4. Energy Tomorrow
This section summarises the discussion of challenges and opportunities in the previous section, likely and possible changes to today's energy situation, and key steps New Zealand could take to accelerate progress towards sustainable energy.
Global Energy*
Demand for Energy Will Continue to Grow …
Global energy use will continue to increase steadily, with the strongest growth in developing countries. Energy use by developing countries and economies in transition could pass that of OECD countries by 2030.
… With Increasing Demand for Energy Efficiency and Innovation
Increasing energy prices, driven by rising fossil fuel costs and the adoption of higher-cost renewable energy technologies, will increase demand for innovative energy-efficient products and services. Governments will increasingly use standards, labelling and price incentives to accelerate energy efficiency improvement. Demand for more fuel efficient conventional vehicles will increase, hybrid vehicles will gain an increasing share of the market and hydrogen vehicles may begin to be commercially available. Major urban centres, particularly in the developed world, will increasingly use a range of policy and price measures to shift passenger travel from private vehicles to mass transit and other alternatives. Carbon storage could develop in the long term as a way of reducing the climate change impact of fossil fuel use.
… Increasing Use of Renewable Energy
Use of renewable energy sources will continue to grow rapidly, mostly for electricity production. However, because they are growing from a low base internationally, renewables are likely to provide less than half the world's energy by mid-century, even if a stronger international consensus develops on addressing climate change as a matter of urgency. Wind power and biomass will be the most rapidly growing sources of renewable energy.
Global oil production will peak, probably in the first half of this century, and oil prices could be rising very substantially by about 2030.
… Major Challenges to Fossil Fuel Use
Oil production will peak, probably in the first half of this century. Oil prices could be rising very substantially by about 2030. Efforts to find alternative transport fuels, and more efficient and cleaner ways to use oil, will intensify. Demand for natural gas will increase over coming decades as its lower emissions become more highly valued, and international trade in gas will grow. Coal consumption will increase slowly, mostly for electricity generation, but its share of total energy will gradually decline.
… Heightened Attention to Energy Security
Most of the increase in global energy production over the next few decades will be in the Middle East, Russia and developing countries. International trade in energy will expand strongly and become increasingly important to the developed world and rapidly growing Asian economies. Along with an increasingly pressing need to find energy options with low greenhouse gas emissions, this will increase attention to and concern about supply security. Growth in the use of renewable energy sources will begin to diversify the world's energy supplies, with some security benefits and new challenges in managing more intermittent and variable energy sources.
… And Continuing Environmental Pressures
Growth in global energy-related greenhouse gas emissions will continue, but begin to slow with stronger international and national measures being taken to restrain fossil fuel use. Negative local environmental impacts of fossil fuel extraction and use will continue. Increasing use of renewable and smaller energy sources, such as micro-hydro power, will meet some energy demand with lower, but not zero environmental impact.
Energy in New Zealand
Demand for Energy Will Grow …
New Zealanders are likely to pay more attention to the value they get from their energy use as some forms of energy become more expensive. Overall, however, demand for energy will continue to grow, particularly if economic growth continues strongly.
… But Energy Efficiency Could Improve Substantially
New Zealand's poor history of energy efficiency means it has large potential for improvement and rising energy prices increase the incentives for achieving this. The prospective benefits include cost savings, reduced greenhouse gas emissions and pollution, and improved energy security through reduced pressure on supply. New Zealand has made a good beginning in promoting better use of energy through the National Energy Efficiency and Conservation Strategy, but progress could be accelerated through a wide range of possible measures, depending on the level of ambition applied. Substantial improvements are possible in transport, through management of demand for passenger travel, more efficient vehicle technologies and better freight load management. Large gains are also possible in commercial use of air conditioning and cooling, appliances, lighting and water heating. The overall potential gains are lower in industry, although there is still large scope for improvement in refrigeration and lighting, and in households, although the efficiency of residential insulation, water heating and appliances can be improved substantially.
New Zealand still has extensive untapped renewable energy resources.
