BusinessNZ Energy Council (BEC) Breakfast 10 March 2022
Thank you very much for providing me with the opportunity to speak here at the Business New Zealand Energy Council Breakfast.
It’s wonderful to see you all, albeit virtually, again. I always look forward to this event, and see it as an important opportunity to talk with a wide range of leading energy-sector businesses, government and research organisations, and discuss my priorities for the year ahead.
You’ll be aware that climate change is a key priority for this Government. It’s a threat to our economy, our environment and our everyday lives, so investing in a sustainable energy system will benefit us all, and see us better placed to deal with future shocks, especially as we accelerate our economic recovery from Covid-19.
Today the main things I want to talk to you about are the challenges and the opportunities that come with decarbonising our energy system.
By 31 May this year, the Government will set New Zealand’s emissions budgets for three budget periods and finalise an Emissions Reduction Plan.
This is part of our long term-plan of making tangible progress towards an affordable, low emissions future, with an emphasis on increased self-reliance, and greater freedom from the whims of shifting geo-political sands.
I can’t pre-empt the Emissions Reduction Plan, but it is clear that our energy system needs to make fundamental shifts in order to achieve our net-zero target, from the way electricity is generated, to the ways consumers and businesses use energy.
The good news is that actions we take here will not only decarbonise energy but will also enable reductions right across the economy.
This morning I’m going to talk about four key areas where I see need for improvement, but also hope.
The first is energy efficiency. We know that gains here lead to big savings for both Kiwi businesses and households, and can be deployed at a lower equivalent cost than new generation.
The uptake of energy efficient technology could significantly reduce the cost of meeting our decarbonisation goals, while also supporting economic wellbeing and an equitable transition.
This is evident in the Government’s extremely successful Warmer Kiwi Homes programme designed to boost energy efficiency and health standards in the home.
Low-income families, young children and older Kiwis are especially vulnerable to the effects of living in cold, damp homes so I’m proud this government scheme is making such a difference to their quality of life, with reduced risk of respiratory illness, doctor’s visits, and hospitalisations.
Similarly, there are also multiple benefits to the Māori and Public Housing Renewable Energy Fund we set up 2020, a $28 million dollar fund to trial innovative, potentially replicable, clean energy solutions for households in need.
So far $2.6 million has been allocated to 15 Māori housing projects around the country, providing a clean, cheap source of electricity for more than 200 homes. Half of the fund is allocated to public housing projects. And Kāinga Ora is scoping up some innovative ways to generate power and share it across public housing.
I am particularly proud of this initiative, as it has demonstrated our ability to deliver for New Zealanders across the Energy and Resources, and Housing portfolios and we’ll have more exciting updates on this in the coming weeks.
A second key area of focus is ensuring that the electricity system is future ready.
Given the high level of existing and potential renewable generation, New Zealand is well positioned to transition away from fossil fuel use, but to get to our aspirational target of 100 per cent renewable electricity we know we’ll have to reduce our reliance on fossil fuel generation while continuing to supply reliable and affordable electricity.
To transition the electricity system to our 2050 vision, three fundamental shifts will be required:
- There needs to be an acceleration of the development of new renewable generation.
- There must be changes to the electricity system to enable a renewable generation increase.
- There must be more support for the development and efficient use of our transmission and distribution capacity.
I’ll talk through these in turn.
On accelerating renewable generation, we will need to expand existing technologies, such as solar and wind, as well as exploring the use of new technologies such as offshore wind, pumped hydro, green hydrogen, and electricity storage, like large-scale batteries.
We are currently progressing work on how national direction tools under the new resource management system can better enable renewable energy projects. I understand there’s already been some great engagement from many of you on this, so thank-you.
We will be looking specifically at the regulations for offshore renewable energy, as investment here, could present an important opportunity to stimulate regional economic activity.
On the need for changes to the electricity system, we know that fossil fuelled generation currently plays an important role in the system – in supporting security of supply in a dry-year and during peak demand.
