Our Choices
Themes emerging from submitters commenting on this section, which considers the impact of choices made on energy security and greenhouse gas emissions, was that the NZES gives only one view of expected outcomes over a 25 year horizon, that data supporting the projections and models was inadequate to support policy analysis, and more publicly available information on modelling and assumptions was required.
It was noted that the projections seemed optimistic, particularly in the ability of new renewable energy generation to deliver secure supply at reasonable cost. In the face of uncertainty, submitters recommended modelling a number of scenarios and clarifying the assumptions behind the scenarios presented. The decisions to be made will be long-term, of considerable economic importance and in some cases irreversible.
One submitter suggested using for the energy sector the scenario analysis approach developed and used by the Electricity Commission to ensure robust analysis of alternative scenarios is undertaken.
Energy security
Peak Oil
Several submitters noted that peak oil issues are too readily dismissed, further serious exploration is required and background facts to support comments included. They consider the demand for oil in developing countries continues to rise while production remains flat or declining therefore expect a considerable increase in oil prices in the next few years. They question the NZES statement that this will spur exploration and thus keep prices down. The NZES because it is long term and because of New Zealand's high dependence on imported fuel should prepare NZ for reality of declining fossil fuels, look at a range of peak oil timeframes, their implications and realistic workable transitions to more sustainable energy, especially transport, systems.
Pathway to a Low Emissions Future
Reducing energy sector emissions
Local Government interests had concerns about the projected reduction in greenhouse gas emissions possible from energy efficiency measures in the transport sector.2 It was noted that the data suggests far greater reductions in CO2 can be made by fuel efficiencies and alternative transport fuels than by transport modal shift or reducing demand. Modelling undertaken for the Auckland Regional Growth Strategy and the Auckland Regional Land Transport Strategy indicated otherwise. It was suggested that more scenarios should be modelled and further analysis was necessary to inform decisions relating to transport. It was also suggested that the assumptions used when modelling future scenarios should be set out clearly.
Another submitter questioned the validity of the models used to estimate future emissions from the transport sector. They noted that it was likely that the models underestimated the likely growth in emissions from transport because the GDP growth rate and the connection between GDP growth and emissions growth might be conservative. They note that there is insufficient publicly available information to make an informed opinion and suggest:
- models be open to public scrutiny to allow discussion and critique to take place. This should result in more credible predictions
- opening the models would allow other parties to inform their own positions and apply their experience leading to more informed debate.
Effect on prices
Electricity prices
Submissions from the major energy companies provided detailed analysis of the costs of alternative sources of new generation. These models are not described in detail in this report.
By and large however submissions from the major energy companies were highly critical of the analysis in the NZES.3 The broad thrust of criticism was that costs of new renewable electricity generation, particularly wind, were too low, and cost of coal-fired generation was too high leading to a slanted view that much of our new generation could be met by renewables without a significant increase in generation costs.
There was a view that while future renewable growth was favourable it would not be of the scale to meet the Government's objectives.
One submitter noted the escalating costs of the Meridian West Wind project as an example of rising capital costs. High global demand and prices for wind turbines and exchange rates movements are also contributing factors.
Energy companies providing their own analysis of the costs of new wind generation roughly indicated prices for new generation about $10/MWh-$20MWh higher than the NZES estimates. They considered the NZES analysis optimistic.
Views on the growth rate, and costs, for geothermal generation were mixed – some considered growth would be slower and more costly then the scenarios set out in the NZES. Others had no critique of the estimates.
The over optimistic cost projections coupled with unrealistically low electricity demand growth assumptions (1.3% compared with historic growth rates of 2%)4 led to a view that:
- significant increases in prices can be anticipated
- diversity of supply will remain important with fossil-fuel based generation remaining a significant part of the energy mix for some time.
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