4. From Vision to Action
This strategy and the NZEECS set out a package of actions to achieve our ambition of a reliable, resilient, sustainable and low emissions energy system.
The NZES focuses on seven areas, with proposed actions in each area. These are outlined in the following pages.
4.1 Progress Made
Initiatives already underway that contribute to the government's vision include:
- the establishment of the EC to promote energy security to a 1-in-60 dry year standard, and electricity efficiency and conservation
- a 2004 amendment to the RMA to put greater emphasis on the benefits of renewable energy and energy efficiency
- a 2005 amendment to the RMA to improve processes for decision-making on issues of national importance, including energy infrastructure
- revising the Government Policy Statement (GPS) to the EC to ensure a more robust transmission grid
- a ten-fold increase in central government funding for public transport over the last seven years.6
- the 2005 Minerals Programme for Petroleum, which supports petroleum exploration in New Zealand
- developing the Energy Research Roadmap in 2006 to support the science capabilities New Zealand will need for a sustainable energy future
- retrofitting 22,000 poorly-insulated homes over the last seven years to improve their energy efficiency
- the 2006 consultation7 on ways to make homes and commercial buildings more energy efficient using insulation, solar water heating, more efficient lighting and other technologies.
4.2 Strategic Leadership
To provide clear direction on the future of New Zealand's energy system
A well-functioning energy system needs timely and efficient investment. The government can improve investor confidence and reduce non-market uncertainties by clearly signalling its strategic direction for the energy sector.
The government has based the NZES on the following principles:
- Investment should occur in energy efficiency measures where this is cheaper than the long-term costs of building extra generation capacity, including environmental costs.
- For the foreseeable future, it is preferable that all new electricity generation be renewable, except to the extent necessary to maintain security of supply.8
In support of this principle, and providing time for the full introduction of a price on greenhouse gas emissions, the government's view is that there should not be a need for any new baseload fossil fuel generation investment for the next ten years. The government expects all generators, including state-owned enterprises, to take its views into account when considering new generation investments, and the government will advise state-owned enterprises that it expects them to follow this guidance.
For transport, the government has taken an in-principle decision to set a target of halving domestic transport emissions per capita by 2040 relative to 2007 emissions. The key areas for action are reducing greenhouse gas emissions by using alternative renewable fuels, significantly increasing vehicle efficiency, using more efficient modes of transport, and travel demand management through smarter planning. The government is committed to building momentum in the uptake of electric vehicles and has taken an in-principle decision that New Zealand will be one of the first countries in the world to widely deploy electric cars. This will also make New Zealand more resilient to international oil price uncertainty and risks of supply disruptions. The introduction of biofuels will also increase the diversity of transport fuels.
4.2.1 Key Actions
Initiatives that support the government's sustainable energy goals include:
- setting clear policy intentions and priorities for investment in the energy sector, including for renewable generation, efficient transmission, sustainable transport, energy efficiency and new technologies
- the in-principle decision to introduce an ETS
- adoption of a target for renewable electricity generation of 90 per cent by 2025 (based on delivered electricity in an average hydrological year)
- the in-principle decision to introduce a target to halve domestic transport emissions per capita by 2040
- consideration of regulatory options under the Electricity Act 1992 to support the government's objectives for limiting new baseload fossil fuel generation over the next ten years
- a National Policy Statement (NPS) is being developed under the RMA for renewable energy
- a minimum Biofuels Sales Obligation has been announced to encourage the use of alternative transport fuels over the next five years.
4.3 Markets, Regulation and Security of Supply
To utilise markets and focused regulation to securely deliver energy services at competitive prices
Customers value reliable energy supplies, but some circumstances are too costly to insure against. A trade-off must be made between different price levels and different levels of security and reliability. Finding the right balance is an ongoing task involving government, producers and users of energy. The government believes a combination of competitive markets with backstop measures and effective regulation of networks is the best means of protecting the security of New Zealand's energy supplies.
Security has two key dimensions – reliability and resilience. Reliability means users are able to access the energy services they require, when they require them. Resilience is the ability of the system to cope with shocks and change. Diversifying energy sources, energy efficiency and demand-side management can help ensure both reliability and resilience.
4.3.1 Electricity
A competitive market operating within a stable regulatory environment and with reasonable certainty about fuel supplies will keep prices at a competitive level and encourage timely investment in generation and infrastructure. Strong grid and lines arrangements are particularly important for security and diversity of supply.
