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NZ's energy future in a carbon-constrained world


Hon David Parker
Minister of Energy
Minister responsible for Climate Change issues


6 March 2007

Speech notes

New Zealand's energy future in a carbon-constrained world
Address to the inaugural meeting of the Waikato Energy Forum
10:15 a.m. Narrows Landing Conference Centre, Hamilton


Environment Waikato chairman, Jenni Vernon, local body and industry leaders and community groups, I’d like to thank you for the opportunity to address this inaugural meeting of the Waikato Energy Forum.

The title of my talk today is “New Zealand's energy future in a carbon-constrained world”. For without doubt, the world is changing -- and changing very rapidly.

The twin forces driving this change are concerns around security of supply for energy, and global responses to the threat of climate change. Indeed, nations overseas are already implementing measures to prepare for a carbon-constrained world - which raises issues such as the “food miles” debate.

This is why the Labour government has made sustainability a priority. As the Prime Minister noted in her Statement to Parliament a few weeks ago, without a commitment to greater sustainability in our resource use and way of life, we risk not only damaging our own environment, but also exposing our economy to significant risk.

We can aim to be the first nation to be to be truly sustainable, and can aspire to be carbon neutral in both our economy and our way of life.

Sustainability for the energy sector means not only ensuring the lights stay on, but that we do not exhaust our energy resources – or- in the case of climate change – we do not exhaust the earth's ability to deal with greenhouse gas emissions.

So today I would like to talk about how our quest for sustainability impacts on the energy sector, the implications it has for demand and supply, and what it means for policy in this area.

As you are no doubt aware, we released our draft New Zealand Energy Strategy before Christmas. This is a landmark document. This is the first comprehensive strategy for decades, and if implemented it will see energy related carbon emissions decreasing for the first time since industrialisation began in New Zealand. This can be done, and it can be done affordably.

Demand versus supply

It requires us to consider both demand and supply. We tend to focus on supply – but it is important that we recognise the significant contribution that our demand-side response can make. And by “demand-side”, I am essentially talking about you and me as consumers.

One of the issues that the NZES looks at is the role of demand-side response in a competitive market such as we have in this country.

Without demand-side response ability, electricity markets could be more prone to supply failure, price volatility and market power abuses when supply is tight.

Right now, we don’t think the demand-side response currently provided by our market is meeting its full potential.

Price signals are considerably muted for residential customers and small to medium sized business customers just about all of whom are on fixed-price contracts.

To promote demand-side management we need to deploy new technologies, new forms of contract and improved customer awareness.

That's why it is pleasing to see various electricity companies advancing their own initiatives for their customers, including smart meters. For example , I note that Meridian Energy has recently announced the rollout of more than 100,000 smart meters into Christchurch homes, which will allow customers to keep a much closer check on their energy use.

Another very important component of demand-side management is the encouragement of energy efficiency measures. And here in the Waikato, you have a leading advocate for energy efficiency in the CEO of Wel Networks,Mike Underhill - who will be shortly taking up his new role as CEO of the Energy Efficiency and Conservation Authority. Mike is a dynamic and forthright advocate for making people more mindful of the way they use energy -- and I'm sure he will make a significant difference to attitudes about this important issue.

As a country, we can be more efficient in the way we use energy, and there are a range of opportunities to make improvements.

You probably heard recent news stories about the idea of banning incandescent light bulbs. This is a proposal that's come up in Australia, and is certainly something we would consider, after careful consideration of the pros and cons.

One of the gripes people sometimes have about compact fluorescent lamps is that they can't be used on dimmer switches. But it's been brought to my attention that there are dimmable CFLs available overseas – which just goes to show how fast the technology is developing.
I would certainly like to see stronger incentives for people to use energy efficient light bulbs. They use a fifth of the power of a normal lightbulb, and therefore could cut our energy use substantially, if used more widely.

This is but one example of an affordable innovation that can make a significant difference to both energy demand and greenhouse gas emissions.

In the NZES we propose that investment in energy efficiency measures should take place where it is cheaper in the long run, than building extra generation capacity – that's including external environmental impacts, such as the cost of greenhouse gas emissions,which are presently unpriced.

All electricity generation has an environmental impact, so it simply makes sense to look at saving energy where we can. We'll still need more power plants but not as many. Indeed, any of you in business know that it is often much easier to trim your operating costs by energy efficiency, rather than having to generate extra sales in order to pay for higher fuel bills.

