Low Emissions Power and Heat
This section summarises some of the key concerns raised by submitters relating to the proposals to encourage low emissions power and heat. It commences with some general views and themes coming through submissions on the future electricity generation mix and approaches to transitioning to a lower emissions energy system. It then focuses on the Government's proposals.
A core part of those proposals is introduction of greenhouse gas pricing, and measures to facilitate the transition. Separate discussion papers were released on these issues. The summary of submitters views on Transitional Measures and climate change policy objectives and measures for post 2012 are the subject of separate reports.
Principles
There was some discussion from the environment interest groups on the principles that should guide the choice of short term policies to limit GHG emissions from electricity generation and industrial heat and power. The Sustainable Energy Forum, for example, suggests the following set of principles should guide the transition to a sustainable, low-emissions stationary energy system:
- invest in energy efficiency whenever this is more cost-effective than new energy supply
- recognise multiple benefits of local energy resources
- use "engineering efficiency" and "ecological efficiency" as the main criteria for assessing priorities for action
- invest in the transition towards sustainability
- fund low carbon policies
- focus research, development, and resource assessment on technologies and skills to achieve early results.
On meeting future electricity requirements
There were a range of views expressed by submitters on the government's climate change objectives for the electricity sector and its vision that all new generation should be renewable.
There was much discussion of what was needed for increased investment and development of renewable low emissions energy sources, on the energy mix and how the desirable mix (including growth of renewables) could be achieved.
Submitters, primarily from the electricity sector and business considered that appropriate price signals are the single, and most important, means of affecting future investment decisions in electricity generation. If the long run price of electricity includes environmental externalities the market will find the optimal level and type of generation with renewable generation operating on a level playing field with other forms of generation.
These submitters, with the exception of Meridian Energy, questioned whether 100% new renewable generation was possible in the medium term, often providing detailed analysis to support their contentions.
There was some discomfort, amongst electricity companies, with any approach that might prioritise renewable energy (and wind and geothermal within that category) over thermals, in that it involved the Government picking winners and opposed allowing the market, with the price of carbon internalised, to operate.
Other submitters, particularly those with interests primarily in renewable generation (wind and marine), strongly supported a 100% renewable generation future and considered it possible. The recognised that pricing carbon was an important step in encouraging the development of renewables. They noted however that it was unlikely to be enough to meet the government's climate change objectives and that a package of incentives, such as quota systems, mandatory renewable energy targets or feed-in tariffs, would be necessary.
Major energy users tended to support a diversified strategy where NZ continues to invest in generation from a variety of sources and all indigenous energy resources are exploited. Typical comments include:
- a full range of options should be available for supply of electricity to allow for price competitiveness
- all fuel/generating options need to be kept open so that NZ is positioned to rapidly adopt new technologies that will enable substantial emission reductions from fossil fuel sources
- Government should look at all different methods of generating power and invest in research and technology to allow the use of fossil fuels while minimising GHG emissions e.g. converting lignite to synthetic gases.
There was little support for a 100% renewable future from the fossil sector submitters. The cost and variability of renewable generation were factors against this scenario. Thermal generation, particularly gas fired plant, was needed to provide support for renewable generation. They expressed doubt that 100% new renewable generation will be economic, while 100% renewables can be technically done, this would be at a large cost to industry and greater than the emission savings. There were concerns that Government intervention may lead to higher electricity prices and windfall gains to investors in renewable generation.
Environment interest groups and many individuals supported a 100% or close to 100% renewables future. There were strong statements by some about the need to move to a system whereby remaining fossil fuel reserves are no longer required and are not extracted, that there was no role for coal, all new coal fired generation should cease and Huntly coal fired power station be decommissioned. Others recognised that back up fossil fuel capacity would be needed to offset natural fluctuations in renewable generation in the near to mid term.
Another noted that we need to leave our options open by not becoming reliant on a small range of energy sources and to allow for future technology that has the potential to reduce emissions from fossil fuels e.g. carbon capture and sequestration.
There was criticism from some regarding the sustainability of large scale hydro-electric generation which has significant and potentially irreversible environmental costs. The focus on renewables could put more pressure on for generation from this source.
Many individual submitters responding to the questions on the energy mix supported 100% renewable electricity, though also often recognised the ongoing need for thermal generation.