We regulate monopoly networks to encourage efficient investment and reliability. A system that can withstand events such as droughts and unexpected plant failures will also support resilience of supply.
The EC has responsibilities for managing security of supply. It monitors the evolution of competitive markets and key indicators of security of supply, and assesses whether additional reserve energy capacity is needed. To maintain security, it considers both supply and demand-side alternatives.
4.3.2 Transport
New Zealand minimises its vulnerability to oil supply disruptions through its membership of the IEA and holding oil reserves. The increasing use of biofuels and, in the future, electricity will also contribute to energy security in the transport sector.
Oil, and products derived from oil, will remain an important source of transport energy for New Zealand and the world for many years. New Zealand's proven oil reserves are small and do not meet our needs, although our prospective basins are largely under-explored. If more local oil is found, it would offset some of our oil imports, which cost $4.4 billion per annum.9 It would also bring investment, jobs and export earnings into the economy. However, any oil discoveries should not stop us adopting the transport measures proposed in this strategy.
4.3.3 Energy Diversity
Gas will continue to play an important role in meeting our energy supply requirements as we make the transition to a sustainable energy future, in which supply is increasingly met by renewables. This is particularly the case for the electricity sector: gas-fired generation plant will play a key role in maintaining security of supply. Gas produces fewer emissions than other fossil fuels, which makes it the fuel of choice for fossil fuel generation that may be needed in future for security of supply reasons.
The direct use of gas in industrial, commercial and residential applications provides increased diversity of supply and flexibility. In the future, using gas rather than coal in direct-use industrial and commercial applications may reduce greenhouse gas emissions while maintaining levels of flexibility and fuel diversity.
The government believes the current gas market settings, particularly the co-regulatory regime, will enable the market to make an efficient transition to the post-Maui era.
New Zealand also has large reserves of the low grade coal lignite. Lignite is an important long-term energy supply that could be used to generate electricity, produce substitute liquid fuels for transport, or make fertiliser and other chemicals. Current estimates indicate lignite is likely to be a more expensive fuel source for electricity production than renewables, especially once the expected future cost of greenhouse gas emissions is included. New Zealand is unlikely to make widespread use of its lignite reserves until carbon capture and storage (CCS)10 technology is proven and economically viable.
Our high grade coal reserves are likely to be more valuable for smelting metals than for electricity production.
Nuclear design has substantially improved the safety standards of nuclear fission. Although modular plants may make smaller-scale nuclear power less expensive, it is still currently more expensive than other options. Serious concerns remain about the consequences of accidents, earthquakes or terrorist attacks, the disposal of radioactive waste and the use of nuclear materials in weapons. For these reasons and others, the government remains opposed to the development of nuclear power.
4.3.4 Key Actions
Measures to ensure energy security include:
- an ongoing commitment to competitive markets and focused regulation to deliver the objectives of the NZES
- developing a NPS on electricity transmission under the RMA
- increasing energy efficiency and facilitating demand-side response
- bedding-in existing gas market arrangements
- being prepared for possible disruptions to world oil supplies
- relaxing restrictions on lines companies' ability to invest in generation
- introducing distributed generation regulations to facilitate connection
- clarifying the long-term role of gas (including LPG), oil and coal and other alternative energy
sources in New Zealand's energy mix.
Whirinaki Power Station
A government power plant in Hawkes Bay helps to increase New Zealand's energy security, minimising the risk of future electricity shortages and reducing price volatility. The 155 MW plant at Whirinaki was completed in 2004 and provides reserve generation in unusually dry years, when hydro lake inflows are abnormally low. It also acts as a back-up in case of a major generation or transmission breakdown. The Crown leases the site from Contact Energy, which operates and maintains the plant.
Whirinaki power station.
Image courtesy of East Harbour Management Services.
4.4 Pricing Greenhouse Gas Emissions
To reduce our greenhouse gas emissions, including through an emissions trading scheme
Emissions trading is internationally recognised as an equitable, effective and efficient way to reduce greenhouse gas emissions.
Under an ETS, prices are established for units to emit greenhouse gases. These prices influence decisions by producers, consumers and investors, encouraging them to reduce emissions and look at more environmentally friendly alternatives. The introduction of an effective ETS will be a core building block for the transformation of the economy and will require everyone to consider the impact that gases emitted in the daily course of living may have on the world's future.
The proposed ETS takes the experiences of other trading systems into account. A successful sulphur dioxide ETS in the United States shows that trading schemes can reduce emissions by sending price signals to influence the decisions of individual businesses.
