NZ's renewable energy future
Thursday, 4 October 2001, 4.00pm
NZ's renewable energy future
[Address to New Zealand Wind Energy Association conference, Wellington]
The last time I spoke to you was in early April of this year, just a few days after I had released the draft National Energy Efficiency and Conservation strategy.
A week ago I released the final version of the strategy. I believe it is a real milestone in the development of the New Zealand energy sector and I want to explain why today.
Before I get onto that, however, I want to make a few quick points about some other recent matters of relevance to this conference.
First is the passage of the Electricity Reform Amendment Act in July.
This has opened the way for lines companies to invest without limit in renewable energy projects, a change that opens up new opportunities for your industry.
Lines companies are by no means the only potential investors in renewable energy. But there are situations where they will have strong incentives to undertake or be partners in such investment.
Lines companies are likely to have a focus on distributed generation. Wind power will be one of their options for that. No doubt you will want to make sure it is an option on which they have plenty of information.
The second matter I want to mention briefly is the nation's brush with a possible electricity shortage this winter.
The low inflows to our hydro lakes this year have highlighted the vulnerability of our electricity system to the weather. We have had a sharp reminder of the risk associated with our high level of hydro generation.
Clearly there will be benefits in managing this risk from diversification of our electricity sources. It is clear also that building more gas-fired power stations should not be our only source of diversification, given our international obligations to reduce greenhouse gas emissions. So non-hydro renewable generation will have to increase as a proportion of new generation in coming years.
Thirdly I must mention the rescue of the Kyoto Protocol at the negotiations in Bonn in July.
Against prevailing expectations that meeting resulted in agreement on the rules needed to implement the protocol. The protocol is now ratifiable and the Government has reaffirmed its intention to ratify in September next year.
We are working hard to develop policy that will ensure we meet our obligations under the protocol in the most cost-effective manner. The first major phase of public and sector group consultation begins a little over a week from now. I am sure your association will have a constructive contribution to make.
My final brief point concerns a phenomenon that many of you will be well aware of — the very large increase in investment in wind energy in Europe and the USA. There are also large new investments in solar energy.
Production costs continue to fall for the emerging renewable energy technologies. Over the last 20 years, for wind and photovoltaic energy in Japan and the US, there has been about a 20% decline in cost for each cumulative doubling of production.
Internationally the energy supply environment is beginning the fundamental and very significant change away from fossil fuels towards renewables . This change is gathering momentum as renewable energy technologies mature.
That brings me to my main topic today, the National Energy Efficiency and Conservation Strategy.
The strategy embeds this Government’s commitment to a progressive transition to renewable sources of energy. That is why we have set a renewable energy target.
Before I go into that more, I want to highlight some of the strategy's other important elements.
It is New Zealand’s first energy efficiency and conservation strategy – long overdue in my opinion. I want to acknowledge the Green Party co-leader Jeanette Fitzsimons’ contribution. It was her private member’s Bill that led to the Act that requires the strategy.
Beside progression to renewables, the other key goal of the strategy is to improve energy efficiency and energy conservation.
The strategy sets a target of at least a 20% improvement in energy efficiency across the economy by 2012. This would require double the current rate of energy efficiency improvement, which should roughly halve the rate of growth in our energy consumption.
We believe this is a challenging but realistic target.
Indicative estimates of the present value of the gains over the next 10 years, from energy savings alone, are $2.0 billion against an investment of $1.1 billion. These are large numbers and require substantial investment by energy users, government and third party funders. But the payoff – both to the individual and the nation – is clearly there.
Benefits from reductions in carbon dioxide emissions are on top of this. So are the benefits of the reduced private and public health costs that are expected to flow from the strategy’s programme to upgrade the energy efficiency of the pre-1977 housing stock.
Now to the part of the strategy that deals with renewable energy. That is your main area of interest, I know, and it has been the most difficult area of the whole strategy to develop.
You will recall that the draft strategy’s target for renewables was “to increase renewable energy supply by a defined quantity by 2012”. By March, when the draft strategy was released, we had not had time to do enough background research to reach an informed view on what that defined quantity should be.
Let me mention just a few of the complexities.
One is that the scope for additional renewable supply depends on the total demand for energy, and there are considerable uncertainties about the level of demand in the future.
Another will be the extent to which we achieve the strategy’s energy efficiency target. The more successful we are at improving energy efficiency, the less demand there will be for additional renewables.
On the cost side, renewable energy technologies are advancing very rapidly, as I noted earlier. This creates uncertainties about how much renewable supply will be cost-effective, and when.
Another factor is that the benefits and costs of renewable supply can vary considerably from site to site. The variables include both the quality of the resource – the wind, for example – and the environmental effects of using it.
You are all very familiar with the difference in environmental effects of the Tararua wind farm site compared to the suggested Baring Head site. Similar considerations and uncertainties will affect other new renewable generation proposals, such as Meridian Energy’s proposed hydro scheme on the lower Waitaki
Infrastructure considerations also come into play. For networks such as the electricity system, the costs of overcoming transmission constraints in a specific area can create a premium for embedded renewable generation that is in the right location. There can be similar premiums for generation that improves the quality of supply.