Streamlining regulatory barriers to new generation, was generally viewed by many submitters as a key area for government intervention. (see section on RMA and renewables).
Valuing low emissions energy
There was wide spread support from all sectors and from individuals that energy suppliers and other emitters should increasingly face the costs of the greenhouse gas emissions they produce.
There was a clear preference for a price based measure though differences in the preferred mechanism, its characteristics, the timing of introduction and whether other complementary policy options are required to encourage renewable development. Commonalities to coming through were:
- that any price based mechanism should be broad-based
- there should be strong links with international markets
- measures needed to be introduced while protecting the competitiveness of New Zealand industry.
A key area of divergence was around the timing of introduction of measures. Some stakeholders considered measures should be introduced without delay, others especially with concerns about competitiveness at risk continue to stress the importance of not moving ahead of our major trading partners.
Some stakeholder views are detailed below.
Comment from environment interest groups on carbon pricing both in the transition to 2012 and post 2012 was consistent. There were four key messages:
- a carbon charge/tax should be introduced as soon as possible as a transitional measure
- the charge must be broad based and cover all sectors, including transport
- commit to an internationally compatible emissions trading regime
- recycle any revenue from carbon charges into activities to achieve emissions reductions, energy efficiencies or to mitigate equity or fuel poverty issues.
Renewable energy companies (wind and marine) supported a broad based carbon pricing mechanism linked to international carbon prices. Pricing carbon would not however be sufficient to ensure that only new renewable energy is installed. There were issues around access to long term purchase agreements which affects market confidence in investment. It was suggested that a quota system, such as a Mandatory Renewable Energy Target would provide market stability. It was also noted that pricing mechanisms might not be sufficient especially for small scale generation. Feed-in tariffs were suggested as the most effective way of supporting this form of generation.
Major energy users, supported broad based policies that deliver worthwhile reductions in GHG emission without forcing the loss of industries that contribute significantly to the NZ economy.
In the electricity sector there was broad support for the price of carbon to be built into the market. This needs to be linked to the international price of carbon. Some firms advocated for an integrated cross-Tasman emissions trading scheme.
Many companies wanted a charge across all emissions sectors. It was emphasised that the market failure to price externalities is not specifically in the electricity market issue. It is a failure to price emissions across all emitters.
There were divergent views within the sector on the timing of introduction of carbon pricing.
The number of companies favoured an early decision on carbon charging. They wanted credible action to lock in a carbon charging policy to provide policy stability. Contact believed that a full trading system could be achieved by 2009 using an NZX platform
There were divergent views on the need for transitional measures. One firm supported a hybrid proposal on the road to full emissions trading. This would start with a carbon charge across a narrow electricity and heat (above a threshold) basis and include NGAs, PREs and thermal generators purchasing emissions offset credits.
There was resistance to transitional measures from others in the sector. One advocated introduction of a price based regime when it could be applied equitably across sectors, when the international value was well defined and when this aligned with our major trading partners. Other incentives could be used for renewables in the short term. Another argument against transitional measure was that generation and transmission will occur ahead of any charge based on long term expectation of price.
The electricity sector strongly favoured emissions trading as the preferred option.
In terms of trading details it was suggested that an expert group design this so that any transitional measure is actually a final measure.
Submitters views on the details of any scheme varied. Some favoured cap and trade, and auctioning rather than grandfathering, possible free allocation to competitive-at-risk businesses and the allowance of banking and borrowing to stabilise value. They opposed any windfall gains tax. Others favoured grandfathering as the preferred allocation method. Meridian wanted an offset scheme linked to full emissions trading.
Some thought that if environmental externalities were priced, then revenues should be recycled back to remedy environmental effects.
Once emissions costs are internalised, the majority view of these stakeholders was that the market should be left to make decisions on appropriate investment rather than the government creating distortions through picking winners.
There was some support for the Projects to Reduce Emissions mechanism as a means of initial acceleration of renewable projects. A submitter noted that other measures may be required at a later date after the first lower cost projects have been taken up to lift marginal projects over the investment hurdle.
