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Energy Sustainability. Are we going backwards?

Jeanette Fitzsimons, Green Party co-leader

Address to Energy 2000 Symposium

Auckland, Monday August 28 2000

Energy Sustainability. Are we going backwards?

NZ's energy system has never been sustainable - nowhere in the world has achieved that. But it did at one stage have some claim to being cleaner and greener than most.

At one stage all of our electricity was hydro - damaging to local river ecology and hydrology when built, but producing no harmful emissions and no contribution to climate change in its use. Over the last thirty years the renewable proportion of our electricity system has progressively shrunk with the building of more and more thermal generation and in the last couple of years even the total amount of electricity generated from the same water flows into our hydro system has shrunk, suggesting that market games are taking precedence over efficient water use.

We had, once, the world's largest CNG fleet, both as a proportion of our total vehicle fuel use, and in absolute terms. Locally produced, around 20% less carbon dioxide per km and very much lower local air pollution. It could have grown further from over a tenth to about a third of our vehicle fuel demand. Instead, it has collapsed to the point where living in Thames with a CNG car, the nearest I can get fuel is Auckland, Tauranga or Morrinsville.

Governments, motorists and industry must all share the blame for this.

The latest figures produced for the Energy Data File show a 25% rise in oil imports in just one year to March 2000, offsetting an 18% reduction in local production. Use of all fuels rose in the last year except for what is now our cleanest transport fuel, LPG, which decreased. Total primary energy use rose by 3.1% - faster than GDP or population.

We had, once, an element of frugality and common sense. When I went to London in 1968 I deplored the overheating of public buildings which required stripping down to shirt sleeves inside when it was minus zero outside. In NZ we would have worn a pullover at work quite comfortably. Now we have overheated buildings in winter, overcooled in summer, overpowered cars and seem unable to walk to the nearest shop.

This is the "browning of NZ" described in the conference flier. It is one of the greatest strategic threats to our economy, our social wellbeing and our environment and we ignore it at our peril.

It is a threat to our balance of payments deficit which is already severe enough to have driven the dollar to unprecedented depths, because we have wasted our way through the period of energy self sufficiency created by the Maui and McKee finds and from here on imports will increase whatever we do.

It is a threat to our security because thirty years ago world oil discovery peaked and internationally we are now finding only one barrel for every four we use. That information has been around in the oil industry for a long time and is the reason Shell Head Office planners were able to tell me over a year ago that they expect world demand for oil to outstrip the capacity to supply sometime between 2005 and 2010. The recent petrol price increases are an early warning and they are not a temporary aberration. Shell expects half the world's energy to have to come from renewables by 2050. As in the seventies oil shocks, we are at the end of the tankers' range.

It is a threat to our environment and hence to our economy because evidence of human caused climate change is accumulating. The Third Report of the Intergovernment Panel on Climate Change due next January is expected to strengthen its warning that energy policy must change to avert the worst of the impending disaster. NZ has agreed under the Kyoto Protocol to reduce our greenhouse emissions to 1990 levels - a target that is merely the first step towards stabilising climate, but since that date our emissions have risen faster than any other developed nation. They are now about 20% above 1990 and with no policy change will be 30% above by the legally binding date of 2008.

It is a threat to our markets and our trade because we tend to sell into discriminating markets which are starting to demand environmental responsibility in their suppliers. It is also an opportunity because those markets are developing a willingness to pay for clean green products.

For all these reasons it is in our interests to begin seriously, some twenty years too late, to reduce our use of fossil fuels. There are three main elements in a green energy strategy: The cheapest and fastest is using energy more efficiently. NZ has been criticised by the OECD more than once for lagging so far behind other nations in energy efficiency.

The next step must be developing new renewables to take over - wind electricity, passive solar heat for water and space heating, wood waste co-generation of heat and power in the forestry industry, and eventually biofuels, photovoltaics and perhaps a hydrogen economy.

