has
caused reduced funding of research and development as well as construction of new
geothermal plants in New Zealand in the same period (NZGA 2010). The government shifted
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its priority of developing renewable energy sources to hydro power and wind turbines due to
its higher potential output in the country. However, after managing to identify electricity
demand shortages due to dry years which heavily impacted hydro power output in 2010,
the government has once again reconciled with the plan to develop geothermal energy to
become a more prominent renewable energy source and encourages more financial
institutions to invest (NZGA 2010).
New Zealand utilizes an array of renewable energy source to meet the countrys electricity
demand. Therefore it is understandable to draw comparisons between geothermal to hydro
power and wind turbines as the other main energy source used by New Zealand. Capital cost
on average for all three energy source are as follows:
a) Geothermal energy = $3500/kW - $5000/kW (NZGA 2010)
b) Wind Turbines = $1700/kW $2150/kW (IRENA 2012)
c) Hydropower = $1000/kW $2550/kW (Oils, D 2013)
It is apparent that geothermal energy has the highest capital cost of all renewable energy
sources on average. However, other factors must be taken into account such as reliability of
energy output. Wind turbines and hydropower for example does not have the consistency in
generating power as compared to geothermal energy as they are both affected by
environmental factors such as low wind conditions and dry season respectively (East Harbour
Energy LTD. 2011).
The most prominent reason of requiring financial investors for geothermal energy is its high
capital cost. Geothermal energy sources have potential to generate output ranging between
3.5 and 5 million dollars of capital cost per MWe (NZGA 2010). The high capital cost is due
to the 3 earliest and highest risk development phases (exploration phases) which consists of
resource identification, resource evaluation and test-well drilling (Salmon et al. 2011). These
are the project phases that differ geothermal from oil and gas exploration. Obtaining
financing for these phases is difficult because it does not guarantee returns to the investors.
Furthermore, upfront capital investments also include installation of plant and equipment
(Hughes G & Diogo W, 2004). Hughes and Diogo (2004) states that geothermal projects
usually require a lengthy period of time before generating revenue which usually cause
investors considerable concern with any risks of project delay. Many large (50MWe or
larger) geothermal projects takes up to 10 years before it is fully developed (Harvey C 2013).
High capital cost is mainly due to geothermal projects being a high-risk investment. Harvey
(2013) states that many of the risks are identical to those faced for any grid-connected power
project but there are additional factors specifically associated to geothermal projects which
further impacts on willingness of investors to fund them. The following section will discuss
geothermal related risks as the main contributor to capital cost.

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Risk Evaluation
Geothermal energy is low-emission, scalable and cost competitive. Its potential for new
investment opportunities is very appealing to the current industry. The investors and
governments all provide the fundamental infrastructure and services to develop and deploy
geothermal technologies. However, the increasing investment in geothermal energy also
brings demands for the highest standards of engineering design, construction and
management. Therefore, evaluating the risks of the project is necessary.
Based on the research, there are two primary types of investors for geothermal energy
projects. One is large traditional energy service companies that have the financial ability to
support their investment. While another one is some small developers who are seeking
investment for project funding. Although, these two types of investors evaluate risks
differently, they both require the access to the infrastructure and returns on the
capitals.(Deloitte, 2008)
In order to do this, there are several fundamental risks that they must analyse. Firstly,
geothermal projects often contain high risks in design and construction phase. For example,
there is a high possibility of drilling a dry hole causing the transmission system built for the
geothermal resources not to be put to use. These risks all can change the project schedule
significantly. Secondly, the regulations made by governments can have a serious impact on
the investment. For example, most of the geothermal resources are located in remote areas,
which are owned by the federal government. The land leasing procedure for developing such
projects can be difficult especially when conflicting with other land use. Lastly, there are also
market risks associated with procurement. For instance, the cost for drilling and materials
used in power plants fluctuates all the time due to changes in exchange rates and other market
forces. Another risk is inefficient management strategies during operation, which can cause
financial losses if productivity of geothermal energy plant declines. The following figure
represents the level of risk corresponding to the stages/activities involved during
development of a typical geothermal project.