Energy efficiency measures can also help contribute to security of electricity supply, by reducing both overall demand, and especially if usage patterns can be modified to reduce peak loads.

As well, such measures also contribute to a broad range of other benefits.
For example, improved building insulation can make people healthier, reduce heating costs and energy-related greenhouse gas emissions, and ease energy supply constraints in winter. Later on in this forum, you will be hearing from the Huntly Energy Efficiency Trust, who are currently helping to insulate1000 homes a year of low income families in the Waikato - which is making a significant impact on living standards and heating costs.

Government's options for actions which target energy efficiency, energy conservation and the use of renewable energy are covered in the replacement New Zealand Energy Efficiency and Conservation Strategy.

One of the criticisms of the previous strategy was that it was too broad brush – the revised NZEECS focuses on implementation by sector, identifying the main measures, policy instruments and who is responsible.

For example, we want to see the development of better products; healthier homes; smarter commercial buildings; increased energy productivity in industry; and smarter electricity networks.

We intend that the government will lead the way through partnership and innovation. Sustainable procurement practices announced by the Prime Minister will give this a very practical boost.

Supply

In the New Zealand Energy Strategy, we have articulated our vision of a reliable and resilient system delivering New Zealand sustainable low-emissions energy.
We are in the fortunate position of being able to produce large amounts of low-emissions electricity from renewable sources such as geothermal, wind and hydro.

Our renewable energy sources are plentiful and cheap by world standards. Therefore it makes sense to maximize the proportion of energy that comes from our abundant renewable energy resources.

The Waikato region is rich in energy resources, many of them renewable. You have:

• Major hydro power generation, particularly on the Waikato River
• Huntly coal-fired power station, plus significant coal reserves
• The new ep3 gas-fired power station at Huntly
• 80% of New Zealand's geothermal fields
• Co-generation plants at major forestry and dairy industries
• Plus significant potential for wind power, wave power and biofuels.

As you will know, the NZES proposes that all new electricity generation should be renewable, except where necessary to ensure security of supply.

There is likely to be enough geothermal, wind and hydro energy to meet our electricity demand for the next 10 to 20 years while still meeting appropriate environmental standards. If marine generation or solar photovoltaic generation become economically viable within this period, New Zealand will be able to utilise predominantly renewable electricity sources for even longer.

With its abundant natural resources, the Waikato region will play an important part in meeting New Zealand's energy needs.

And with 80% of the country's geothermal resources, this region will have particularly important role in further developing this renewable resource.

The role of geothermal energy

Certainly in the debate over the increasing use of renewable sources, geothermal energy hasn’t always received the attention that it deserves – and in my view, its bright future deserves more recognition.

Geothermal energy is an environmentally responsible alternative to energy derived from fossil fuels, because it is a low carbon-emitting source relative to fossil fuels. Carbon dioxide emissions could be significantly reduced if the potential of geothermal energy was to be fully exploited, and thereby assist New Zealand in meeting its commitments under the Kyoto Protocol.

Geothermal energy is renewable, requires no external fuel, and in some instances may cost less than other types of renewable electricity.
It also operates at high load factors.

Our geothermal resource base is large, and is currently the second largest renewable energy source contributing to the national energy supply. About 6 percent of total electricity generation, and 34 percent of primary renewable energy supply, is derived from this source.

One of the considerable advantages of geothermal energy is that supply is not dependent on wind or rain. It therefore has a very important role to play in providing diversity of secure energy supply during dry or calm periods in our weather patterns.

Its importance has received more recognition recently. In the last year or so, Tuaropaki Power’s Mokai extensions have been opened; Contact Energy has commissioned a new steam supply for kiln drying at the Tennon site on the Tauhara field; the Ngawha and Kawerau resource consent appeals have been settled with Mighty River Power starting construction of the Kawerau station and Top Energy gearing up for expansion at Ngawha, and of course Contact has recently made major announcements about its plans for new geothermal generation.

This is good news for the Waikato, and good news for New Zealand – because graphs in the draft NZES, for typical new electricity generation costs, suggest that around 1,000 MW of available geothermal resources could be brought on line at or less than the price of modern gas-fired power stations, excluding any cost of carbon.

The importance of a strong grid

Before I move on to the wider topic of energy resources, I just want to mention the issue of the national grid.

Now this topic has a high profile in the Waikato, because of the proposed high-voltage transmission line passing through this region to service Auckland.

