Circa 2001: Renewable energy generation in New Zealand – State of the nation

2001. New Zealanders will be consulted this year on climate change and related issues, initiated by the Government.

According to the Cabinet paper, early decisions and directions, more public education about energy efficiency choices and actions available in the residential, commercial, and other sectors, is to be considered.

The paper says that a targeted public education campaign focusing on actions individuals and firms can take to manage their energy consumption could be developed.

The United Nation’s Intergovernmental Panel on Climate Change’s next assessment is due anytime and international political and business leaders rate climate change as being the most critical environmental issue facing the world.

Under the 1997 Kyoto Protocol, New Zealand will have a legally binding obligation to reduce greenhouse gas emissions once it is ratified and takes effect.

Although New Zealand emits about .02% of global greenhouse gases, the risks to our communities and economy are significant, according to the Ministry for the Environment’s website. The site says that the only way to reduce these risks in New Zealand and the Pacific is to encourage other countries to participate actively in an international effort to reduce emissions.

As a key part of New Zealand in this global scheme, the Ministry for the Environment and the Energy Efficiency and Conservation Authority (ECCA), are working in the development of the draft National Energy Efficiency and Conservation Strategy. The Minister of Energy Pete Hodgson is responsible for developing the draft.

In a saturated gas-fired and hydro generation industry, will alternative energy propagate in a milieu vulnerable to debate?

“The Government doesn’t support renewable energy at the moment in any way, shape and form,” says Alistair Wilson, Chairman of the New Zealand Wind Energy Association (NZEWA).

However, Daniel Paul of EECA explains that one of the key concerns of the draft Strategy is to introduce measures that will encourage greater use of renewable energy sources.

“Doing so obviously has significant environmental advantages,” he says.

Mr Paul goes on to say that the most economically viable means to increase electricity generation capacity is through gas fired power stations and efficiency improvements in existing hydro stations.

These are followed closely by renewable energy.

“Electricity generators have been investigating renewable energy projects throughout New Zealand for many years. The lack of development of these projects reflects the low electricity price in New Zealand. The draft Strategy is extremely focused on ensuring New Zealand does make a transition in coming years to renewable forms of generation.”

Guy Mullon, Senior Analyst of Phoenix Energy, says that for new generation of any type to make sense it needs a whole combination of variables to fit, “not just the type”.

“For most new generation, the deciding factor is finding someone who will buy the output at marginal cost for a certain amount of years. No investor will build a generator without a decent percentage of its output pre-sold.”

Mr Mullon believes that as technology improves for alternatives, the competitiveness of them will improve.

However, “as the wholesale price is still around 5 cents per kilowatt in Wellington and alternatives are at least still 1.5 cents per kilowatt above this, it will be a little while yet before they are a serious alternative to gas.”

However, Trustpower has instigated their plan of asking customers to pay extra for financing wind farms. According to Mr Mullon this is working well for them and will make up the shortfall in price for it to be viable.

Mr Wilson states that why renewable energy is not as competitive as other forms is that it is at a small cost disadvantage to gas fired generation as fossil fuel does not have to price in their environmental effects, particularly CO2 emissions. The premium gap is about five per cent.

“Renewable generation, which New Zealand has historically had a lot of, is reducing in share quite markedly due to this, while Government fails to send signals these investments will continue and costs will come to future generations,” says Mr Wilson.

To reduce emissions, one measure the Government will consider is a carbon tax, among other possible economic instruments, such as emissions trading, and non-price measures (such as educating the public). However, if a carbon charge is legislated, it will not come into effect until during the next political term, after a review of the tax system in general.

Effectively, the carbon charge will persuade consumers towards more alternative sources of energy and to less carbon intensive fuels, with a subsequent reduced rate of CO2 emissions.

Alistair Wilson is doubtful: “Will this change behaviour? It is still doubtful even at a high carbon tax you could significantly affect the competitiveness of some energy industries and not really achieve any environment outcome.”

Stuart Calman, coordinator of climate policy for the Ministry for the Environment, believes it could reduce emissions, but would have impacts on certain sectors.

“The government is looking at a range of measures within an overall package. The effectiveness of a carbon charge would depend on its rate and the availability of, for example, alternative fuels technologies. Generally, having a carbon charge will act as an economic incentive. It will make emitting greenhouse gases more costly but its effectiveness in reducing emissions would also depend on the other emissions that are in the mix, and the responsiveness of people to these measures and incentives.”

Mr Wilson has another plan.

He states how several other countries have had a look at all the mechanisms possible for New Zealand and have “actually come back to the mechanism we favour.”

Overseas it is called renewable portfolio standards. Mr Wilson christens it a Mandatory Renewable Energy Target. He wants it to be included in the National Energy Efficiency and Conservation Strategy.

The aim is to see renewable energy hold its share or slightly increase in generation.

Kyoto commitments for all developed countries collectively is 5% below 1990 greenhouse gas emission levels, although New Zealand’s target is based on stabilisation at 1990 levels, on average, during 2008 – 2012.

However, Mr Wilson asserts that if renewables hold its share or increases by 1-2% “There will be a 42 per-cent reduction of CO2 emissions from the electricity sector by 2015.”

The cost of this to electricity consumers will be somewhere between 1.5–6% price rise over business-as-usual electricity prices in 2015, enthuses Mr Wilson.

Stuart Calman: “While a 42% reduction in emissions from electricity would be a significant contribution, the costs of achieving it would need to be compared to other reduction opportunities, and it is unlikely to be a sufficient step on its own as electricity only accounts for around 5% of New Zealand’s total greenhouse gas emissions”.

“What we’re saying is that the Government is committed to climate change”, says Mr Wilson. “The Government really wants to bring about reliable, prompt action climate change. We’re saying, here is a mandatory target, which will achieve your climate change. One of the side benefits of that will be more of a lift for renewable generation.”

Issues such as the location of the electricity, explains Mr Paul, will have an impact on what generation technology is most economically viable.

“Renewable energy sources can incrementally meet growing electricity demand in areas with a favourable resource and avoid upgrading major transmission lines.”

Mr Paul paints a picture of large power stations that are centralised and require high voltage transmission lines to get the power to consumers.

“This is less likely to be the case with say a wind farm that will often be embedded within a local distribution network and provide power directly to customers through the local medium voltage network.”

Mr Wilson explains that the market is designed by the major generators.

“The major generators have a very large investment in thermal plants, and they are not interested, necessarily, to remove some of those barriers which (when the Government turned over and said self-regulate) was that small generators never got much of a voice at the table”.

He believes all he can hope to do is that the mandatory target is in the debate and “the best way to achieve that is for it to be included in the National Energy Efficiency Strategy.”

Guy Mullon: “Alternatives will increase steadily, but it is difficult to see large scale development in New Zealand for quite some time yet.”

By Peter Veugelaers

Published 2001, Eco-Living, New Zealand.


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