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NZd’s renewable advantage – moving beyond electricity

Hon Simon Bridges

Minister of Energy and Resources
3 March 2016 Speech
New Zealand’s renewable advantage – moving beyond electricity

Good morning ladies and gentlemen. It’s a pleasure to be at Downstream 2016 this morning.

It’s an exciting and challenging time to be in the energy sector – both in New Zealand and globally.

Technological transformation, changing consumer preferences, a growing international focus on the critical role energy plays in business competitiveness, volatile fossil fuel prices and the need to transition to lower emissions economies all form part of this heady international context.

Globally, New Zealand measures up very well in terms of security of supply, environmental sustainability and energy equity or competiveness - the World Energy Council’s criteria for judging a country’s energy system.

But there’s no doubt that our future energy markets will look very different to the ones we have today. We’re a nation of early and enthusiastic adopters of new technology, which will increasingly give consumers greater choices to meet their energy needs and use energy more efficiently.

This Government has enabled competitive markets and policy settings that provide stability as well as allowing for the changes we are just beginning to see. But we aren’t complacent – the Smart Grid Forum, the Electricity Authority’s work on emerging technologies, and the Government’s own focus in the Business Growth Agenda around addressing barriers to the supply and uptake of new technology and innovation in energy, all demonstrate a focus on ensuring our settings are future-proofed.

These changes will come through evolution not revolution, and our approach leaves us well-positioned to adapt to and nudge new technology that will benefit New Zealanders.

Competition

The Electricity Authority’s Fifth Annual Year in Review, released this week, provides a good stocktake of our progress to date. It shows competition remains intense, is continuing to improve the retail market and is constraining price rises for consumers – with flat to decreasing prices in the competitive part of the consumer’s electricity tariffs.

Small retailers now have over 170,000 customer connections, while the total market share of the five largest retailers has remained steady.

There were record trading levels in the hedge market, significant cost reductions in procuring ancillary services and the spot market handled another dry period well, despite reduced thermal generation.

A record high number of retailers and retail brands are offering a greater range of products and services, such as competitively priced pre-payment services and tariffs based on wholesale spot prices.

And last year the highest number of people switched electricity retailers since 2011. More than 1.8 million consumers have switched providers since 2011, with total estimated savings valued at $207 million.

Challenges and Opportunities

Yet there is some uncertainty facing the electricity sector – both in the medium and the longer term.

While electricity demand was up 1.8 per cent in 2015, the potential for significant demand reductions also remains.

Uncertainty about future electricity demand makes generation investment decisions harder, but by no means impossible.

Supply margins have tightened following the recent closures of Otahuhu and Southdown power stations, and will become markedly tighter if the Huntly Rankine units also close in 2019, before new capacity is brought online.

You are all considering the changing supply and demand implications of thermal plant closures and I expect many of you are busy exploring commercial options to manage future spot price exposures and opportunities to bring forward generation investments.

I’m confident that commercial arrangements will be put in place to ensure we continue to enjoy adequate security of supply as our generation plant and fuel mix evolves.

Another source of uncertainty is the rate at which small scale generation , like solar PV, batteries and other forms of storage, and demand management technologies will penetrate the market, giving consumers greater choice and control in meeting their power needs.

The impact of these technologies will likely evolve more slowly than the more immediate challenge of generation plant retirement and new investment, but over time they are likely to have wide-reaching consequences for the entire electricity supply chain.

All in all, the electricity sector, perhaps more than ever before, is facing significant challenges and opportunities. Traditional business models will change and regulatory mechanisms and policy setting may need to evolve – changes, as I noted, I think we’re well-positioned to grapple with.

Our renewable advantage and energy efficiency

The Government has made a concerted and successful effort on the petroleum exploration and development front in recent years and while global commodity oil price reductions mean the industry is currently going through a challenging period, the sector is resilient and it will recover.

As you are well aware, the argument around non-renewables versus renewables is far too simplistic. We need to recognise that not all non-renewables are created equal and I believe gas will play an important role in transitioning to a lower carbon future. There is no doubt that a gas find off the Canterbury coast, for example, could shift the energy dynamic in the South Island and further afield.

I’m a passion advocate of New Zealand’s renewable advantage, made possible by our rich endowment of abundant energy resources.

We should take pride in our renewable story. We are a world leader in geothermal energy, have world class wind resources, extensive hydroelectricity, and forestry resources as a source for bioenergy. These resources have a key role to play in helping us transition to lower carbon future.

Total primary energy supply is a measure of all the energy used domestically in a country.

In 2014, renewable energy made up 39.5 per cent of New Zealand’s total primary energy supply - a record high that places us third in the OECD, behind only Iceland and Norway – countries which have long been considered world leaders on this important measure.