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Figure 2: Typical risk profile of a geothermal project (Harvey C 2013)


The risk matrix table below demonstrates the possibilities of occurrence and impacts for the
risks. The red colour on the right hand side means the risks that are more likely to occur and
have a worse influence. In the contrast, the light colour represents risks have lower chance to
occurring and have a lighter impact on the investors. In geothermal projects, the investment is
normally located in the upper right area, indicating higher risk levels. (Deloitte, 2008)

Likelihood
Not likely

Low

Medium

High

Expected

Consequence

Catastrophic
Significant
Moderate
Minor
Negligible

Table 1: Risk matrix table

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Risk Mitigation
This section discusses risk mitigation steps to provide fiscal security for investors to
encourage them to invest in geothermal projects. All mitigation steps will be aimed to reduce
impacts of identified risks related to all phases of geothermal projects development. Key
components of risk mitigation are (ESMAP 2012):
a) Availability of sufficiently accurate geothermal resource data and other relevant
information
b) Access to suitable financing and funding structure
c) Condition of project management
Geothermal resource data is deemed vital as the chances of drilling a dry-hole is possible as
discussed in the previous section. Based on Figure 2, it is also identified that the early
exploring phase (Site survey, exploration, test-drilling) carries the highest risk throughout the
project development. Substantial data of the proposed site is crucial in order to minimize this
risk. A proposed mitigation method by Allen (2013) is to establish a database or portfolio of
previous geothermal projects for reference. Information provided should include methods of
drilling and geothermal identification used in order for future development teams to be able
to identify the best methods required to produce a successful geothermal project.
The financing risks involved in geothermal projects, like any other projects with high capital
cost, is extensive. Financing risk is applicable throughout the projects lifecycle. Risk
mitigation is mainly achieved through an interlocked system of contracts between the project
sponsor and all other implementing parties (Battocletti, L 1999). Contractual agreement must
specify responsible parties when any project risks do occur, and whether the projects cash
flow is sufficient to compensate them for the risks they are being asked to bear.
A competent management team is considered an integral part of risk mitigation. The team is
fundamentally responsible for the development of the project within the timeframe specified
which in turn greatly minimise the cost that is caused by risks. These risks include cost
overruns, construction delays, increased construction costs and finance cost increase
(Battocletti 1999). The management team is usually assisted or consist of consultants, service
providers, contractors and construction companies.
Risk mitigation is inexhaustible, similar to the number of risks, and are also unique to each
geothermal projects. However, the main goal of minimising risk impacts can still be
achieved. With a superior risk mitigation plan, geothermal projects will not have any issues to
obtain funding and attracting investors.

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Financial Benefits
With the rapid growth in the geothermal energy industry, New Zealand has become one of
the worlds largest geothermal markets and is known globally for having the highest
geothermal energy production capacity. (Research and Markets, 2013) The major application
of geothermal energy is either to generate electricity or to be used directly to provide heat. It
plays a significant part in New Zealand energy mix and also brings several benefits to the
local economy.
First and for most, the cost of using geothermal energy to generate electricity is relatively
low, comparing with using other energy like fossil fuel and nuclear power. The latest
geothermal power plant can generate electricity for between $0.05 per kWh and $0.08 per
kWh.(NGC, 2013) Also, the costs for electricity generation by geothermal is not dependent
on the changeable market. Therefore, customers are able to have a stable price. Also,
developing geothermal energy can help the country to reduce the amount of fuel imported
from overseas and diversify the mix of fuels relied on.
Furthermore, geothermal resources are more reliable and safer with higher efficiency. Unlike
other renewable energy source like wind and solar power that generate electricity
intermittently, geothermal energy can provide a long-term sustainable solution for electricity
generation. Geothermal power plants are available to operate nearly 95% of time, while the
typical hydro and wind power plants can only operates approximately 50% of time. (EIU,
2012) The Wairakei geothermal power station built in 1958 is the oldest operating
geothermal power station in the world and can still provide a load factor of more than 90%.
(Research and Markets, 2013)
The tables below lists the power consumption and supply of the three main renewable energy
sources in New Zealand, which are hydro, wind and geothermal power.

