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Pete Hodgson: A sustainable energy future

Embargoed until delivery, 10am, Friday 16 June 2000, Sheraton Hotel, Auckland. Speech Notes

A sustainable energy future: address to the Electricity Engineers' Association annual conference

Thank you for inviting me to your conference.

The conference theme of a ‘sustainable energy future’ lies close to the heart of the Government’s energy policy. I congratulate you on your choice.

The Government is committed to a sustainable energy future. Energy powers our nation and impacts on New Zealanders’ lives every day. Yet most of the energy we use is in the form of non-renewable fossil fuels. Our economy is therefore powered unsustainably.

It is fitting that engineers should look up from their work from time to time to focus on strategic issues. Where you are heading is most important.

Engineers are typically inventive and practical. These skills are critical to bring about more energy efficient energy supply, as well as more efficient end-use technologies and practices. Any way you look at it, engineers will continue to be central players in the drive towards making New Zealand’s energy use more sustainable.

Unfortunately we have a long way to go before New Zealand can be considered energy efficient.

Some of you may have heard of Dr Lee Schipper, an internationally recognised energy analyst who led an International Energy Agency research team in a four-year study of energy intensity in New Zealand and other developed countries, commissioned by the Energy Efficiency and Conservation Authority.

His study confirmed what I’ve said for years. New Zealand has the energy use habits of a highly developed country, but the GDP per capita of a lower-ranking country. He says we have champagne energy tastes on a beer budget.

What’s more, we can expect to face growing energy demand and upward pressure on energy prices as the economy grows and pushes up energy-related greenhouse gas emissions.

Clearly this research reinforces the need for New Zealanders to take energy efficiency seriously – and government is taking the lead by shifting the policy focus from energy production to more efficient energy consumption.

We have lost the plot in recent years when it comes to energy efficiency and the value of renewable energy sources. That’s very worrying for a country trading on a clean, green reputation.

As part of the Budget the Government has boosted EECA's budget by $3 million for the upcoming financial year. This is a substantial improvement on what was planned by the previous Government, which had been arranging a $2.5m cut.

Jeanette Fitzsimons' new Energy Efficiency and Conservation Act has finally been passed after a prolonged and difficult two-year passage. The Energy Efficiency and Conservation Authority now has statutory recognition. It is, at last, a Crown Entity.

One of EECA’s first tasks will be to take a lead in developing a National Energy Efficiency and Conservation Strategy, as provided for in the Act. It is critical that the Strategy incorporates the collective wisdom of business, environmental and professional groups and I urge you to take part in this process.

Not too many years ago sustainable energy use was confined to articles about house buses and hermits' dwellings. I’m pleased to see it being explored and invested in by mainstream industry. Rhetoric needs to meet reality.

More efficiency measures need to be implemented and more renewable energy generation needs to be built if we are to call our energy system sustainable.
New Zealanders demand guaranteed availability of energy, as citizens of every modern nation do. But there are no easy, cheap and sustainable answers to the energy questions of New Zealand.
So how are we to meet future demand without resorting to more large power stations or steeply rising prices?
How will we meet that demand and meet New Zealand’s international obligations regarding carbon dioxide emissions, especially as those obligations inevitably tighten?
How will we make sure energy is priced in line with its cost, while ensuring it is affordable for all?
How will we improve the efficiency of our nation’s energy use, or conversely reduce our energy intensity, so that we can begin to catch up with many other developed nations?
The Government is tackling these issues in depth. The scientific consensus is that the increase of CO2 in the atmosphere is reflected in the early signs of global warming. New Zealand must change course, as must the rest of the world.
The Government strongly supports the progressive upgrading of electricity generation efficiency. We also plan to look closely at issues associated with the decentralisation of generation as technology advances are made. I am pleased to see you are discussing both these important issues during your Conference. We see a bright future for some renewable technologies and some efficient non-renewable technologies. Inefficient thermal plant will inevitably be phased out.

The new context for energy policy is climate change. As you will know the Prime Minister recently announced New Zealand’s commitment to ratify the Kyoto Protocol in 2002. The Government is focused on what is required to meet this challenge. I am co-ordinating the ministerial committee on climate change. It’s not mission impossible, but it’s mission very difficult. It’s a large job, a long one and one that we need to do very carefully and very well.

