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In setting a clear direction for the future of New Zealand's energy system, the Strategy states as a principle that: "for the foreseeable future, it is preferable that all new electricity generation be renewable, except to the extent necessary to maintain security of supply".²³

In eight months the government has been aligning the legislative and regulatory framework to support the Strategy. Legislation and regulations providing greater support for the private sector development of renewable energy have been developed and taken through several major steps in the legislative and regulatory processes.

This section reports on chapter 9 of the Strategy, on 5.2 of the NZEECS (promoting the uptake of renewable energy) and on actions relating to renewable energy in the residential and business sectors in chapters 2 and 3 of the NZEECS.

2.3.1 Targets and indicators

Target: 90 percent of electricity is generated from renewable sources by 2025 (based on an average hydrological year).

Indicator: The latest figures available (in Graph 4) are for the 2007 calendar year, which is the baseline year for the Strategy.

For the 2007 calendar year, hydro generation provided 55% of New Zealand's electricity generation. A further 12% came from other renewable sources, i.e. geothermal, wind and biomass, and waste heat sources. The remaining 33% came from fossil-fuelled plants (oil, coal and gas).

The total quantity of hydro electricity generation has remained at a similar level over the past 10 years; its percentage contribution has declined as increased demand has been met by increases in fossil-fuel generation. The variations in hydro generation in recent years have been due to variable storage capacity between 'dry' and 'wet' years.

Wind generation increased by 50% between 2006 and 2007, to 2.2% of total generation. Total wind capacity increased by 88% in the 2007 year.

In the 18 months to 30 June 2008, total installed generation capacity increased by about 5%, or 422 MW, to create a total generating capacity of approximately 9200 MW.

Graph 4: Percentage of electricity generation from renewable sources²⁴

→ Full size version of Graph 4 [20 kB JPG]

2.3.2 Activity

In New Zealand, energy development is a commercial activity. The government's role in meeting the 90% target is to set a clear direction through legislation and regulatory frameworks to enable and encourage commercial investment in low emissions energy sources.

Legislative and regulatory work to support low emissions electricity generation in the last eight months includes:

Developing a New Zealand Emissions Trading Scheme (ETS): By June 2008, legislation to introduce an ETS had been considered by select committee and recommended back to Parliament for its second reading. The proposed ETS will apply an economy-wide price signal to activities that contribute to climate change. By putting a price on emissions, this scheme improves the economics of renewable electricity generation compared to generation from fossil fuels.

Preference for renewable electricity generation: Proposed amendments to the Electricity Act 1992 create a preference for renewable electricity developments by restricting new baseload fossil-fuel thermal electricity generation, except to the extent necessary to ensure the security of New Zealand's electricity supply. This legislation is part of the same Bill as the ETS, and as at the end of June, had been referred back to Parliament from select committee for its second reading.

Guidance for councils under the Resource Management Act (RMA): Local authorities have been faced with difficult decisions when trying to weigh up the benefits of renewable electricity against local environmental impacts. A draft national policy statement for renewable electricity generation has been prepared and is expected to be released in August 2008. This will provide clearer guidance to consent authorities when making decisions on renewable electricity generation and when preparing their plans.

A National Policy Statement for Electricity Transmission was completed and is now operational. This provides guidance for local authorities as to the importance to attach to resource applications relating to the transmission grid, including for new and upgraded connections.

Lines companies to invest in renewable generation: Lines companies had been restricted from investing in generation in case they engaged in anti-competitive practices or set up monopolies in local areas. Amendments to the Electricity Industry Reform Act have been drafted to encourage lines companies to invest in renewable generation in their areas. Changes will enable these companies (who are often in a position to see new opportunities) to invest in new renewable generation in a way that ensures effective competition. By 30 June 2008 this proposed amendment had been reported back from select committee to Parliament.

There has also been progress in enabling the electricity system to integrate higher levels of intermittent wind generation and in facilitating transmission investment to support new generation from remote locations. These actions are reported under Objective 2: security of supply.

The government has also encouraged renewable generation by participating in RMA processes:

Using 'call-in' powers under the RMA: The Minister for the Environment has exercised his powers under the RMA to 'call in' nationally significant projects. This sets up a one-step decision-making process, which can result in speedier decisions and less costs for all parties. The resource consent application is heard by either a Board of Inquiry or the Environment Court and appeals are only permitted on points of law. In January 2008, the Minister for the Environment called in the Te Waka wind project application in the Hawkes Bay and referred it to the Environment Court, and referred the Te Mihi geothermal application in the Waikato to a Board of Inquiry.

