Sustainability and security of electricity supply

Your individual and collective expertise will be crucial to the delivery of New Zealand's energy, climate change and sustainability agendas.

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Address to the Canterbury Manufacturers' Association AGM
5.15pm, 13 August 2007, Mancan House, Christchurch

Introduction

Thank you for inviting me to attend your 2007 AGM. I'd like to pay my respects to two of Christchurch's leading manufacturing and business leaders who have just passed away: Sir Angus Tait and Sir Robertson Stewart.

Energy and sustainability

Tonight I would like to talk about security of electricity supply - and how it fits into the wider framework of energy and climate change issues, and the Labour-led government's vision for a sustainable economy, environment and society.

As part of that, I'll mention some of the opportunities that will arise - and indeed are already arising - for people like yourselves, as we transition to a low-carbon world.

Energy security

Before doing that, I'd like to start by addressing concerns your organisation has expressed in the past, about security of supply issues.

A report sponsored by yourselves 12 months ago had the rather ominous title - "Will it take more Blackouts before we see the Light?".

I have to say that I didn't share that report's pessimism.

We all agree that reliable electricity infrastructure is essential to New Zealand's economic growth.

Energy security is and always has been a primary focus for the government - and we have charged the Electricity Commission with giving it top priority.

The Electricity Commission regularly reviews all available generation, combined with pessimistic hydro inflow modelling, to see if more reserve generation is required to avoid shortages.

I have full confidence in the Commission's predictive methods.

The Commission has recently conducted an independent review of the security of supply policy and will, in due course, recommend to me any refinements that it considers may be desirable.

Both the government and the Commission continue to work in closely with the generation industry in monitoring both publicly announced and confidential projects.

The latest major project to come on stream was the e3p gas-fired combined cycle plant at Huntly.

This has added about 365MW of generation capacity which, by itself, will cover about four years of demand growth.

There are also renewable energy projects at various advanced stages of consenting or construction

I am confident there is and will be sufficient supply margin in future.

You'll also recall that, as a further safety net, the government previously invested in reserve energy- the Whirinaki power station - which generates when supply gets tight and pushes up the price.

In terms of transmission, Transpower is investing $300 m on lines upgrades this year alone, compared with around $50 million per annum in the late 1990s. Over the next decade, it expects to spend $3.6 billion on a major programme of new transmission investment to ensure security of supply.

So, in my view, the security position is sound and improving.

Sustainability

I'd like to now talk about how energy policy fits into the wider sustainability agenda.

As you may know, the Prime Minister called for an increased focus on sustainability.

Sustainability is a major issue for New Zealand and the world. It means we have to progressively change our economy and society to respond to big environmental issues such as climate change, pollution, and wasteful resource use.

Global warming is an indication that that world is not living sustainably.

Our over-reliance on fossil fuels and other non-sustainable practices is leading to changes in our climate, that are expected to become more unpredictable and extreme over time.

We all stand to lose if nothing is done.

Conversely, we all stand to gain, if we make effective changes. Everyone must play a part. That is the position of this government.

Fortunately, just about everything you do in the name of climate change, you'd want to do anyway - such as improving the insulation in our homes to keep us warmer and healthier, and providing incentives for tree planting on erosion-prone land, which improves water quality, to name just two of many aspects of climate change policy.

Energy issues are an integral part of tackling climate change. That's why our draft New Zealand Energy Strategy says our energy policies should:
- Protect security of supply
- Promote energy efficiency measures
- Promote low emissions energy sources

As you know, we are close to finalising the New Zealand Energy Strategy, and its companion document, the New Zealand Energy Efficiency and Conservation Strategy.

Many businesses, groups and individuals like yourselves provided detailed feedback on these draft documents, and I am very grateful for the time and consideration you gave to that.

Officials have been beavering away for some months analysing input and assessing what changes need to be made to the draft documents.

We expect to publish both the final NZES and the final NZEECS in late September or early October.

We'll then make steady progress in implementing them over the next few years.

I've already spoken about security of supply; so I'd like to now touch on the other two underlying goals of the energy strategy: promoting renewable energy, and energy efficiency.

Renewable energy

As you may know, we proposed in the Energy Strategy that all new generation should be renewable from now on, except where necessary to ensure security of supply.

This has already had an effect - Contact Energy is now deferring the construction of a new gas fired plant, which would have produced more carbon emissions, and will in preference be investing 2 billion dollars in wind and geothermal projects.