This underscores the importance of the New Zealand Battery Project, which this Government set up to investigate possible solutions to the dry year problem, while supporting the goal to achieve a 100 percent renewable electricity system.
The New Zealand Battery Project continues to investigate pumped hydro at Lake Onslow, other hydro and pumped hydro sites, as well as bioenergy, geothermal, hydrogen, compressed air and flow batteries. The focus for this year is a feasibility study of these options which will be examining technical feasibility and commercial viability, as well as environmental and cultural impacts.
I am also pleased to see industry doing its own investigations into solving the dry year problem. It is encouraging to see Genesis piloting biomass in its Rankine units, and that Meridian and Contact are also looking at the role hydrogen can play in contributing to the dry year response. Let’s keep working together to solve this.
I am also pleased that the Electricity Authority is investigating electricity wholesale market operation under 100 per cent renewable generation. It is also implementing real time wholesale electricity pricing to promote the efficient integration of increased levels of variable generation into the power system.
On improving infrastructure our focus should include greater integration of electricity efficiency and demand side management to help meet our vision at low cost.
The Electricity Authority and Transpower are implementing a new transmission pricing methodology that, among other things, seeks to address the first mover disadvantage for transmission connections.
The Electricity Authority is also updating the regulatory settings for electricity distribution networks. This includes undertaking amendments to the Electricity Code to allow distribution networks to have small scale generation connect to, operate on, and export from networks without causing power quality issues. This will help to facilitate the adoption of distributed generation on distribution networks.
Given the scale of impending new renewable generation and electrification, I am excited to see the emergence of more coordinated regional approaches to enable cost-effective investments in electricity infrastructure.
EECA, together with Transpower, local electricity distribution business and other regional stakeholders is piloting a Regional Energy Transition Accelerator Pilot in Southland to identify opportunities for process heat decarbonisation. The aim is to develop a well-informed, and, coordinated approach for regional decarbonisation.
And just last week Transpower began consultation on the potential for developing Renewable Energy. In a Renewable Energy Zone, multiple generators or major electricity users agree together to co-locate in an area, to enable cost-effective investments in electricity infrastructure, which can include transmission connection assets and upgrades to local distribution networks.
A third main area I want to focus on is reducing our reliance on fossil fuels and supporting switching to low emissions fuels.
As part of the development of an energy strategy, the Climate Change Commission explicitly recommended creating a plan for managing the diminishing role of fossil gas across the energy system, which should cover the associated consequences for network infrastructure and workforce during the transition.
This sentiment has been echoed in other reports that I have received, including:
- the Gas Industry Company’s investigation into gas market settings; and
- the Gas Infrastructure Future Working Group’s report on potential transition challenges and opportunities for gas infrastructure.
The phase-out of fossil gas will present both short- and long-term challenges. We want to work with the gas industry to consider what is needed to ensure fossil gas is available to industrial users in specified, unexpected tight situations to support gas availability during the transition.
I recognise that the gas market is complex, and we will need to understand what this transition will mean for both our energy supply and our workforce. We will have more to say about addressing these issues once the Emissions Reduction Plan is in place.
One of New Zealand’s major transition opportunities for the fossil gas sector is the use of renewable gases, such as biogas and green hydrogen. They offer an opportunity to lower our emissions, while retaining gas for applications where it is still required, such as in commercial kitchens and high-temperature process heat.
Re-using our infrastructure for these gases can help offset the extra investments in the electricity grid that would be required if significant numbers of gas consumers transitioned to electricity. It also supports wider energy diversity, and security of energy supply for consumers.
It is great to see a growing number of businesses taking a lead in developing renewable gas. I was particularly encouraged by the recent announcement that the Reporoa biogas facility will now generate bio-methane for injection into the fossil gas distribution system.
However, I acknowledge there is still a lot of work to do to encourage the development of using organic waste for biogas projects. This is an area of active interest for the Government, and we are considering what further work may be required to accelerate the development and uptake of renewable gases in New Zealand.