Fossil fuel sector submitters had a range of views with the emphasis being that the carbon charge should not hurt New Zealand's international competitiveness. In common with electricity companies, and major electricity users they supported:
- cap and trade policy instrument in line with Kyoto Protocol and EU trading scheme. NZ should trade in the global market rather than establish its own
- measures to reduce GHG emissions should recognise international initiatives and not harm NZ economy and international competitiveness. A cost of carbon above our main trade competitors will increase our relative cost of energy and decrease the competitiveness of our major producing exporters.
- Greenhouse gas emission costs should be applied equally across the generation sector to encourage investment in thermal generation to help reduce emissions and meet electricity demand
- need a clear regulatory framework setting how the cost of GHG will affect electricity generators. Energy Strategy needs to clearly signal the cost of emitting greenhouse gases.
Triple bottom line accounting
There was little comment on this proposal.
Councils of Auckland region support triple bottom line reporting and seek consistency of reporting so major generators can be compared.
Fonterra supported mandatory reporting by major emitters as it:
- Would provide a better fact base for which to assess New Zealand's emissions and develop policy;
- is a prerequisite to responding to carbon footprint disclosure initiatives;
- is important for any emission trading scheme.
Distributed Generation
There is widespread support for the development of distributed generation (DG). Local Government considered it can contribute to security of supply and building community resilience in both urban and rural areas. A greater focus in the NZES on small scale local alternative generation and on-site systems which would create more certainty for remote areas was sought.
Distributed generation was seen by a Maori submitter as the way of the future for some communities. There was the need for more R&D and engagement with communities on this option. There was support for greater investment in renewable energy but only to the extent that new generation provides for Maori interests in those resources.
It is suggested by a number of respondents that more widespread application of DG could enhance security of supply and increase the proportion of energy generated from renewable sources whilst reducing the need for large scale investment in new generation and the transmission grid.
Other advantages of DG were: reduction of CO2 (renewables and cogeneration), peak load reduction (more so engine type than renewables), lower electricity losses, an increase in demand-side/consumer participation (depending on ownership). The goals for DG need to be clear, such as promotion of renewables and cogeneration rather than diesels for peak management. Line companies argue that their investment in DG can be used to assist dry year generation and at periods of peak demand to defer lines investment.
Other benefits of DG when compared with large central stations were:
- increased energy efficiency
- lower costs to electricity consumers (by reducing transmission costs and enhancing competition)
- contributes to a smart electricity system
- facilitates entry to the market by new players, and
- may be easier to finance if developers can spread risk over several projects rather than a single project.
Line company submitters and renewable sector submitters suggested that lines companies are inclined to invest in renewable generation (in contrast to large thermal stations) because of their size, cost and distributed nature. However they are currently constrained in their ability to invest in new generation and continue to advocate for greater freedom to invest in generation by removal of EIRA barriers relating to accounting and governance separation and effective capacity constraints.
Submitters considered there was a need for local generators to receive a portion of all local benefits. Suggested benefits include those from avoided carbon emissions, contribution to peak demand reduction at distribution and transmission level, avoided losses, the strategic benefit of having generation closer to load, and provision of more competition to the large generators.
It was pointed out that the benefits of DG are spread over a range of sectors. It was suggested consideration be given to aggregating these benefits somehow to create incentives for DG investors.
One submitter warned that encouragement of DG or embedded generation solely based on renewable energy resources to avoid GHG emissions is less likely to meet requirements for a secure long-term supply of electricity in NZ.
A submitter from the waste sector considered landfill gas electricity generation as a stable, reliable and consistent source of renewable energy providing multiple environmental benefits. Its potential should be discussed in the NZES.
Barriers to DG
Cost was seen as the main barrier to distributed generation by submitters from local government, environment organisations, the renewable energy sector and electricity and lines companies.
If the Government wants to promote DG then some form of intervention could be required to support a viable industry base. Currently DG suffers from the tyranny of scale. Without a critical mass and more certainty about market uptake supported by government initiatives there is little prospect for the emergence of a reliable DG industry.
It was noted that transmission infrastructure needs substantial improvement, both local transmission networks and the national grid, for DG to successfully contribute.
Other barriers to development include:
- cost of plant and equipment
- contractual and pricing arrangements for transmission and distribution
- price received for the generated electricity
- regulatory environment.