… Innovation Could Be Strengthened
New Zealand is a small player in global energy innovation and needs to be a fast follower in taking up and adapting innovation from elsewhere. Although its record in doing this is not strong, the conditions for improvement are developing as consumers pay more attention to energy costs and the government focuses attention on innovation. New Zealand has niche strengths in energy innovation that could be further developed, including in hydroelectric and geothermal systems, biotechnology for biofuel production, and information and communications technology for energy management. Energy research investment is modest and could be better focused on niche opportunities and better coordinated with sustainable energy objectives. The changing social drivers of energy use need further research. New Zealand has made some original contributions to public policy on energy markets and climate change, but would benefit from better coordination and integration of policy development on sustainable energy issues. New Zealand needs to continue building stronger global connections and develop an international sustainable energy watch to keep up with energy innovation elsewhere, particularly concerning developments such as hydrogen energy and carbon storage.
… And Renewable Energy Could Grow Still More
Although its use of renewable energy is high by world standards, New Zealand still has extensive untapped renewable energy resources. Making more use of renewable energy for transport will be the hardest task, here as elsewhere. Use of liquid biofuels for transport energy is just beginning in New Zealand, later than many other countries, but local production of ethanol and biodiesel have promise. Electricity production could increase its already high use of renewable energy. Wind power has begun to expand rapidly, from a low base, and potential generation capacity is estimated at up to 30 times current capacity. Untapped geothermal generation potential is estimated at more than five times current capacity and interest in geothermal development is increasing. Few options remain for large new hydro projects but hydro generation is likely to continue expanding by way of small to micro developments. Use of woody biomass has potential for home and commercial heating, for example, in pellet burners. For industrial energy and co-generation of electricity, particularly in wood processing, woody biomass use has the potential to expand at least four-fold, remaining a small but useful energy source.
New Zealand Faces Fossil Fuel Challenges Too …
Peaking global oil production will have a strong impact in New Zealand, as in the rest of the world. Natural gas supplies from New Zealand fields might not meet demand beyond about 2012 and prices are rising. Longer term supplies could come from new discoveries or imports of LNG, probably at a still higher price. Continuing use of gas for electricity generation and commercial and household energy is likely, but use for methanol production may cease. Coal use is likely to remain low by world standards, but coal will remain a back-up source of energy for industry and electricity generation. Coal use for electricity generation may increase with new plant built around the end of this decade or later, if gas discoveries are low and coal proves more economic than LNG.
New Zealand is a small player in global energy innovation and needs to be a fast follower in taking up and adapting innovation from elsewhere.
… New Energy Security Options and Risks
New Zealand's options for securing more reliable transport energy, in the face of likely global oil price rises and security risks, are limited. Development of renewable biofuels offers a negligible improvement in supply security in the foreseeable future, but may prove useful in the long term. Increasing use of LPG for transport could offer advantages in the interim. Imports of LNG could supplement supplies from New Zealand fields if efforts to accelerate gas exploration do not bring new discoveries. New Zealand's coal reserves will be an enduring source of resilience in the energy system. In the electricity sector New Zealand is already dealing with some of the challenges other countries will face with increased use of renewables. The calculated provision of reserve energy will reduce the risk of power shortages arising from hydro shortfalls in extreme dry periods. So will a gradual increase in diversity in electricity generation, as the expansion of other renewables slowly erodes the dominance of hydro. More distributed and smaller generation will require more sophisticated management of the national grid and distribution networks. In the long term fully renewable electricity generation is possible, but it is not yet possible to estimate when, at what cost and with what technology mix.
… And a New Range of Environmental Pressures
Global action to reduce greenhouse gas emissions is not yet approaching the level that will appreciably reduce the threat of climate change for New Zealand. New Zealand has begun implementing measures to reduce its own emissions, but it remains unclear how it, like the rest of the world, will get emissions onto a steady downward path in the long term. Wider global participation and more significant action will be needed over coming decades.
More use of cleaner and renewable transport fuels, more fuel efficient vehicles, more public transport, and smarter travel choices will be needed to moderate the environmental effects of transport energy use. Continuing growth in the use of renewable energy sources for electricity generation will moderate the overall environmental impact of growth in electricity consumption, but there may be pressure for substantial new coal generation around 2020 if supplies of New Zealand gas or imported LNG are not competitive. Industry is beginning to face cost pressures to shift from gas to coal for generating process heat, although use of woody biomass offers an increasingly feasible alternative in some areas.
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