Mighty River Power has decided against converting Marsden B to coal, and is too focusing more strongly on renewables like geothermal.

This is all great news, and proof that business will respond to clear direction. I believe it is also evidence in support of the view that this will be the lowest cost route for our country and for electricity consumers like yourselves.

To back up our vision for clean energy, we want to provide more regulatory certainty for renewable energy developments.

Therefore as part of finalising the Energy Strategy, we are considering whether to prepare a National Policy Statement and make greater use of the Minister for the Environment's call-in power.

A National Policy Statement would provide policy guidance to local authorities on power projects.

The call-in power refers a consent application to a Board of Inquiry chaired by a judge. It replaces the two-step local authority and Environment Court process.

This potentially results in a faster decision.

It is not a criticism of local government, nor the RMA itself. It could be used where decisions are likely to go to appeal anyway, and saves all parties the time and effort of more than one hearing.

Energy efficiency

In the New Zealand energy strategy we have proposed that investment in energy efficiency should occur when the cost of those efficiency improvements in the long run is less than the avoided costs of building extra generation capacity. Those costs include environmental impacts, such as the cost of greenhouse gas emissions, which are presently unpriced.

Many businesses are already aware of the savings they can make with greater focus on energy efficiency.

They are typically from energy use, either in the factory or the transport system - and the government is here to help.

The Energy Efficiency and Conservation Authority - or EECA - runs an excellent programme for business called "Emprove".

The programme facilitates energy audits and provides information to help businesses capitalise on their energy efficiency opportunities.

Another EECA programme targets energy-intensive businesses, providing grants to invest in new energy-saving technologies that are not yet commonplace in New Zealand.

The fund makes the investment decision easier for the business and, in return, data and results are gathered and shared with similar businesses to encourage widespread uptake.

The result is less energy used -fewer greenhouse gas emissions, and improved productivity.

One example is Tegel Foods.

They company worked with EECA to reduce emissions from one of our largest poultry plants.

It has now implemented a heat recovery system that looks set to save more than $110,000 in energy bills, plus 600 tonnes of carbon dioxide emissions a year.

The bulk of the work on this project was done by staff at the plant.

At the other end of the country, Comalco has cut its emissions substantially compared with 1990 levels, at the same time as increasing production by 26 per cent, principally as a result of improving energy efficiency.

As a result of working with government, the plant is on a path to world's best practice in emissions management.

This demonstrates the success of government taking a partnership approach.

These are great results for the environment, the bottom line and the competitiveness of these plants and their workers.

It's no coincidence that the most efficient user of energy in the world - Japan - is also very efficient in its production.

Emissions trading

We want to provide greater incentives for firms like Tegel and Comalco to make these kinds of changes.

We want climate-friendly behaviour to be more attractive.

At the same time we want to discourage climate-unfriendly practices, that harm the environment and cause a cost to the country.

That means, over time, moving the responsibility of paying for those environmental costs, to those causing the pollution.

One way of putting a price on greenhouse gas emissions is through an emissions trading scheme, which is something the government is looking closely at right now.

A "cap-and-trade" emissions trading scheme is a market-based means of reducing greenhouse gas emissions.

Participants in such a scheme have to account for their emissions, by buying or being allocated a share of the capped emissions permits.

Those who can reduce emissions for less than the market price of emissions, can cut their emissions and trade the credits with those who find reductions more difficult.

You'll know that our emissions come mainly from -
 Methane and nitrous oxide from ruminant animals and fertiliser;
 The petrol and diesel we burn in our vehicles;
 The gas and coal we use to provide heat and power, and as an input to industrial processes;
 The carbon dioxide released from forests that are cut down and not replanted; and
 Methane from waste.

Feedback from consultation on climate change policy show a clear preference from stakeholders for a broad-based scheme.

The feedback was, that all should play a part, bearing in mind some sectors can reduce emissions more easily than others.

Therefore, we have indicated we would like any scheme design to be economy-wide, including all sectors and all gases.

Many details need to be considered before a final decision can be taken.

These include the timings for the introduction of each sector, the transitional path for emission reduction, and the quantity of emission rights allocated to each sectors.

The introduction of greenhouse gas emission pricing will have an impact on energy prices - but it will be lower in New Zealand than for most developed countries, due to our high use of renewables.

The government is looking at mitigation options to assist business and residential consumers through the transition to a low-emissions energy system.

Cabinet will consider these issues in detail over the next few months.

We are not out on a limb. The European Union already has emissions trading in place. Australia and various states of the United States including California are looking very seriously into their equivalents.