In covering all sectors of the economy and all greenhouse gases, New Zealand's ETS will be a world first. It will include agriculture, as pastoral agriculture produces half of our greenhouse gas emissions. New Zealand will be the first country to tackle agricultural emissions in this way, but we are proposing a gradual transition that focuses largely on influencing growth in emissions.
Given the increasing international efforts to curb emissions, a future cost to the economy is likely. It is in our interests to reduce that cost by taking steps now to reduce the emissions we produce in the future.
The long-term objective of New Zealand's ETS is that it supports and encourages global efforts to reduce greenhouse gas emissions by:
- reducing New Zealand's net emissions below business-as-usual levels
- complying with our international obligations, including our Kyoto Protocol obligations
while maintaining economic flexibility, equity and environmental integrity at least cost in the long term.
To reduce greenhouse gas emissions below 1990 levels, we will need not only greater efficiency and more use of renewable energy but also widespread uptake of zero and low carbon technologies such as electric cars and CCS . A commitment to support global efforts to reduce greenhouse gas emissions and the introduction of emissions trading will give the private sector an incentive to invest in clean technology, which is likely to be cheaper than current technologies with future emissions prices.
4.4.1 Key Actions
Measures to reduce our greenhouse gas emissions include:
- introducing emissions trading to price greenhouse gas emissions and provide an incentive to emitters to reduce emissions
- considering regulatory options under the Electricity Act to support the government's objectives for limiting new baseload fossil fuel generation over the next ten years
- using our energy more efficiently
- encouraging the development and use of renewable energy resources
- reducing greenhouse gas emissions in transport by encouraging the use of biofuels and electric vehicles, improving the fuel efficiency of New Zealand vehicles, and reducing kilometres travelled through smarter planning
- encouraging use of public transport, rail, coastal shipping, cycling and walking
- preparing New Zealand to be in a position to deploy zero and low emissions technologies when they become economic and viable.
QEII Park
Christchurch swimmers are benefiting from an initiative launched as part of the government's Projects to Reduce Emissions programme. Gas – 60 per cent of it methane – is being captured at Burwood Landfill and piped three kilometres to Queen Elizabeth II Park recreational complex, where it fires boilers at the public swimming pool. Christchurch City Council is involved in this climate change project, which is expected to prevent greenhouse gas emissions of more than 200,000 tonnes of carbon dioxide equivalent between 2008 and 2012.
QEII Park recreational complex.
Image courtesy of Christchurch City Council.
4.5 Using Energy More Efficiently
To maximise the contribution of cost-effective energy efficiency and conservation of energy
New Zealand uses energy less efficiently than other countries, which gives us scope for significant improvement.
Using energy more efficiently reduces greenhouse gas emissions and cuts energy costs, including the need to provide more costly electricity generation capacity. It also reduces network congestion, makes the system more secure, and makes it easier for New Zealand to increase the proportion of renewable sources of electricity and reduce emissions-intensive generation.
New Zealand will benefit if all participants in the energy system invest in energy efficiency measures that cost less – including the environmental costs – than extra generating capacity. In finalising the actions under the NZES, a five per cent real discount rate was applied to the economic cost-benefit analysis of government actions.
In the transport sector, technological advances offer exciting prospects both for alternative fuels and for using fuels more efficiently. Some modes of transport are also more energy efficient than others. As an example, coastal shipping services can be more efficient than land transport. Smarter urban planning will also reduce the need to travel and help to conserve energy.
4.5.1 Key Actions
Energy efficiency measures are described in more detail in the NZEECS under the following themes:
- Energywise homes
- Energywise business
- Energywise farms and rural communities
- Energywise transport
- Our renewable and efficient electricity system
- Government leading the way.
YHA New Zealand
One YHA hostel is proof that profits and sound environmental management go together. Since 1997, the Wellington city hostel has been upgrading its energy efficiency by wrapping hot water cylinders, installing low-flow showerheads and installing an automated heating system. It also uses ECO GFX, a water-to-water heat exchanger that transfers the waste heat in shower waste pipes into the incoming cold water – halving shower costs. Manager Hamish Allerdyce says, "Good environmental management is a "no-brainer". It's just common sense and good business sense."
YHA, Wellington City.
Image courtesy of Youth Hostels Association of New Zealand.