Consumption (%
of total)

2010

2011

2012

2013

2014

2015

Hydro

11.7

11.6

11.7

11.1

11.1

11.1

Geothermal

21.1

25.2

25.1

29.0

28.9

28.8

Solar/Wind/Other

0.8

0.8

0.8

1.0

1.0

1.0

Table 2: The electricity consumption for renewable energy in New Zealand (EIU, 2012)

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Capacity (mWe)

2010

2011

2012

2013

2014

2015

Hydro

5388

5398

5408

5418

5428

5438

Geothermal

633

738

738

863

863

863

Solar/Wind/Other

646

646

646

821

821

821

Table 3: The electricity supply from renewable energy in New Zealand (EIU, 2012)
From the table, it is clear that geothermal energy consumes the majority renewable power.
Although, other renewable energy sources such as hydro, solar and wind power face
limitations in abnormal weather conditions hence contribution to the total energy production
during these periods is fairly limited. Hydro, geothermal and wind generation account for
over a significant portion of New Zealands electricity supply. The new NZ $1 billion
investment in Ngatamriki and Te Mihi geothermal power plants will add 200 MW of capacity
and increase the geothermal generation to over 1000 MW. (NZTE, 2013) The government
expects that by the year 2025, geothermal energy will produce up to 22% of the electricity in
New Zealand. (Underhill, 2013)
Last but not least, geothermal resources can provide sufficient funds to the local governments
in forms of property taxes and royalty payments. Geothermal power plants are one of the
largest taxpayers in New Zealand. There are almost 70 companies with geothermal expertise
across the value chain, from the design phase to the construction and management phase. For
example commercial development projects such as greenhouses have paid millions of dollars
in tax every year. It also brings job opportunities. There are approximately 400 full-time
employees and hundreds of professional contract workers that are needed for a large scale
geothermal power plant. (NGC, 2013)
The geothermal industry in New Zealand presents an exciting situation and is recognised
globally. As a key member of Geothermal Implementing Agreement, New Zealand also helps
other countries to develop geothermal energy and provide innovative solutions to develop the
downstream industries commercially.

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4.2 Environmental Impacts


Renewable energy resources, such as geothermal power plants are commonly considered as
environmentally friendly since they release low carbon emissions and low pollutants to the
air or water (Burger and Gochfeld, 2012). Indeed, geothermal power production has several
benefits according to the New Zealand Government in 2007 such as: 1) the diversification of
the countrys energy options, 2) dependable base-load power production, and 3) international
leadership in the development of geothermal technology (Barrick, 2007). However, they
also generate environmental impacts that could be dangerous if not managed properly. It is
necessary then to analyze these potential impacts and compare them with other types of
energy generation that are currently important in New Zealand.