Having recognised the urgency in taking action on climate change, much of the world is moving towards putting a price on emissions, so as to encourage lower emissions alternatives. We are moving in the same direction.

Opportunities

The result of this global determination to reduce emissions, is that the world is crying out for innovative solutions that will drive emissions down.

There is an explosion of investment in these new sustainable technologies, akin to the digital boom of recent decades.

New Zealand companies are responding to this. One, with links to Christchurch, is the Aquaflow Bionomic Corporation, which has worked out how to make biodiesel from the algae which grow in sewage pond sludge, thereby cleaning up the water, at the same time as creating a renewable fuel.

If they can produce this commercially, they will be onto a fine thing. It's reported they are working with Air New Zealand and Boeing to create an aviation biofuel, which is something of the Holy Grail of the biofuel world.

Another locally based company, Designline Buses in Ashburton, is making hybrid electric buses and exporting them around the world.

Windflow Technologies, a homegrown wind turbine manufacturer, now has shareholder backing from Vector.

Government support has helped bring forward wind power use in this country; now we are looking to do the same thing with marine technology, through a fund that will be launched later this year.

You've probably heard of the Marlborough winery, Grove Mill, which has taken advantage of the overseas appetite for low carbon goods, and is producing carbon neutral wine. I understand that as a direct result, its business with one of the UK supermarket chains, Sainsbury's, has increased by over 100 percent.

So there are opportunities for businesses and entrepreneurs.

There are also risks to be avoided - the "food miles" argument is being used by some producers in the UK and Europe to try to argue for boycotts against imported produce, especially from distant countries like New Zealand.

We may be more efficient producers than they are - and studies by Lincoln University have proved this - but this risk remains. We trade off our clean green image; it adds value to our products. We have to protect it, not only through marketing but by making sure the reputation is based on reality.

A further illustration of risks and opportunities comes from the Ministerial car fleet. We've required that whole of life costs are included when cars are purchased for this fleet. The tax payer can make savings in fuel and emissions by choosing more fuel efficient cars. The losers in this equation are Aussie car makers, whose cars no longer fit our requirements. Instead, we're buying fuel efficient diesel cars from other places.

There are also growing opportunities for business, especially as energy efficiency measures become more mainstream.

It is clear that there will be increasing business opportunities for those with specialist skills, required to accelerate the uptake of more efficient industrial motors, lighting, heating, cooling and processing systems.

More people are also needed to deliver the increase in domestic solar hot water systems that we want to see in place, and to deliver home energy efficiency through heating and insulation retrofits.

I believe we have the potential to build New Zealand's economy by developing and implementing sustainable technology, ideas and practices.

We have some of the world's best engineers and scientists, and our workers are among the world's most flexible and practical.

Perhaps it's the legacy of our "number eight wire" ingenuity.

As entrepreneurs, you are better placed than many to understand the range and diversity of energy sector and climate-related challenges and opportunities we face.

And I hope that you will actively lead the roll-out of some solutions to these challenges.

You have a unique capacity and an ethical responsibility to be part of the solution.

You can do this by helping to shape public thinking, and by influencing the choice and uptake of climate change mitigation and adaptation measures.

By acting in this way you will truly be setting an example to other areas of our society.

From a strategic perspective, I would like to raise a couple of issues for your consideration.

While technology is an important tool, it needs to work in parallel with behavioural solutions to climate change.

Technology investment decisions are made by people - and these decisions are critically influenced by people's emotions and attitudes.

Influencing New Zealand's future energy consumption patterns is about more than just marketing cost-effective products.

We need to focus on meeting consumers' energy service needs in less carbon-intensive ways.

For example, just as telecommunications can increasingly substitute for physical travel - so too, passive solar building design can substitute for artificial heating and lighting.

There is growing demand for environmentally-friendly and creative ways for people to meet their needs for such things as transport, comfortable living environments and light.

Opportunities also lie in improving consumer demand responsiveness -
through developments such as interactive smart meters and intelligent building control systems.

Further opportunities lie in the deployment of renewable electricity generation and distributed power sources.

Your individual and collective expertise will be crucial to the delivery of New Zealand's energy, climate change and sustainability agendas.

Government can't deliver them alone - but it accepts a responsibility to lead.

It will take Kiwis up and down the country to all do their bit - at work, at home and while travelling - to cut emissions and transform our economy.

I encourage you to make use of your expertise in your chosen fields to help New Zealand transition to a better carbon-neutral future.

ENDS

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