4.6 Promoting Renewable Energy
To maximise the contribution of cost-effective renewable energy resources while safeguarding our environment
4.6.1 Electricity
New Zealand is in the fortunate position of being able to produce large amounts of zero or low emissions electricity from renewable sources such as geothermal, wind and hydro. Our renewable energy resources are plentiful and cheap by world standards. In the future, wave and tidal electricity generation are also expected to become economically viable.
It is in New Zealand's longer-term economic and environmental interests to meet increases in demand through an economic mix of renewable energy sources that will meet our security objectives. It is easier for New Zealand to commit to a low emissions electricity system than almost any other country. In this strategy, the government is introducing a target for 90 per cent of electricity being generated from renewable sources by 2025.11
This is a challenging target but, given our wealth of natural energy resources, is considered achievable without imposing significant additional costs on the electricity sector. The resultant generation mix should ensure New Zealand's energy system is well placed to prosper in a low carbon economy. To achieve this outcome, a very high rate of investment in new renewable generation, lower utilisation of existing fossil fuel plant and decommissioning of older fossil fuel plant is required.
Where fossil fuel generation is needed to maintain security of supply, priority should be given to using the lowest emissions fuel available.
Increasing the proportion of renewable electricity will help us cut emissions of carbon dioxide (CO2). However, renewable electricity generation can have a larger visible effect on the local environment than fossil fuel electricity generation plants. As an example, some people believe wind farms have more impact on the environment than gas-fired thermal plants of equivalent output.
We need to balance the climate change benefits of increasing renewable electricity against the potential impact on the local environment. We will support this balancing act by giving consent authorities guidance on the various trade-offs involved. It is important that the public continues to have confidence that the system and processes are fair and robust.
There is likely to be enough geothermal, wind and hydro energy to meet New Zealand's electricity demand for the next 20 years or so, while still meeting appropriate environmental standards. If marine generation, deep (hot-rock) geothermal or solar photovoltaic generation become economically viable within that time, New Zealand would be able to use predominantly renewable electricity sources for even longer.
Hau Nui wind farm
In 1996, New Zealand's first wind farm began operating at Hau Nui, in the eastern Wairarapa hills. The farm was set up by Wairarapa Electricity, a community-owned power company. The wind farm's seven German-built wind turbines had a combined capacity of 3.5 MW of electricity. Wairarapa Electricity then commissioned turbine manufacturer Enercon to upgrade the turbines to a combined capacity of 3.85 MW. Hau Nui was later bought by Genesis Energy in 1999. Genesis Energy added a further eight turbines in 2004, bringing the total wind farm capacity to 8.65 MW. This is enough to service the annual energy requirements of around 4,200 homes in South Wairarapa.
Wind turbines at Hau Nui.
Image courtesy of Genesis Energy.
4.6.2 Transport
It is in New Zealand's wider interests to reduce our transport emissions and our dependence on imported oil. Achieving this is likely to require, among other actions, a combination of biofuels and the use of electricity for vehicles.
Biofuels are substitutes for petrol and diesel, and are made from crops or animal by-products. Biofuel crops release no more emissions when used than they absorb and store as they grow. As technology improves, we expect future biofuels to be made from sources such as trees and even weeds, algae and waste gases. Using biofuels from other sources will help to ease concerns about biofuels competing with food supplies and promoting unsustainable land use, especially in developing countries.
New Zealand's climate and agricultural history suggest we will be able to grow biofuels at internationally competitive prices. The government believes biofuels will be an important part of New Zealand's energy mix, especially for transport. There are advantages to the development of biofuels in New Zealand, and assessing the price and land use implications of using higher levels of biofuels in the future.
There may also be opportunities to work with Pacific countries to develop biofuels. For example, sugar, coconut oil, and palm oil grown in the Pacific could produce biofuels to be blended with fossil fuel-based diesel or petrol in New Zealand.
4.6.3 Direct Use of Biomass
New Zealand already makes good use of biomass for direct heating in homes and in industries such as wood processing. The environmental benefits of biomass include no net greenhouse gas emissions and, with modern clean-burning technology, fewer concerns about the impact on local air quality.
Schoolgen Programme
Six primary and secondary schools in the greater Auckland area are using solar power to generate their own electricity. Under Genesis Energy's Schoolgen programme, the schools have had 2 kW photovoltaic systems installed on the roofs of school buildings at no cost. The system reduces the financial and environmental impact of the schools' energy use, while giving students an opportunity to learn about renewable energy, energy efficiency, electricity generation and climate change. Genesis Energy hopes to extend the programme to schools in other parts of New Zealand in future.