Geothermal Energy Generation Impacts


The main impact that geothermal energy plants can generate is related with the extraction
process and the chemicals released. The energy is obtained by excavating wells that are in the
range of hundreds or even thousands of meters of depth (Fridleifsson and Freeston, 1994a).
The fluid obtained is steam, water, or a mix of both which is then separated into steam and
water fractions. In the first geothermal plants, the steam was directed to the power station
while the water was discharged to open waste disposal sites. This process is highly
contaminating since the separated water usually carries toxic chemicals like arsenic, boron,
mercury and silica that damage the natural water bodies that act as waste receptors. Besides
the polluted discharge, this practice also produces subsidence due to the hot fluid withdrawal
which causes a reservoir pressure decline (O'Sullivan et al., 2013). Nowadays, it is known
that the impacts can be prevented by implementing reinjection of the fluid instead of
discharging in the open water. This contributes to sustainability and reduces subsidence
(Fridleifsson and Freeston, 1994a).
In New Zealand, geothermal power plants used to operate without the reinjection method in
the northern island, at Wairakei and Rotorua in the mid-1980s (Fridleifsson and Freeston,
1994a). Here, the unregulated extraction of geothermal energy caused a major damage of
geysers and hot springs (Kelly, 2011). Subsidence achieved its highest value ever recorded
due to underground fluid removal with up to 10 m (Kelly, 2011). This not only affected the
biodiversity and the water receptors but also tourism, which is why the government
implemented control strategies to prevent the environmental impacts. Hence, the government
forced to re-inject the second phase fluid as well as charged for fluid withdrawal (Kelly,
2011). This measure helped to reduce more than two thirds of well discharge (Kelly, 2011).
However, important geysers could not be recovered despite all the efforts.
In terms of biodiversity, geothermal ecosystems contain unique species that are the
consequence of being at more extreme temperatures and chemical spectra than other form of
life can tolerate (Manen and Reeves, 2012). The geothermal environment hosts thermophiles
bacteria known as a biological prospective element (Kelly, 2011). For example, K. Eircoides
is the main endemic geothermal species in New Zealand and it is considered to be at risk
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(Manen and Reeves, 2012). Some of the factors that can alter the existence of this kind of
species are steep soil temperature gradients, soil and water with high content of minerals,
exposure to steam, excess or lack of nutrients and extreme pH conditions (Manen and
Reeves, 2012).
Geothermal energy production, as explained above, implies extracting steam and liquid. The
steam obtained has a content of non-condensible gases such as carbon dioxide and hydrogen
sulphide (Barbier, 2002). Even though the first one (CO2) is the major component, its
emission into the atmosphere is still lower than the ones for natural gas, coal or oil power
station as can be seen in Error! Reference source not found. (Barbier, 2002).

Figure 3 Comparison of carbon dioxide emission from geothermal and fossil fuel-fired
power stations (Fridleifsson and Freeston, 1994a)

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Another gas that is emitted is sulphur but in small quantities which still needs to be
controlled. These emissions are also very low compared to other energy sources as can be
seen in Figure 3. Some removal techniques have been developed such as burning the gas and
transforming it into sulfuric acid that is a saleable product (Fridleifsson and Freeston, 1994a).

Figure 4 Comparison of sulphur emissions from geothermal and fossil fuel-fired power
stations (Fridleifsson and Freeston, 1994a)

To sum up, geothermal power plants can have the potential to cause negative environmental
impacts. It has been shown along the history of the geothermal energy development that the
lack of good technology has destroyed many unique places such as geysers in New Zealand.
Nowadays, there is enough information to prevent these impacts and different mechanisms
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such as the reinjection of fluids are essential. Policy makers have an important role in
protecting the geysers and hot springs. The New Zealand government made decisions that
caused a negative impact to these hydrothermal formations in the early development stage.
Nowadays, it is possible to predict and avoid such impacts especially after the experience of
New Zealand in the Rotoura and Wairakei areas (Barrick, 2007).

Environmental Impact of Different Suppliers of Electricity in New


Zealand
It is now necessary to briefly describe the environmental impacts that the two other main
sources of electricity generation cause in New Zealand such as fossil fuels and
hydroelectricity. This is important in order to compare and further understand the benefits of
geothermal energy.
As a general rule, non-renewable sources have negative environment effects since they rely
on finite resources which in many cases are located in sensitive areas; for example, highly
bio-diverse places. Unfortunately in the year of 2012 New Zealand experienced an increase
on the rate of electricity generated by non-renewable sources such as gas, coal and oil. This
was mainly caused by a decrease in the rainfall in the year of 2012 to a historically low
record, which had as a consequence the reduction of 4% from the year of 2011 to 2012, in the
share of electricity generated by renewable sources (Ministry of Business, 2012).

Figure 5 Electricity Generations by Fuel Type for 2011 and 2012

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As it can be observed in the Figure 5 the total share of electricity generated by renewable
sources fell from 77% to 73% in the time period of a year. Another thing that must be
observed is the fact that although having a significant decrease in hydropower electricity,
Geothermal kept growing as it was not affected by the low rainfall season. This enhances the
fact that geothermal as a source of electricity might be a good alternative for New Zealand as
with geothermal with a larger supply of other renewable sources, the country would not need
to rely on fossil fuels as a crucial fuel in back-load and peak supply (Ministry of Business,
2012)).