So too, the green hydrogen industry is in its infancy here, but has the potential to drive a smooth and equitable transition to low emissions in the energy and industry sector. The Government is investigating the potential for supporting its development as we head towards our second and third emissions budgets.
Initial modelling also suggests that green hydrogen will be significant for reducing emissions in areas of the economy that are hard to electrify. We are reviewing the regulatory system for hydrogen to evaluate how fit-for-purpose the current settings are. We are also undertaking work to identify the changes needed to relevant standards that would affect the use of hydrogen.
Reducing emissions and energy use in industry is another area I’d like to focus on. In our 2050 vision, New Zealand industries will be using low emissions energy efficiently to produce the goods we need across our economy.
In the shorter term, changing how we use energy in industry, particularly for process heat, will be crucial to meeting our early emissions budgets. Energy efficiency improvements and fuel switching will benefit businesses by reducing energy use and exposure to NZ ETS costs, improving productivity, and increasing the resilience of our domestic producers.
In September last year I announced that 23 successful applicants to the second round of Government Investment in Decarbonising Industry or GIDI Fund would receive $28.7 million dollars in government co-investment in for their projects. With $54.5 million of their own funding, this will result in 2.8 million tonnes lifetime emissions savings. So far GIDI has approved 39 projects with a total of 6.6 million tonnes of lifetime emissions savings. I am excited to announce the results of the third round of funding soon.
We will continue to work with large energy users, industry bodies and other technical experts to support business decarbonisation planning through EECA Business Programmes. These programmes include the Energy transition accelerator which helps large emitters to develop decarbonisation pathways for their businesses, and Sector Decarbonisation Plans that partner with industry associations and others to provide transition roadmaps for sectors that businesses can replicate.
This Government is focussed on supporting businesses to become early adopters of new technology and global leaders ready to seize the markets of tomorrow.
I’ve talked so far about four significant shifts needed in the energy system. In working to achieving these shifts, I am very cognisant of the need to make these changes without compromising security of supply or energy affordability and accessibility.
These are not nice-to-haves. They are non-negotiables.
That’s why I am looking to a National Energy Strategy to help set the pathways to navigate our way through the transition and to provide some of the sought-after certainty to industry and consumers.
An energy strategy could set the direction for our pathway away from fossil fuels and towards greater levels of renewable electricity and other low emissions alternatives
During consultation on the Emissions Reduction Plan, we heard how a strategy should provide long term market signals about the broader sector’s direction of travel, the interconnected nature of the energy system, and the role of that system in driving decarbonisation more widely across the economy.
We also heard calls for updated regulatory settings which enable a low emissions energy transition, calls for rapid investment in renewables and associated infrastructure, calls to clarify the position of our existing fossil fuelled industries, and a reaffirming of the importance of energy equity, inclusion, and representation of iwi/Māori within our sector.
You told us how an energy strategy must consider broader objectives beyond decarbonisation. I want to reassure you today that maintaining affordability and security of supply, will always be a priority for this government and we will kick off work on the Energy Strategy in earnest, after the Emissions Reduction Plan is published.
To finish, I will change tack a bit. Looking back on the past few years, I am proud of what we have managed to achieve to support our transition to a low emissions economy which includes significant progress on actions under the Resource Strategy.
Progress on actions have included changes to the Crown Minerals Act to support our transition away from fossil fuels and strengthening decommissioning requirements for petroleum infrastructure. Other actions have focussed on securing affordable resources to meet our minerals and energy needs, such as developing a critical mineral list for New Zealand. We recognise that some minerals will become increasingly important to support our transition. To advance this work, MBIE is progressing a discussion document for consultation which they are aiming to publish in the second half of this year.
And finally, I want to thank you all for your participation and engagement. I know things will have been tough at times, but it’s worth noting that our recovery from COVID-19 hinges on our ability to build a more resilient, fairer, and sustainable future for this country.
I look forward to working with you this year and hope that we continue to successfully collaborate in 2022.
Ngā mihi nui, thank you