Nearly 80 per cent of our electricity was generated from renewables last year, another world class figure.

New Zealand’s greatest potential to reduce carbon lies in our process heat sectors and transport sectors. Both have a much larger proportion of non-renewable energy than electricity, making both significant emitters.

Maori-owned dairy-processing company Miraka is a great example of innovative use of process heat. It uses renewable geothermal energy to make milk products and is looking to double production of milk products over the next five years. Miraka sees potential for its renewable base to become more highly valued as consumer awareness and demand for low carbon products grows.

Taupo-based wood products processing business Tenon Limited is another example. It generates about 90 per cent of its revenue in the United States, where customers include two of North America’s largest construction and DIY chains, Lowes and Home Depot.

Tenon uses direct-heat geothermal energy to heat nine timber drying kilns and supply eco-certified products to a range of distributors. Tenon is upgrading its manufacturing site to grow the US business and expand into Australia. In 2014 Tenon’s revenue was US$396 million.

The Energy Efficiency and Conservation Authority (EECA) targets energy consumption and carbon dioxide emissions through a range of programmes - including one involving long-term energy management partnerships with large energy-using organisations representing nearly 40 per cent of all New Zealand businesses’ energy use.

So far in 2015/16, energy savings achieved by large energy users through EECA programmes has resulted in additional direct carbon reductions of 9,000 tonnes per annum.

EECA has also entered into programmes with new businesses that, once implemented, will result in additional direct carbon savings of 30,000 tonnes per annum for 10 years.

The Lower Carbon Meat and Dairy programme aims to reduce the energy used in meat and dairy processing. The programme is on track to meet its target of creating annual carbon emissions reductions of 7,000 tonnes.

There are still savings to be made in New Zealand through electricity efficiency; recent EECA programmes across the electricity sector are expected to save around 180,000 tonnes of carbon dioxide a year.

This progress, together with our increase in total primary energy supply and the growth of renewable electricity generation, shows we are making real gains.

But there is still much more to be done, especially given the changing global context and conversations around our energy future.

Our energy future

We need to continue to build willingness to do things differently, and awareness that energy efficiency and increased use of our renewable potential are critical game-changers.

I’ve long been a proponent of electric vehicles (EVs). Recent research commissioned by EECA shows that across their whole life cycle — from resource extraction and manufacturing to driving and disposal — electric vehicles have 60 per cent fewer CO2 emissions than petrol vehicles. In addition, because of New Zealand’s high renewable electricity generation, they have 80 per cent fewer CO2 emissions when driven here.

EVs have unique benefits, but also present some unique challenges. For example, we need to ensure necessary charging infrastructure is developed. I believe the Government could play a role in addressing such challenges.

My officials have been exploring a wide range of options for encouraging EV uptake, working with industry and local government to develop an electric vehicle package that I hope to soon make an announcement about.

I also believe that, given the rapidly changing energy environment, it is time for the Government to set a clearer direction on what we want our energy future to look like.

To this end I can confirm today that I intend to develop new national energy targets and to replace the New Zealand Energy and Efficiency Conservation Strategy (NZEECS).

The new energy targets would be complementary to our existing energy strategy and supported by the new NZEECS.

While we’re making progress on energy efficiency, we can do more. We also need to improve our energy intensity - the measure of energy used per dollar of GDP.

Setting an ambitious energy intensity target is one option I’m considering. Improving our energy intensity will lead to decreased costs and improve our business competitiveness, which also aligns with the Government’s Business Growth Agenda objectives.

While renewables make up a significant proportion of electricity generation, electricity makes up only 25 per cent of our total energy demand.

We need to broaden our renewable energy use beyond electricity and increase its use in the transport and industrial heat sectors. This is another area where I’m considering setting a target.

And, of course, we already have a 90 per cent renewable generation target for electricity, which I intend to keep.

The targets are about providing direction about our energy journey over time which, ultimately, is about the transition to a lower carbon economy. They will send a strong signal of the Government’s vision for the sector that will also help businesses with capital investment decisions and help align research and development investment with Government priorities – without compromising our ongoing need to ensure security of supply.

We all have a stake in future-proofing our energy system and your views on both the development of the targets and the new NZEECS strategy will be critical. I want to have a conversation on energy targets in the coming months, with a view to finalising target this year. This will be complementary to a broader discussion around NZEECS, which will extend into next year.

Once we’ve developed our thinking a little more, I look forward to engaging in further conversation with you and drawing on your experience and expertise about how we take these next, very important, steps and expand on our progress to date.

I am excited to be part of this evolving sector, which continues to be both an economic and environmental success story.

Thank you.

ends

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