Fossil Fuel Impacts


Fossil fuel power plants produce high environmental impacts in a variety of ways including
water use, land, solid waste disposal, ash disposal (coal) among others. Nevertheless, the
main issue is the emission of pollutants that are responsible for global warming
(VirginiaTech, 2007). In Table 4 a comparison is made between three different methods of
geothermal generation and two fossil fuel sources of electricity.

GASES
RELEASED

GEOTHERMAL
(DRY STEAM)
(lbs/MWh)

GHEOTHERMAL
(FLASH)
(lbs/MWh)

BINARY
(lbs/MWh)

NATURAL
GAS
(lbs/MWh)

COAL
(lbs/MWh)

CO2
CH4
PM2.5
PM10
SO2
N2O

59.82
0.0000
0.0002
0.0000

396.3
0.0000
0.3500
0.0000

861.1
0.0168
0.1100
0.1200
0.0043
0.0017

2200
0.2523
0.5900
0.7200
18.75
0.0367

Source: (Matek, 2013)

Table 4 - Emissions Levels by Pollutant and Energy Source


As Table 4 and Figure 5 show, the greenhouse gas emissions by geothermal power plants are
much lower than with natural gas and coal. Even though nowadays most of New Zealand
geothermal power has the process of dry or flash steam which has some impacts in gas
emissions, it is still less harmful than other sources of electricity (ContactEnergy, 2011). It is
also important to add that currently there are already two binary geothermal power plants
working in New Zealand which are Te Huka and Wairakei plus another one currently under
construction, Te Mihi power station (ContactEnergy, 2011).

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Hydropower Impacts
Hydropower is by far the biggest supplier of electricity in New Zealand as can be seen in
Error! Reference source not found.. Even though the hydropower dams are considered a
renewable source of electricity, their environmental impacts must be taken into account while
comparing to other renewable sources, in this case the geothermal.
It is important to mention that in terms of impacts to the environment, hydropower plants
have positive aspects compared to fossil fuelled plants. They serve as flood control, flow
regulation and they also provide recreation opportunities (VirginiaTech, 2007).
A big impact of hydro power plants is the land use it requires compared to geothermal
energy. They affect the water levels through the length of the river. It is estimated that around
400,000 km2 of land has been submerged worldwide due to construction of dams (Sanguri,
2013). These land impacts may vary widely in function of the topography of the land, the
flatter is the area, the biggest area that needs to be submerged which will incur in more
damage (Sanguri, 2013). Also, some animal species are have been affected with the
construction and operation of hydropower plants such as the Black Stilt, a native bird of New
Zealand which is threaten by extinction due to this hydropower development (BirdLife,
2012).
It is commonly thought that greenhouse gases are not an impact during the operation of
hydropower plants and that these gases are only released during the construction and
operation. However, there are emissions related to the operation of dams which were not
considered before. These emissions will vary accordingly with the size of the dam and the
nature of the land flooded by the reservoir. It has been observed that depending on the
climate conditions, when the area is flooded, the vegetation and soil decomposes and release
both carbon dioxide and methane (UCSUSA, 2013). To make a comparison it is estimated
that life-cycle emissions can be over 0.5 pounds of carbon dioxide equivalent per kilowatthour against a range of 0.6 to 2.0 pounds on electricity generated by gas (UCSUSA, 2013).
In summary, it is clear that the environmental impacts of hydropower are important not only
in considering its implementation during the construction of the dams, but also during its
operation in terms of alteration of wildlife. Also, contrary to what it is commonly held,
hydropower plants release greenhouse gases during operation. The impacts usually are related
to the change in the flow of the river as well as the temperature which might cause aquatic
life to be endangered.