A further important issue for this government is consideration of the business and economic development benefits opportunities that might come from pushing growth in renewable supply faster than it would otherwise occur.
The final complexity I'll mention is the relationship between renewables policy and climate change policy.
Greater use of renewables as a result of the strategy will contribute to our climate change response by reducing carbon dioxide emissions. At the same time, the market-based measures being considered as part of our climate change response are likely to result in a greater use of renewables. So renewables policy and climate change policy have to be integrated and mutually consistent.
In this area, to some extent, we will be learning by doing. Nobody can be sure how much we might reduce the cost of meeting our climate change obligations in 2008-12 by pushing the development of the renewables sector in the shorter term.
A renewables target, particularly if it is a mandatory target, will have important implications for all New Zealanders. If we go too high, the costs will outweigh the benefits; if we go too low we risk short-changing ourselves.
In the six months since the draft strategy was released we have made a lot of progress on these issues, but the work is not yet finished. So the strategy has a quantified range as the target for renewables: it is to increase renewable energy supply to provide a further 25-55PJ of consumer energy by 2012. That's an increase of 19 to 42 percent.
In developing its renewables policy, the Government is looking across the whole economy. We want to ensure that the effect of the policy is to stimulate investment in those renewables that, taking a longer term perspective, are most cost-effective.
I expect this is likely to include renewables for process heat, some solar water heating, possibly some renewable transport fuels, and of course renewables for electricity supply.
Take transport as an example. It is a major energy user with insignificant renewable energy usage, and it is growing fast. Ethanol has been blended with gasoline in the US for 20 years, and Australia sold 70 million litres of ethanol into the transport fuel market last year.
While there is debate about the current cost of biofuels for transport in New Zealand, there is no doubt that there are opportunities for innovators to bring these products to consumers. For example the dairy industry has streams of by-product such as whey that could be turned into ethanol for blending with petrol.
Another renewable energy opportunity exists through the conversion of waste wood into energy. The strategy the government is developing in partnership with the forestry industry to increase domestic wood processing will create opportunities to use more wood waste for industrial process heat. In some cases that waste could generate electricity as well.
There is clearly a future for wind energy in New Zealand. Wind power is the world’s fastest growing energy source and it is a significant global employer, with huge potential.
In 1999, there were an estimated 86,000 jobs worldwide in manufacturing and installing wind turbines and that has doubled in the last two years. By 2020, the Worldwatch Institute predicts that wind power may account for 10 percent of all electricity generation and employ 1.7 million people.
I also believe that the use of solar energy, particularly for domestic hot water heating, will increase under the strategy. And I am aware that other technologies, for example wave energy, are being carefully looked at for niche applications.
The choice of policy mechanisms to achieve the strategy’s target for renewables needs to take proper account of the different needs of the various renewable energy sectors. The strategy’s list of possibilities includes both economy-wide and sector-specific measures. As we work on refining the renewables target we continue to evaluate these options.
The list of mechanisms in the final strategy that could be used to achieve a renewables target is almost as long as the list that was in the draft strategy. But it is not the same list. The work that has been done over the last six months has helped to bring the most important issues into clearer focus.
Your association has criticised the strategy for, to quote your recent press release, having "no 'how much' and 'by when' renewable energy target.
That surprises me. As I've mentioned, the 'how much' is 25-55 petajoules and the 'by when' is 2012. It was a lazy comment and it didn't do anything to advance the debate.
If you want to have some influence, as an association, I'm afraid you'll have to come up with some more reasoned and constructive criticism than that.
From now until next February officials will be working towards a provisional refined target or targets for renewables. We will be looking to specify policy mechanisms and to identify the preferred form of enabling legislation if required.
There will be a report back to Cabinet on these matters by mid-March next year. In the latter part of March and April there will be a formal consultation process with stakeholders and interested parties. And in July next year Cabinet will consider the final package.
This work programme is synchronised with the work programme on climate change through to the middle of next year.
Following the Government’s decisions on a final target and specific mechanisms there may still be detailed design and implementation issues to be worked through, again in consultation with key stakeholders. There may be legislation to pass.
Some measures may be ready for implementation next year. But if a more complex manadatory mechanism is chosen, the aim is to have it firmly in place and working by November 2003.
I expect that many of you will want to contribute to this process.
Feedback to the Ministry for the Environment and EECA project team on the strategy’s target range and mechanism options will be welcomed through to December of this year.
There will be a formal consultation process in March/April next year. Documentation will be released beforehand to inform this process.
If you wish to be involved in the consultation you are invited to register your interest on the EECA website or by otherwise making your interest known to the Ministry for the Environment or EECA.
A vigorous, constructive New Zealand Wind Energy Association will be a great help in achieving the strategy’s target for renewable energy. So will advocates for other renewables, so I am pleased to note that the Bioenergy Association of New Zealand is being launched tomorrow at this conference.
I am also pleased that moves to form an umbrella organisation, Renewable Energy New Zealand, are well advanced. Renewable energy is a sector that requires a strong voice at this time. I look forward to hearing it in the coming months.