Now let me tell you a bit about the report of the Ministerial Inquiry into the Electricity Industry.

It is a very well-considered and high quality piece of work from the team led by the Hon David Caygill.

The panel was given a huge task. I want to thank them for accepting the challenge and producing a concise and coherent report. It will be of major benefit in helping the Government to get the electricity sector back on track.

I understand that your Association made a submission and appeared before the Inquiry. As you know, the Inquiry was asked to assess the extent to which the current regulatory regime meets the Government’s objectives for electricity and, if it does not, to make recommendations for amendments.

The key issue of concern with the regulatory framework that your Association raised with the Inquiry was the difficulty being experienced by electricity line companies in gaining access to their existing works. This is most important for ensuring security of supply for electricity consumers.

Your Association suggested that the Inquiry look at importing into the Electricity Act the approach used in the Resource Management Act. This would allow work on lines that does not result in additional environmental impact to be regarded as maintenance.

You will be aware that I released the Inquiry report on 13 June. I don’t know if you have had an opportunity to study it yet.

If you have, you will note that the panel has accepted the importance for consumers of a secure supply of electricity and has made recommendations aimed at clarifying and reinforcing the lawfully fixed nature of electricity lines.

Specifically, the panel has recommended that the Electricity Act is amended to clarify that:
 Lines meeting certain tests (for example, that the landowner has not objected to the presence of the lines within specified periods) are deemed to be lawfully fixed;
 Work that does not result in additional environmental impacts is regarded as maintenance; and
 The point of supply is at the boundary of the consumer’s property.

The inquiry panel has recommended a comprehensive and principle-driven approach to improving the efficiency and fairness of the electricity market.

I am particularly pleased to see a focus on the needs of consumers - including a recommendation for majority representation of independent members on the proposed new single market governance board.

From an energy sustainability standpoint I note that the panel has put forward a suite of measures to improve demand-side participation and energy efficiency. One of the Government’s objectives for electricity is that it be delivered in an environmentally sustainable manner. The panel noted that the market alone is unable to achieve this objective. They cite various externalities as major obstacles.

The report notes that the Resource Management Act provides a strong legislative framework for balancing the community’s competing interests in the use of natural resources. The RMA is said to provide better for one-off locational decisions than ensuring the ongoing protection of the environment.

The Panel made particular mention of recent concerns expressed by the Parliamentary Commissioner for the Environment. Many of the concerns have been substantially addressed by the Panel.

In summary, the Panel’s major recommendations on energy efficiency, sustainability and the environment are to:

 limit fixed charges to no more than about 25 per cent of the typical household’s electricity bill;
 have EECA monitor fixed charges and refer the matter to the Commerce Commission if this percentage is exceeded;
 amend transmission charges to promote co-generation and
 foster distributed generation through improving terms and conditions for connecting to the network.

Other recommendations in the report are also likely to contribute to improved energy efficiency and reduced environmental impacts. For example:
 development of a real-time market to enhance opportunities for demand side management;
 introduction of short and medium term projections of system adequacy;
 development of financial transmissions rights;
 compulsory membership of the new market arrangements for generators, retailers, distributors and Transpower;
 amendment of the Electricity Industry Reform Act to permit trusts to establish mirror trusts without time restrictions;
 allowing distribution companies to own generation covering up to 5% of their network’s maximum demand, or to keep present generation up to a maximum of 5 megawatts, whichever is greater;
 establishing a methodology to pass the benefits of avoided transmission charges through to distributed generators.

I welcome these and the other proposals as promising innovative ways forward for the electricity industry.

Many people, especially the news media are trying to read the tea leaves and discern the Government’s response and my response, especially concerning what form any regulation of lines companies might take. They are wasting their time. I am a pretty open person. I openly welcome the report. I openly state that the Government will carefully consider each and every recommendation and announce decisions. But that will be the process. Between now and then there will be no hints, no nods and no winks.

Legislation is likely, and I expect to introduce this in October. This will, of course, be referred to a Select Committee, which will give you a further opportunity to make comments and submissions as you see fit.

Over this next year I will be looking to address the issues raised by the Inquiry and begin developing the National Energy Efficiency and Conservation Strategy. These steps, taken with industry and public input, will bring New Zealand closer to the sustainable energy future that you are discussing over the next two days.


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