Cost of plant and equipment
The renewable energy sector submitted that the current cost of wind turbines makes it difficult for smaller projects, without economies of scale, to meet investment hurdle rates. Relatively fixed costs such as resource consents can also be prohibitive.
Contractual and pricing arrangements for transmission and distribution
Submitters noted price barriers that smaller scale generators face in order to get electricity to the grid. Currently there are no incentives for small scale generators to expand generation or sell excess capacity as the price to connect to the grid is prohibitive. Transpower's transmission pricing methodology has the effect of discouraging the establishment of DG in major load centres.
It is difficult for DG projects to realise the financial benefits of the reduced transmission and network losses and deferred network investments that they may help to create. If these financial benefits cannot be realised through regulation then an alternative "feed in" tariff mechanism may be appropriate.
Price received for the generated electricity
Currently, spot market prices are not bankable for small generators looking to fund their projects, and prices offered by generators are insufficient to justify investment. Low prices for generation offered by the major generators could in part be because small generators are in competition with the large generators.
Regulatory environment
Submitters considered that the regulatory environment has still some way to go before adequate levels of certainty can be achieved to facilitate an acceptable straight forward process for the initial stages of DG investigations. If it is too difficult and costly to negotiate through regulatory hurdles, such as the RMA and council requirements, then DG investment will not occur. Anecdotal evidence suggests a very low rate of conversion of initial enquiry to generation. Some submitters suggested further work was required to reduce the consent burden for small scale projects.
Other comments were that presently transmission costs and grid losses are treated as "pass through" by lines companies so there is no incentive for them to invest in DG, current market opportunities for DG in general are limited and wide-scale realisation opportunities are unlikely to be economic. There is a trend for an increasing level of fossil based DG for load reduction in urban areas using diesel generators at peak times.
Submitters recognised the work currently underway on DG regulations. They noted:
- regulations should not be too cumbersome or it will hinder DG uptake
- there was too much emphasis on lines companies - barriers should be reduced for all generators
- the proposed regulations do not deal with grid connected DG
- regulations should be amended so generators are entitled to some or all of the avoided transmission costs
- proposed regulations do not provide sufficient incentives.
Way Forward
Several ways of supporting the uptake of distributed generation were suggested. These were:
- Feed in tariffs and the use of smart meters were commonly suggested to make the ventures economic. Under a "feed in" mechanism the electricity price obtained by lines companies for DG projects would be clearly defined and the expected rate of return would be transparent.
- Through Transpower's pricing schedules by:
- increasing the variable component (kWh or MW) .
- generators paying for all of the system or at least the variable component of the prices for the system.
- A minimum guaranteed price is needed to support investment into small scale generation
The emergence of electricity market agents who provide an aggregating service for small DG operators is a good sign. Once there are sufficient numbers of small generators in the network then a more competitive generation sector will emerge. This sector could also provide some of the ancillary services at a cheaper cost if the technologies for active networks were introduced.
Direct Use Heat and Power
Gas
Fossil fuel and electricity sector submitters noted that parts of the NZES focus on gas for electricity generation rather than an energy source in its own right, not recognising the efficiency benefits of direct use. This could result in electricity being substituted for gas for heating, more coal and light fuel oil being used in industry. Direct use of gas (DUOG) for heating is more efficient than using electricity generated at Huntly, for example, for the same purpose.
They considered NZES should endorse the direct use of gas as the lack of endorsement acts as a disincentive for investment and consumers to choose DUOG.
Solar
Solar heating was supported by Local Government, Consultant and Environmental NGO sector and many individual submitters. Specific comments included:
- extend the programme to provide financial incentives to encourage the uptake of solar water heating
- broaden government support for solar heating to include support for photovoltaic cells that can feed energy back into the national grid
- change the building code to require installation of solar heating. A consultant extended this idea by suggesting that regulations should be put in place so that every new house has to have a certain minimum area of solar collectors properly oriented and mounted.
Passive solar for space heating and cooling is the most cost effective use of solar but is not well recognised in building consent and design processes or by the householder. Effective bylaws need to be in place and enforced if passive solar is to reach its potential.
Wood
Environmental NGO sector suggested that focus was also needed on supplies of clean burning wood residues for home and industrial heating. An individual submitter suggested that biomass is underdeveloped particularly for direct heat applications.