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4.3 Social Barriers and Opportunities


More than just providing a clean and renewable energy source, geothermal energy offers
substantial additional benefits to the people of New Zealand. New Zealands unique
geothermal resources have given it an advantage in developing geothermal power
infrastructure and technology. This has fostered a work force, businesses, and educational
institutions with world leading expertise in geothermal technology. In the context of the
Intergovernmental Panel on Climate Changes 5th report, which underlined the need for
action in lowering emissions, low emission energy sources such as geothermal are likely to
become more prevalent around the world. Thus New Zealand has the opportunity to derive
significant benefits from selling its technical expertise and technology. Because of their
experience in developing geothermal energy, New Zealands energy companies have the
opportunity to invest in geothermal projects in other countries. The proliferation of
geothermal energy projects also presents the prospect of increasing the equity of New
Zealand society. This can be achieved through the distribution of revenue generated for the
owners of land above geothermal resources. Many of these owners are indigenous land trusts.
Thus, the development of geothermal energy has and will continue to provide benefits for
Maori people as money from energy projects flows either directly or indirectly to the local
community. It is in these ways that the development of geothermal energy presents an
opportunity to improve the wealth and equity of society as well as facilitating higher levels of
skills and education for New Zealanders.

The opportunity to lead the world The potential for New Zealand to
become a world leader in Geothermal
Since New Zealands first geothermal power plant was built at Wairakei in in 1958
businesses, scientists and engineers have gained a great amount of experience in geothermal
energy. The collective knowledge and skills accumulated constitutes a form of human capital,
which can be leveraged to bring benefits for society as a whole. It is predicted that the next
few decades will be a boom time for geothermal energy (Boxer et al, 2013) and the chance
exists for New Zealand to use and grow its knowledge.

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Figure 6 - Trial and error at Wairakei, New Zealand has extensive experience in
geothermal energy, taken from Thain, 1998

New Zealand is a world leader in geothermal. It boasts around 70 businesses with geothermal
expertise (NZ Trade and Enterprise, 2013). In addition, institutions such as the University of
Aucklands Geothermal Institute have educated scientists and engineers who work on
geothermal energy projects throughout the world(NZ Trade and Enterprise, 2013). The way
in which New Zealand is at the cutting edge of research and development is demonstrated by
the development technologies such as Joint Geophysical Imaging and 3D Geothermal
modelling (NZ Trade and Enterprise, 2013). Beyond its borders, New Zealands companies
have the potential to invest and gain returns from energy projects in other counties. This is
validated by New Zealand energy company Mighty Rivers investment in geothermal
exploration in Chile(Evans, 2009). In summary, more than just fulfilling its own potential for
the development of geothermal resources New Zealand is well placed to lead and assist the
rest world in exploiting geothermal energy because it has a mature geothermal industry, a
wealth of experience and established educational institutions. Thus there is the potential to
deliver great benefits for New Zealand society, by securing high skill jobs in the booming
high-technology industry.
An exploration of this opportunity can be found in modelling for a scenario labelled the
Energy Revolution by the environment organisation Greenpeace. Greenpeace has estimated
that New Zealand is in the position to reap considerable benefits by capturing a substantial
share the geothermal market. The Energy Revolution Scenario predicts that New Zealand
could capture US$85 to 114 billion of the geothermal market up to 2050 (Boxer et al, 2013).
It also predicts that power from cheap low emission renewable energies such as geothermal
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will help to attract energy intense industries to New Zealand, boosting the economy.
However, the modelling underlying the scenario makes ambitious assumptions about the way
in which New Zealand and the world will tackle Climate Change. The modelling makes the
bold assumption that by 2050 New Zealand will have invested NZ$62 billion in renewable
energies (Teske et al, 2013). In a similar way the assumptions made in predicting the demand
and investment in renewable technologies in the Energy Revolution Scenario should also be
scrutinised closely. The predictions are supported by the assumption that within the next
decade oil and coal production will begin to decease dramatically. The modelling sets out that
by 2050 oil production will be around a quarter of what it is today and that production of coal
will be reduced by half (Teske et al, 2013). The reasoning behind these assumptions is that
these reductions are required to avoid potentially dangerous climate change. However, given
the current lack of international consensus and action these assumptions could prove to be too
optimistic. Putting aside the specific details, the Energy Revolution Scenario nevertheless
emphasises that in an increasingly carbon conscious world, New Zealand society is likely to
prosper.

Geothermal: Delivering benefits locally


Further to providing benefits to the people of New Zealand through economic prosperity,
individual geothermal projects can also increase the equity of society.