Tirimoana Primary School, Auckland.
Image courtesy of Genesis Energy.
4.6.4 Key Actions
Measures to promote renewable energy include:
- introducing a target for 90 per cent of electricity generated from renewable sources by
2025 (based on an average hydrological year)
- using the RMA to provide greater leadership and guidance on consenting renewable
electricity generation
- introducing a Biofuels Sales Obligation
- encouraging the development and use in future of electric vehicles fuelled by renewable
electricity
- removing barriers to distributed generation, including small-scale generation
- encouraging the clean and efficient use of bioenergy
- expanding our knowledge and understanding of New Zealand's energy resources.
4.7 Facilitating Environmentally Sustainable Energy Technologies
To promote early adoption of environmentally sustainable energy technologies
Energy generation, emissions capture and storage, and transport technology are all developing rapidly and will play an important part in moving New Zealand towards a sustainable low emissions energy system. Much of this technology will be developed overseas, but some will be developed here.
New Zealand should ensure it is able to start using new technologies as soon as they become proven and economically viable. We should, for example, monitor local and international developments closely and make advance preparations for using new technology, such as developing the consent framework for wave or tidal generators.
There is also a case for preparing the way for future technology, where this is not too expensive. For example, vehicles entering the fleet for the first time could be required to have the capability to run on biofuels, ready for the time when biofuels become widely available.
In the electricity sector, achieving a 90 per cent level of renewable energy by 2025 would return our emissions to 1990 levels. However, CCS is expected to be economic by that stage. To achieve our ambitions for a low emissions economy, new fossil fuel generation should be fitted with CCS once it is available, and we should progressively clean up existing electricity generation and other major industrial emission sources. We would need to be an active participant in international efforts to commercialise CCS , and have the regulatory and policy frameworks needed to enable us to use it.
The government will also continue to build New Zealand's research expertise. It will continue to encourage collaboration between existing research organisations and prepare for New Zealand's future research needs.
4.7.1 Key Actions
Measures to facilitate environmentally sustainable energy technologies include:
- supporting initiatives to build capacity and link participants from the research community, industry, and central and local government
- establishing contestable funds to support the deployment of marine-based electricity generation and low carbon energy technologies
- preparing New Zealand for the commercial uptake of new energy technologies in transport, electricity and industrial uses
- improving international linkages to enable New Zealand to be a fast adopter and adapter
of new technologies.
Varivac System
Electrical contractor Steve Corkill rose to the challenge when he heard farmers complaining their power bills had rocketed since building new milking sheds in the early 1990s. Steve's response was to develop the Varivac, a software-driven system that enabled farmers to control the level of vacuum being used in the dairy to ensure it was sufficient only for the number of cows being milked at the time. Taranaki-based Steve has turned his invention into a thriving business, while dairy farms around the country are reaping the environmental and financial benefits of this pioneering technology.
Steve Corkill of Corkill Systems Ltd with the Varivac.
Image courtesy of Corkill Systems Ltd.
4.8 Supporting Consumers Through the Transition
To support consumers through the transition to a low emissions energy system
The investment required to meet New Zealand's future energy needs and reduce carbon emissions is likely to push energy prices up.
The government recognises this cost impact would be hardest on low income households and on firms competing with businesses in countries that have not put a price on emissions. The government is considering options to assist the most affected business and residential consumers as we make the transition to a low emissions energy system.
The likelihood of cost increases makes it essential that competition remains vigorous so the market can continue to deliver secure supplies and a range of competitively priced services to customers.
In the long run, reducing electricity emissions is likely to have less impact on prices in New Zealand than it will for some of our trading partners, such as Australia. This is because New Zealand's endowment of high quality renewable energy resources are a cost-effective way of meeting our growing energy demand. Increasing our renewable electricity may even give New Zealand an enduring competitive advantage by protecting us against fluctuations in imported fossil fuel prices.
4.8.1 Key Actions
Measures to support consumers through the transition include:
- considering additional measures to moderate the cost impact of higher electricity prices arising from the introduction of an ETS on low and modest income households
- using energy efficiency initiatives such as retrofits and the installation of efficient lighting and appliances to help low income households
- amending the Low Fixed Charge Regulations to allow for differences in average regional power usage due to temperature variations
- keeping consumers informed about the energy services and options available
- maximising the contribution of cost-effective renewable energy sources.
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