A novel approach by one individual submitter suggesting research into the use of absorption systems for home heating and cooling using wood based heating source.
Waste Heat
Counties Power favoured development of initiatives to facilitate and encourage waste heat recovery in general for direct use.
Carbon Capture and Storage
There were mixed views around carbon capture and storage, some saw it as a way to continue to use fossil fuels and exploit New Zealand's indigenous resources (gas, oil, coal, hydrates, coal bed methane etc.) and reduce emissions, while others felt that the technology was still some way off, expensive and may not work in the long term.
In the future the gas market may benefit from new carbon capture technologies putting it on an equal footing with renewable energy. It may find a new life in ways not yet fully considered.
Some energy companies with fossil fuel interests noted that a necessary and effective contribution to the global response to climate change would be to expand incentives for and investment in, technology research, development and deployment, including Clean Coal Technologies. Carbon capture is expensive at present but an important element in the long term. Government should consider working with industry to implement fiscal changes to commercialise the technology as CO2 capture and storage technology is one of the most promising options for mitigating emissions.
Another submitter said carbon capture will be an important facet in achieving carbon neutrality in the long term. Government should consider and implement legislative changes that are required to enable carbon sequestration to become a reality in NZ. Carbon capture and storage technologies may be closer to commercial application than other emerging technologies such as biomass based transport fuels or marine energy.
Others disagreed with a focus on carbon capture and storage as:
- companies in this area have sufficient funds to research this themselves
- New Zealand is too seismically active for this to be a sure solution
- it was more important to focus on energy efficiency and renewable energy source research, the FORST output class should be directed away from oil and fossil fuel related research
- it was an example of "picking winners".
Environmental effects and the RMA
There were divergent views expressed by stakeholders on the operation of the Resource Management Act. Stakeholders who are applicants to the RMA (large and small renewable energy and fossil fuel generators, Transpower, and a few major users) continue to perceive the RMA as a barrier, despite recent reforms. These stakeholders tend to welcome initiatives to streamline and speed up the process but do not think a consolidated call in process is useful in this regard.
Major electricity companies in general recognise that the RMA is an appropriate framework for balancing of national interests against local effects and is reasonably sound but could be improved to make consent processes more timely, decisions more consistent and ensure that the wider interests of New Zealand are considered appropriately. Policy measures suggested were:
- amend section 6 of the RMA "Matters of national importance" to include electricity generation and associated infrastructure
- Provide national guidance under the RMA to achieve good sustainable management outcomes with regard to renewable energy and support the objectives and goals of the NZES. A National Policy Statement would provide guidance to local government and RMA participants, advisors, investors and decision makers. It would ensure, due to its statutory basis that consenting authorities give sufficient weight to implementing central government policy.
- Issues with non-compliance with time frames for resource consent processing. Suggests timeframes should be binding in nature and subject to sanctions for non fulfilment.
Establishing expert panels or boards to consider applications under the RMA were also advocated as a means to achieve a consistent approach to consent and to provide independent decision making. The mechanisms were noted as being similar to the independent commissioner role currently in place under RMA. Suggestions were:
- call-in future renewable generation projects to the Environment Court or a standing Board of Inquiry to speed up the process and promote consistency
- for Government to consider a power to appoint an independent and expert commissioner to council decision makers panels if this would assist
- a panel of commissioners to be appointed to hear applications that meet the requirements of the National Policy Statement and are of national importance.
While the sector recognised the importance of local input there were also suggestions that the process could be streamlined by restricting the right to submit (or be heard) to those directly affected, not allowing "in principle" submissions so old issues could be relitigated with every consent application and providing a voluntary mechanism for direct referral to Environment Court for complex or nationally significant projects be established.
Whole of government submissions were supported.
The sector did not support the proposed consolidated call-in process. They noted that the NZES was short on detail about its objectives and how it would work. Several companies considered, despite insufficient information, that there were risks associated with pooling applications.
Submitters with interest in wind and marine generation also supported assessment of projects by an expert panel on a case-by-case rather than consolidated basis. They stressed the need for a clearly defined non-political mechanism and supported maintaining a high level of local involvement.