The Maori New Zealands Indigenous People


The ancestors of the Maori arrived in New Zealand some time before 1300AD and lived in
small tribal groups developing a unique culture and religion(Royal, 2013). The arrival of
European settlers in the 19th century began a period of malaise for the Maori. Conflict and
disease caused turmoil in Maori society and the number of Maori rapidly reduced. After a
period of rejuvenation in the 20th century the Maori and their culture now hold a prominent
position in the fabric of New Zealand. However, Maori New Zealanders are still more likely
to suffer from preventable diseases and employment and literacy rates are lower for Maori
people than for non-Maoris (Royal, 2013). In an otherwise successful nation, the closing of
the gap between the Maori and the rest of New Zealand constitutes a continuing social
challenge for society.

Closing The Gap a role for geothermal


Much of the land with high quality geothermal resources are located in the North Island of
New Zealand and are owned by Maori land trusts(McLoughlin, 2010). These trusts are be
based around the Iwi groups. Iwi groups are groups of people tracing their decent from a
particular Maori tribe. In conjunction with other activities such as farming and forestry,
geothermal power production can deliver revenue for indigenous land trusts. New Zealands
legal framework is such that the agreement and cooperation of landowners is essential for the
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success of geothermal projects (McLoughlin, 2010) thus involvement of land owners in


geothermal projects is essential. There have been numerous geothermal energy projects
constructed on land owned by Maori trusts. However, the extent to which traditional owners
have been involved in geothermal projects has varied. At the highest level of involvement the
trust has formed its own power company. This has occurred on the Mokai geothermal project
where the Tuaropaki Trust in Taupo has set up the Tuaropaki Power Company (Legman,
2001). Other frameworks that exist include joint ventures, such as the one that exists between
the Tai Tokerau trust and Top Energy to run the Ngawha Power plant (McLoughlin, 2010).
These partnerships create wealth for the land trusts and assist them in delivering better
standards of living for Maori people. Land trusts deliver financial and support to members
and the decedents of Iwi groups. For instance the Tauhara North Number 2 trust which was
involved in a joint venture on the The Nga Awa Purua Geothermal Project, provides support
with educational, health and funeral expenses to its seven hundred members(McLoughlin,
2010). This is an example of how geothermal projects can assist in helping to raise the
prospects of Maori people and help to create a more equitable society.
Despite the fact that traditional land owners already benefit substantially from geothermal
projects, scope exists to exploit even greater opportunities. In 2008, NZ$400 million worth of
state forest and money was handed over to a group of 7 North Island Iwi (Hill, 2012).
Consultants have estimated that the Tree Lords settlement provides the opportunity for the
Central North Island Iwi to form their own power company and potentially achieve returns of
NZ$170 - $200 million per year through generating geothermal energy on their land
(Donoghue, 2009). By creating such a company, it was estimated that Maori could be
responsible for generating 10% to 20% of New Zealands electricity within 5 to 10
years(Donoghue, 2009).
Besides financial support, Indigenous involvement in geothermal projects has additional
benefits. The involvement of traditional owners in the development of geothermal projects
helps foster business skills amongst the Maori community. There is also the potential for
environmental and cultural benefits, through the adoption of the philosophy of Kaitiakitanga.
Kaitiakitanga is a key part of Maori culture and embodies a belief that there is a deep
connection between humans and nature. It encompasses the notion that humans have a
responsibility for the protection and guardianship of nature(Royal, 2013). Indigenous groups
have previously used Kaitiakitanga as a structure to address other environmental issues in
New Zealand, such as the management of fisheries(Royal, 2013). An opportunity exists to
extend its use to the resource and environmental management of geothermal projects. This
will assist in preserving and promoting Maori culture while achieving sustainable
management.

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Impacts on Culturally Significant Sites


The benefits that the exploitation of geothermal energy provides to Maori people must be
weighed against the potential for permanent changes to existing volcanic features. The
production of geothermal energy at Wairakei has damaged natural geothermal features such
as the depletion of hot springs and geysers(Stewart, 2012). There have also been incidents of
subsidence as a result of geothermal energy projects (Stewart, 2012). Given the significance
of naturally occurring geothermal features to the Maori and their importance to the tourism
industry in New Zealand, the depletion of these assets can be considered to cause serious
cultural and economic damage. However, as the management of geothermal resources has
improved these impacts have decreased significantly.