Without discussing the details of this transmission route issue, I want to say that I cannot overemphasise the importance of a strong national grid to support the resilience and reliability of the electricity system – for both energy security and diversity of supply.

A strong grid also plays an important role in the goal of reducing our energy-related greenhouse gas emissions, since renewable generation sources are often located some distance from load centres. After all, it is no good building new hydro, geothermal or wind power generators at remote locations if there is no reliable way of getting this power to the places that need it to generate economic growth.

Transport and bio fuels

The Waikato region is also the centre of a transport hub. In my previous role as Minister of Transport, I visited the Waikato region and studied the complex set of issues which it faces. Therefore the issues of energy and transport are also an important part of the function of this Waikato Energy Forum.

On this issue, I simply want to touch upon the issue of bio fuels, which the government made an announcement on requiring an increasing proportion of cleaner-burning biofuels to be sold to cut greenhouse gas emissions and increase energy security.

Starting in April 2008, the government will require 3.4 per cent of the total fuel sold by oil companies to be biofuels by 2012 through varying mixes of bioethanol and biodiesel.

This is an important step because it will reduce greenhouse gas emissions by more than a million tonnes between 2008 and 2012, and decrease New Zealand's dependence on imported oil while also improving energy security. In addition, the development of a domestic biofuels industry will be positive for the nation's economy.

Bio fuels are an emerging field, which will become an important part of New Zealand's energy mix. Once again, the Waikato region is rich in bio-energy sources, with Fonterra using the milk by-product, whey, to make ethanol, and the forestry companies utilising wood waste-products to generate energy for plants like Kinleith and Kawerau.

In addition, this region has key research facilities like Scion, NIWA, Geological and Nuclear Science and AgResearch who are at the leading-edge of utilising natural resources as future energy generation sources, and working towards breakthroughs in technology that will help reduce greenhouse gas emissions.

The Clean Energy Centre

Today, I am delighted to announce an exciting new project, which has now got the go-ahead with government assistance and the support of business.

The Clean Energy Centre, which last year was offered $2 million in government funding subject to securing $2 million in funding from the energy industry, has successfully met its target. Indeed, the project has proved so successful that it has attracted $6 million in additional funding.

This means that the Clean Energy Centre has the potential to become a national centre for the commercialisation and application of clean energy research and technology.

The Taupo-based operation aims to look at projects throughout New Zealand, and will direct its attention particularly to the direct use of geothermal and bioenergy resources. As you will hear from a presentation later today, the Clean Energy Centre is currently involved in a leading-edge project to make ethanol from willows as a biomass. In addition, the centre will develop other projects involving the direct use of geothermal heat to replace the use of coal at Taupo Hospital and Taupo intermediate school. This will provide the double benefit of saving these institutions money on fuel bills, as well as reducing greenhouse gas emissions.

This is just one of the examples of many of the exciting projects that are occurring in the Waikato region -- and the Waikato Energy Forum is an excellent vehicle for promoting and nurturing your region's role as a leader in renewable energy.

Conclusion

In conclusion, I stated earlier that the government has launched the draft New Zealand Energy Strategy, along with related documents regarding energy efficiency and climate change. These documents aim to set out a clear policy direction for issues such as energy production and use, so that businesses and regions can have greater clarity about the national framework they are working within.

And, as people who are interested in the energy field, I would urge you and your organisation to give us feedback about the draft Energy Strategy, which closes for submissions on 30 March. We want to hear what you have to say.

On this issue of receiving feedback, I want to say that I am delighted to be here today at the inaugural meeting of the Waikato Energy Forum. It is great to see a region taking the proactive stance of bringing together business leaders, local government, community groups and energy innovators to create a dialogue from which a regional energy strategy can flow.

The creation of this Forum is a positive move, because it is from this regional and local level that practical working solutions will surface to help New Zealand develop a forward-looking energy strategy. Your region is rich when it comes to renewable resources, so it’s great to see that you are taking a cooperative regional approach to helping nurture the energy sector and overcome barriers to development.

As I said at the beginning of my speech today, we are entering a brave new world in terms of global energy supply, and the international response to greenhouse gas emissions.

New Zealand is fortunate that we are better placed than most to produce our energy from clean green sources. I believe this will be a point of comparative advantage in a world where carbon is likely to carry a cost in the future.

Here in the Waikato, with your abundance of renewable resources, you have an important part to play in helping New Zealand keep ahead in energy capacity, not just for this generation – but also for the many other generations coming after us.

Ends

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