Local Government considered the draft NZES did not focus on improving the use and understanding of the mechanisms already in place. They argue that the focus should be on making these work in order to get the right policy environment. There is a preference for national guidance under the RMA for renewable generation and improvements to regional planning processes.
It was acknowledged that the 2004 reforms have improved the ability of the local government sector to take account of national interests in the consenting process for renewable generation projects but more support and guidance from national agencies was needed to undertake this role effectively. It was suggested national support should assist councils to achieve more integrated planning processes and improve information, analysis and monitoring. Councils submitting independently suggest national support could take the form of information based tools for assessment of renewable energy projects or development of guidance, design standards and best practice for managing climate change issues.
There were mixed views on whether national guidance should take the form of a National Policy Statement for renewable generation. LGNZ was silent on the role of a National Policy Statement for renewable energy. Several councils supported it as a means of providing useful guidance, though localised effects need to continue to be managed on a local basis. Several councils did not favour a National Policy Statement for renewable electricity generation as it could become overly prescriptive and limit the ability of consenting authorities to take into account local circumstances.
LGNZ notes that local government can be constrained in fulfilling its role under the RMA and Local Government Act 2002 by lack of information about development strategies and the plans of energy developers. This can marginalise the role of councils "to a gatekeeper role at consenting stage of energy projects". They suggest better integration of the long term plans of the energy sector into local government strategic planning processes would enable the RMA to operate more effectively.
Local Government suggested calling for expressions of interest in particular natural and physical resources could strengthen strategic planning processes which identify resource management objectives, policies, and rules that guide development and use of resources in local areas. It was noted that integrating energy developers' plans into regional strategies could also lessen the adversarial nature of the consenting process.
Local Government was ambivalent about the merits of a consolidated consenting process, either favouring investigation into its merits or reserving a decision until there was more information available.
Maori submitters considered that it is important, especially in the push for increased wind generation, that cultural and social values of local communities are not undermined by building wind farms on land that has significant cultural value. Any attempt to weaken the community's ability to participate in resource management processes should be resisted. Call in procedures would put an onerous burden on some groups, such as Maori. There was concern that proposals would weaken or undermine Maori involvement in resource management processes.
Maori submitters also considered that present RMA legislation and Local Government Act should be changed to ensure Maori involvement as decision makers is required (currently legislation is permissive but this was said to be inconsistent with the Treaty partnership and does not ensure proper Maori representation). They also considered that the RMA model was still very reactive - local government needs better guidelines on how to integrate energy goals for the region relative to supply and affordability.
There was support from submitters with environmental interests for proposals for further national guidance under the RMA for renewables and climate change. It was seen as complementary to economic instruments and would help avoid uncertainty and inconsistency in decision making. Several submitters in this sector opposed any changes to RMA that would compromise the fundamental tenets of environmental integrity via a fair and accessible process. Another noted the RMA must not be changed to enable fast tracking of resource consents.
Major energy users sector were supportive of removal of RMA barriers to renewable energy development. EMA Central said that the fact that it is easier to get consent for thermal than renewable generation brings in to questions the fundamental concept that underpins the RMA. Stevenson Energy believes that RMA approvals need fundamental reform, that the strategy needs to consider water access rights, and expressed support for a streamlined consents process.
Other suggestions on regulatory issues were:
- progressing the draft Electricity Generation National Policy Statement which addresses the relationship between national and local interest
- ensure changes to the New Zealand Coastal Policy statement provide that wind turbines can be an appropriate activity in the coastal environment
- provide further guidelines on wind noise standards e.g. an National Environment Standard (NES) to cover noise emissions, vibration standards and related avifauna effects
- a NES be developed identifying performance standards for wind energy plant
- wind farming should be regulated as an appropriate activity in all places except National Parks and where it causes adverse effects as determined by national standards
- the NZES should consider how water access rights are to be addressed
- an NPS is required to protect the environmental values of fresh water and finite stock of rivers.
It was also suggested District and Regional Councils be directed through a NPS to designate land where wind power is a permitted activity. It was suggested that a certain percentage of land is allocated for wind farms as a permitted, controlled or discretionary activity. In a similar vein it was recommended a specific national site priority plan for wind farms be developed. A national wind location plan could indicate where compromises between wind energy requirements and local landscape and conservation values could be achieved;
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