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5. RECOMMENDATIONS
From the analysis above the key recommendations are for:

Increased government support for research and development into technology to


service the geothermal industry. This support should be targeted to keep New Zealand
at the forefront of geothermal development.
Project development should incorporate risk mitigation extensively throughout the
whole lifecycle of all geothermal projects.
Government support for research into enhanced geothermal systems (EGS). (Boxer et
al, 2013). Enhanced geothermal systems are likely to be the next frontier in
geothermal development as they have the potential to broaden the conditions in which
geothermal energy can be extracted. If New Zealand equips itself to be able to provide
support with EGS, then businesses have the opportunity to supply a broader market.
Continued support for educational institutions specialising in geothermal energy such
as the University of Aucklands geothermal institute (Boxer et al, 2013).
An outward looking business focus for New Zealands geothermal industry. In this
way New Zealands geothermal businesses can attempt to secure contracts to perform
work on geothermal projects in other nations.
Attracting the suppliers of the geothermal industry to New Zealand. This could
include encouraging the manufacturers of components used in geothermal systems to
base their operations in designated areas. The obvious location for such a geothermal
hub is Auckland.
Government incentives for indigenous land trusts to become involved in geothermal
energy projects. Such incentives can be justified by the multi-dimensional benefits
they can provide socially and environmentally.
The adoption of a Kaitiakitanga based approach to management of geothermal
resources.
The formation of a Maori energy company made up of the central North Island Iwi
group.
Appropriate available technology to extract geothermal energy has to be used which
minimises the environmental impact that it could cause. The main techniques should
at least include reinjection of fluids to avoid pollution to water bodies and subsidence.
Policy makers have to ensure the protection of geysers and hot springs as well as the
biodiversity that they involve. Episodes such as the ones occurred in the Rotoura and
Wairakei cannot happen again in New Zealand.
Increasing the use of geothermal energy needs to be encouraged from a climate
change perspective since this technology reduces the greenhouse gas emissions.

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6. CONCLUSION
Economic aspects of geothermal energy projects presented in this report revolves mainly on
the apparent financial barriers of developing projects within New Zealand as well as the
economical benefits related to further pursuing it. Roles of implementing parties and project
investors alike were outlined in order to achieve these benefits. It is evident from the research
done that economic barriers outlined can be overcome provided sufficient support is given
from all parties. The economic benefits are substantial and have the potential to outweigh the
costs associated to financial risks, especially when risks mitigation efforts are carried out.
Benefits from further developing geothermal projects such as providing consistent electricity
at a cheaper cost will improve the livelihood of consumers, contribute to the governments
income and give fiscal profit to investors in the long run. The contribution to minimising
GHG emissions from industrial activities is also significant. It is recommended that the
development of geothermal energy in New Zealand is intensified in regards to its economic
benefits.
In terms of environment, geothermal energy development brings many benefits that need to
be considered. This type of energy has minimum greenhouse gas emissions such as CO2
which are negligible compared to the ones of fossil fuel energy sources. Therefore, this helps
to reduce and mitigate climate change. However, the process that is required to obtain the
buried thermal energy could represent a potential negative impact if it is not managed
properly. This means that technology such as reinjection of fluids to the same layer where the
energy was obtained needs to be applied in order to avoid subsidence and polluted discharges
to open water bodies.
From a social perspective the continued development of geothermal projects and technology
in New Zealand will have overwhelmingly positive impacts. The economic benefits of a
world leading geothermal industry will provide benefits which will flow through to society
by supporting employment and educational opportunities in a high technology industry. The
financial benefits Maori land trusts will receive from geothermal projects will also increase
equity and opportunity for Maori people. Consequently, investing in geothermal represents an
unprecedented opportunity for society to benefit.
Thus, the economic, social and environmental opportunities that geothermal energy presents
are significant, while the barriers and negative impacts are manageable. This makes the
continued implementation of geothermal energy projects and associated activities such as
research a very sound investment for New Zealand.

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