The need for strategic assistance to make those technologies a market reality was the reason I drafted the Energy Efficiency and Conservation Act in 1997, which was finally passed into law three months ago. It encompasses renewables as well as efficiency and places a duty on the Minister to achieve real progress in these areas.

EECA has an awesome task if it is to make a real difference. Social attitudes, encouraged by promotional advertising, now despise frugality - which makes the "energy conservation" part of their mandate hard to achieve.

the attitude of "why should I save it if I can afford to waste it?" has to change. Contractual arrangements burden us with cheap take-or-pay gas which encourage waste and discourage renewables. Institutional arrangements have contributed to the demise of CNG. Some cities are impossible to live in without a car. I was speaking just this week to a city council which told me their households make eight times the average number of car trips per week.

They did not see that as a result of their planning.

The wholesale electricity market rules makes it almost impossible for demand side energy efficiency or new renewables, especially wind, to be accepted into the market. And fossil fuels are still allowed to freeload on the environment, with the rest of us paying for the costs they cause.

We urgently need an overall strategy and in the complete absence of an energy strategy for NZ, or even a National Policy Statement on energy under the Resource Management Act to guide decisions at the local level, we must do the best we can with the National Energy Efficiency and Conservation Strategy which is now mandatory under the new legislation. The first draft is under preparation and must be published by the Minister by 1 April next year. There is then a period of public consultation until October which I am determined will take a more proactive form than just written submissions.

I hope to see interactive workshops for business sectors and communities which will lead to a strategy driven from the bottom up and owned by the whole nation. I strongly urge you to take part.

Too many people have told us that making our energy system cleaner and greener will be costly and burdensome. We have heard far too little about the real business opportunities it offers.

There is a growing market of people who want to buy quality rather than just quantity and that includes environmental quality. We see it in the fastest growing export sector in NZ: organic food. Those consumers are concerned about both their own health and ensuring absence of pesticide residues, but also about the environmental impacts of the products they buy. So are those who demand products not tested on animals, fish not caught by drift netting, pork not raised in sow crates, recyclable and resusable materials, and timber certified from plantation or sustainably managed forests.

Forest certification and organic food certification would build on NZ's natural advantages and bring us premium prices as well as international respect which has a spin off for tourism. Why not energy? In Australia 50,000 consumers have contracted to pay a little more on their power bill to support the development of "green power" . That is clearly an altruistic market - there is no difference to the consumer between electrons generated by wind and those from coal. The benefit is in being part of a social transformation which will lead us to the sort of society we wish to live in. I predict that a market in green electricity will develop in NZ before too long.

Then there are the other benefits to business.

When you can announce in your annual report that you have reduced your energy use per unit of product by 20% in the last year; that 50% of your energy use now comes from clean sources because you have invested in a new joint venture wind plant; that most of your heavy freight travels by rail which is four times more energy efficient than road and your fleet vehicles all run on LPG your shareholders will be pleased, your markets will be impressed and your competitors will be very, very afraid. They will be afraid because they will know that not only have you reduced your costs per unit production and got your consumers onside, but you have climate proofed your business and are better placed than them to make the transition to a world of carbon charges and more expensive and unreliable fossil fuel.

Cities need to climate proof themselves too. Urban sprawl will never be adequately serviced by public transport and settlement patterns need to consolidate. Land use planners need to consider the transport consequences of their plans. The cities with good public transport networks are the ones that will attract people and business in the future. If it is expensive to build light rail now, how much more expensive will it be when the price of the oil you need to build it has doubled? The forestry industry can climate proof itself by using its own wastes to fuel efficient co-generation plant with export of surplus electricity.

Some of this occurs now; there needs to be more.

New homes and commercial buildings can climate proof themselves by designing for passive solar heating and cooling at no greater cost than a non-solar building and large savings in running costs.

A study by the European Wind Association indicates that world wide, harnessable wind power is equal to four times the global consumption of electricity in 1998. The cost of wind power in Denmark, which has learned a lot from embarking on the technology early, has dropped by two thirds between 1981 and 1995, and world wide installed wind capacity is increasing by 20% annually.