Submissions: Government agencies have made submissions in support of new renewable generation projects seeking RMA resource consents, to bring to the decision-makers' attention the national significance of renewable generation.

The Crown can make all-of-government submissions under the RMA for nationally significant projects. All-of-government submissions were made for the Project Hayes and Mahinerangi wind farms in Central Otago. The Crown is participating in the appeals process in opposition to the appeals lodged against the two wind farms. The Minister also decided in July 2008 to lodge an all-of-government submission for Meridian Energy's Central Wind project near Taihape.

Work has also been underway to encourage greater use of direct heat from renewable energy, including:

• Clean heat for schools: 31 coal-fired boilers in schools were funded to convert from coal to wood fuel by EECA in a pilot scheme. Nine installations were completed before the 2008 winter.
• Solar water heating: mixed results:
  • 140 installers were trained in four polytechnics in 2007/08 bringing the total of trained installers to more than 330; seven councils have agreed to waive building consents fees.
  • Solar installation and product standards were published: The solar water heating acceptable solution for Building Code compliance came into force on 1 December 2007.
  • Financial support (grants) for commercial installations: Grants were contracted to support 58 commercial projects, equivalent to 575 residential-sized solar water heating systems.
  • There has been a low uptake of the three residential grants and loans schemes – few homeowners have taken up offers of government subsidies to install solar water heating. To boost uptake, changes were made to the grant schemes in June 2008. Changes include lowering industry administration costs, increasing the amount of the grant and simplifying the cost effectiveness criteria.
  • Provisional industry data indicates 3,400 solar water heaters were installed in the year to 30 June 2008, fewer than the year before.
• Clean heat for industry:²⁵
  • Nine businesses were awarded capital grants through the Wood Energy Grants Scheme (to a total value of $1.054m) to support the supply and use of 0.6 PJ of wood fuels.
  • Nine feasibility studies were funded at a cost of $1.054m, which collectively aim to increase the use of wood as a fuel by 0.7 PJ. Two of the studies were complete as at 30 June 2008.

2.3.3 Supplementary indicators

The level of investment in new electricity generation is a useful indicator of the changing proportion of renewable sources for New Zealand's electricity system.

Table 1 shows the additions (and one decommissioning and partial recommissioning) of major plant between 1 January 2007 and 30 June 2008.

Upcoming generation: Table 2 lists the generation capacity of known upcoming and potential larger scale renewable electricity projects, as of the end of July 2008. Of the projects under construction, 330 MW is due to be completed in the next 18 months (by the end of 2009) and the other 132 MW is due to be completed in 2010. These projects include two large wind developments in the Manawatu and Wellington regions, four geothermal projects in the central North Island and in Northland, and two small hydro projects in the Waikato and in Otago.

Another 209 MW of gas fired generation is also under construction or consented and the project is ready to commence (Table 3). These two projects are a peaking plant of 200 MW and use of flare gas (9 MW) in Taranaki.

It is unlikely that all projects in early stages of the development process will eventually be built; however, the figures in the three right hand columns in Table 2 provide an indication of the level of and direction of investment activity in the New Zealand market. (Note that this list was compiled at the end of July 2008 and is likely to date quickly as the status of upcoming projects changes frequently.)

New renewable generation required to reach the target of 90% of electricity generation by 2025:

The analysis supporting the Strategy assumes that demand is to grow at a rate of 1.3% per year, which is equal to a 26% increase between 2007 and 2025. Based on this assumed demand growth, approximately 175 MW of new generation will be required to be built on average each year to reach the 90% target. The actual amount of new capacity required each year will depend on the type of generation.

Direct use of renewable energy target in NZEECS: An additional 9.5 PJ of energy from woody biomass and/or direct heat from geothermal sources is used by 2025.

The Ministry of Economic Development collects data on the use of woody biomass for direct heat from some industry sources. This data is available in the Energy Data File, published annually.²⁷ It is noted that the data is incomplete. This target is difficult to measure as much direct heat generation (such from wood waste) is small scale and takes place within companies and is not reported.