NZ has some of the best wind sites in the world, but may be last in the race for clean energy. Wind had become competitive with other new plant until the 1998 electricity "reforms" which dropped the wholesale price of electricity by transferring a large slice of wealth from the taxpayer owners of the system to the major electricity users in the market restructuring.

In the longer term wind offers the NZ economy not only the benefits of renewable energy without the flooding of productive land and hydrological impacts of large hydro, but a potential new manufacturing industry with a world market growing by 20% a year if we were to build on our not inconsiderable skills in aerodynamics and boat building to make wind turbines here.

A KPMG study in the Netherlands concluded that even with current technology photo-voltaic panels would be competitive with current electricity prices if production scaled up to produce 500MW of new capacity each year. Industry will not invest in that scale up until there is a demonstrated market.

Buyers will not create that market while prices are so high. It needs government intervention to break the deadlock and unleash the energy of the future.

And some governments have responded to the need.

For ten years the UK has had targets for non-fossil electricity and a non-fossil fuel obligation on power companies. Initially most of the non-fossil power came from nuclear but from now on it must be all renewable.

A levy on consumers funds the obligation and a bidding process is used to assign the quantities to potential suppliers. As of 1998 650 MW of renewables had been installed through this mechanism and another 1,177 MW had been contracted that year.

Projects focussed mainly on energy from waste such as landfill gas and large scale wind. As of 1999 they totalled only 3% of electricity but in order to meet its Kyoto commitments the UK has set targets of 5% by 2003 and 10% by 2010. A greenhouse levy on industry is planned and 43.5m pounds allocated over the next 3 years to investment in the development of new and renewable energy.

Germany offers buy-back rates for photo-voltaic generated electricity over periods of 5 to 20 years. This is funded by an across the board levy on customers of 1%. The ongoing return for renewable generation, rather than a subsidy for capacity installed, gives an incentive for best efficiency and lowest cost projects.

Several EU countries are engaged in a tax shift away from work and income towards environmental impact with charges for carbon emissions one of the most straightforward to implement.

The US Federal Government's "1 million solar rooftops" programme provides tax credits for individual solar water heaters and photo-voltaic panels.

Targets have been set for 7.5% of electricity renewable by 2010. Green pricing and net metering are widely used locally for company positioning.

Sacramento has over 5.7 MW of grid connected, net metered photo-voltaics including 400 systems installed voluntarily by households.

The main drivers for renewables policies in the US are local air quality, acid rain, industry development and noise rather than greenhouse abatement.

The Australian Federal Government requires electricity retailers to source an additional 2% of the power they sell from new renewable sources by 2010.

It has allocated $3.8 m to assist light commercial vehicles to switch to CNG. I understand NZ service stations are pulling out CNG equipment and selling it second hand to countries like Australia who have finally realised its benefits.

These are just a small sample of what other governments are doing to encourage the shift to renewables. What, then, is the NZ government doing? So far, nothing.

In the past term, worse than nothing. When Max Bradford's electricity destruction legislation passed in 1998 some 500 MW of planned wind farms was wiped off the drawing board. Most of it was planned by lines companies, which under the new legislation are not allowed to own generation.

The lower wholesale price, which incidentally has not translated into lower prices for households to small businesses, has left wind unable to compete with cheap to build, costly to run in the longer term, gas plant. The wholesale electricity market is set up in such a way as to discriminate heavily against new renewables, small generators, and demand side efficiency.

If we were to ask nothing more of government than to create a genuinely level playing field that would achieve a lot. A good place to start would be the rules for the electricity market.

In a combined wind/hydro/gas/geothermal system, wind should not be penalised unduly when it fails to contribute to peak load. If Transpower's charges were more variablised it would better value the contribution from wind.

I am particularly concerned about the recommendations of the Caygill Enquiry into the electricity industry which reported in June. The proposal for an industry governance board chosen by the market participants and setting all the rules including pricing is a recipe for a cartel. True, they have competing interests, but they will sort these out in a way that shifts the cost and the risk on to those not represented on the board - the consumer, the small new entrant generators with wind or new technologies, and the environment.

The previous institutional restructuring was driven largely by the market participants with the most power, and that is what has got us to where we are now.

Caygill recommends that the cap on the amount of generation lines companies can own should be raised. I suggest that it be removed altogether for new renewables such as wind and wood waste fired co-generation.

Ways must be found for the market to accept bids from the demand side - both short term fuel switching or interruptible load to avoid high spot prices, and also bids to build renewable distributed generation above transmission constraints as a more efficient alternative to increasing lines capacity.

I mentioned earlier that the hydro stations have recently generated less electricity for the same water inflows. This strongly suggests that the market is working to encourage gaming behaviour rather than making the best use of available water.

Hydro is our one big existing renewable resource. We cannot afford to let it be wasted in order to play market games between generators who are trying to maximise the price for their particular stations. I see no way around this other than to return to treating the hydro stations as an integrated system.

This does not necessarily mean reintegrating ownership, but must include dispatch according to an agreed most efficient use of water for the whole country. We cannot allow generators, whether state or privately owned, to withhold water in order to raise the price and cause spill later with more burning of gas. If this issue is not addressed the browning of NZ will continue.

We need incentives to encourage the use of gas to replace electricity rather than to generate it. It's a classic example of getting more from less.

At present households are strongly discouraged from connecting to gas because of high fixed electricity charges and low variable charges. Mercury knew what it was doing when it advertised "the only one you need". High fixed charges also discourage solar water heating, passive solar design of buildings, wood stoves and all kinds of efficiency by increasing the pay back time. I can see no more reason for fixed electricity charges than I can for a fixed charge to enter the supermarket. Both have overheads, both lose from very small consumers.

Continuing with building the level playing field, we cannot allow fossil fuels to continue to freeload on the environment. Many more renewables would be cost-effective now if full environmental costs were paid by all fuels.

Our position is a carbon charge which is simpler and more predictable than emissions trading within countries. It certainly is the place to start.

Moving beyond just fair competition, there is more that government could do for little or no cost. Government purchasing is a large chunk of the economy. It is large enough to help create a market and cause prices to fall for everyone through economies of scale. There will be many government buildings where solar water heaters will be economic now on a life cycle cost basis. They should be installed, over a staged programme of several years which would allow the NZ industry to gear up to that level of production.

If CNG is considered beyond saving, then the next best fuel, LPG, should be used in government vehicles. New government buildings should be designed for passive solar heating and cooling.

Government also has a lead role in research. There is no case for any further taxpayer funded research into oil or gas exploration or coal utilisation. It is time to put our collective resources into more efficient technologies and into carefully chosen renewable fields where NZ can have a competitive advantage.

Finally, we need to put a stop to the ridiculous demand and supply predictions done by the Ministry of Economic Development. In the seventies they showed us starving in the dark if we did not build a nuclear plant in the eighties. They are equally out of touch with reality now - the latest one shows a large increase in coal fired electricity generation in the same year that the Kyoto agreement comes into force. Industry and the NZ public need a clear statement from government disowning that projection and making it clear that coal will not be the default fuel for power generation in the new century.

NZ trades internationally on a clean green image that is quite undeserved.

Some day soon our cover could be blown and the damage to our markets would be considerable. If instead we work to make that image real we can at least partly climate proof our economy and earn a huge marketing advantage in a world that is looking for environmental quality.

References Muriel Watt & Hugh Outhred, Electricity Sustainability: Policy Options Acre, 1999 European Wind Energy Association, Wind Force 10 Edition 2000 KPMG Bureau voor Economische Argumentatie Solar Power - from Perennial Promise to Competitive Alternative Hoofddorp 1999

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