Carbon neutral electricity by 2025

Address to the symposium ‘Carbon Neutral Electricity in New Zealand’.  

Slide 1: Introduction

Good morning everyone. I would like to thank Victoria University and the National Energy Research Institute for holding this symposium on carbon-neutral electricity in New Zealand and inviting me to speak.

The government has set a goal for New Zealand to be a sustainable nation and as part of that we have set in motion a number of strategies to reduce New Zealand’s carbon emissions across all sectors.

This morning I’ll outline the direction the government has set in the New Zealand Energy Strategy for a carbon neutral electricity sector and some of the actions we have underway to get there.

The role of government to support this direction is constantly evolving and we welcome your input and ideas as well as your actions.

Slide 2: Responding to climate change

First, let’s look at the broader goals of this government. We have set an agenda for economic transformation that puts New Zealand on a world-leading path to an environmentally sustainable and prosperous future.

The government has set a clear direction for the nation to respond to climate change and is pursuing actions across all sectors.

The Emissions Trading Scheme establishes the framework for pricing all greenhouse gas emissions. It is a comprehensive scheme which will, over time, include all sectors of the economy, including the energy sector, and all greenhouse gases. Legislation to enact this Scheme is currently going through the Parliamentary process.

The New Zealand Energy Strategy – and the New Zealand Energy Efficiency and Conservation Strategy as an action plan under the Energy Strategy – also contains complementary targets and actions to reduce energy emissions.

Slide 3: NZ Energy Strategy: Our vision

The Energy Strategy responds to the major challenges that we face in our use of and supply of energy. These are ensuring we have a reliable and resilient system delivering New Zealand sustainable, low emissions energy.

Slide 4: Renewable electricity target

Specifically in relation to electricity, the government has set a target that by 2025, 90 per cent of electricity generation – in a normal hydrological year – will be from renewable sources.

Currently between 60 and 70% of New Zealand’s electricity is from renewable sources. Most of this is supplied from hydro generation, which varies depending on rainfall. Some comes from geothermal and a small proportion from wind.

The proportion of New Zealand’s electricity from renewable resources has been dropping since 1980 as coal and gas generation was built over the last 20 years. The government has now sent a clear signal to the electricity sector that the ship has to turn. We have enviable natural resources – and the economics of investment in renewables, particularly geothermal and wind – are viable.

Slide 5: Renewables future makes economic sense

Having a high renewables target makes economic sense for New Zealand.

This graph shows the expected costs for new electricity generation from various sources.

This graph assumes a medium term emissions price of $25 per tonne of CO2 emissions and a gas price of $9 per gigajoule.

It shows that there are substantial additional quantities of new geothermal and wind that are competitive with fossil fuel alternatives.

Let’s talk about the 90 per cent target in relation to how much new electricity generation will actually be needed. New Zealand currently has around 6100 megawatts of renewable generation capacity, and 2800 megawatts of fossil fuel generation, providing around 40,000 gigawatt hours of electricity. Electricity demand is expected to grow by around 20% by 2025, which would require approximately 3500 megawatts of additional generation capacity. To achieve the renewable electricity target, the majority of new generation investment would need to be renewable. This implies that we need around 175 MW of new renewable generation capacity per annum.

Slide 6: Forecast electricity generation

Modelling done to support the Energy Strategy suggests a mix of all renewable generation types will make up the renewables portion. The actual proportion of hydro to wind to geothermal – and other sources – will depend on commercial decisions outside the control of government. Those decisions will themselves be subject to a range of factors.

There is a lot of investment in renewables already occurring.  

• Geothermal -- Three more geothermal plants are being constructed now by Contact Energy, Mighty River Power and Top Energy, which is expected to add 125 mega watts of capacity in the next two years. Another two plants totalling 130 mega watts have been consented in the central North Island. Another project, Te Mihi, is currently seeking consent. And my understanding is that yet more proposals are being prepared. Geothermal energy is consistent and reliable and not weather dependent, so it has a great potential as a stable baseload source. Contact Energy, Mighty River Power and other companies are actively developing the resource.
• Wind --  Two wind projects, in Manawatu and Wellington, are now under construction and are expected to deliver 188 mega watts. A further five wind farms collectively totalling 312 mega watts have been consented. To give you an idea of the interest in wind, applications for resource consent have been lodged for nine more projects totalling another 1700 mega watts. Yet more projects are in the pipeline.
• Hydro -- With respect to hydro, resource consents have been lodged for five South Island hydro projects that would deliver collectively up to 415 mega watts of capacity.

Slide 7: Electricity emissions reduction opportunities

Without action, our emissions from the electricity sector would have continued to climb. With energy efficiency measures and more renewables, we can be 90 percent renewable by 2025, with residual emissions capable of being offset to achieve carbon neutrality.

Note that we are predicting the bulk of reductions to come from a greater proportion of renewable energy, and that technologies like carbon capture and storage or new renewables could well take our total emissions from this sector down close to zero.

Faster reductions in emissions may occur if the Genesis-owned Huntly plant can be economically retired into a drought year reserve role, or switched to gas.

Slide 8: Role of fossil fuel generation

The government didn’t go for a 100 percent renewable target by 2025. This is to maintain security of supply and to keep costs down.

Fossil fuels provide security, versatility and stability in how electricity is supplied. Fossil fuels, especially gas, will continue to have an important role for some time to come.

But while some fossil fuelled electricity will be needed for a while yet, we don’t need lots more of it, and we don’t need baseload.

The government’s view is that all new generation should be renewable, except to the extent needed to ensure security of supply.

The government considers that investment in a major new fossil-fuelled plant during the next 10 years would not be consistent with its vision of transitioning to sustainable low emissions energy.

Our modelling predicts significant volumes of cost competitive renewables, with no major fossil-fuelled thermal generation needed for 20 years.

The government has already written to the state-owned electricity generators indicating its preference for renewable generation. We have also introduced legislation into Parliament to amend the Electricity Act 1992 to limit new baseload fossil fuel generation over the next ten years. This legislation is part of the Climate Change (Emissions Trading and Renewables Preference) Bill.

The Bill adds new sections to the Electricity Act. These provisions will create a 10 year restriction on the construction of thermal generation of 10 MW and above whose fuel source contains 20% or more fossil fuels. Exemptions to the restriction will be allowed under specific criteria relating to ensuring security of supply.

The restriction on thermal generation is complementary to the Emissions Trading Scheme. Over time, pricing emissions will give a strong economic signal to investors to build renewables rather than more gas or coal fired stations.

Slide 9: Key actions for renewables

Achieving our renewables target means it’s essential that economic renewable projects gain resource consents and are built.

The experience of consent applicants for electricity generation in recent years has been that applications have been subject to appeal and processes have been lengthy and expensive for all parties. Councils have struggled to define how to balance local community and environmental considerations against the benefits of renewable energy.

The government is preparing a National Policy Statement on Renewable Energy to provide more guidance to local authorities. The government intends to have this policy statement in place by the end of next year – in time to influence the growing numbers of renewable energy projects that are being proposed.

This does not mean renewables at any environmental cost. We don’t need to dam every river or have wind turbines on every ridge line. But the government’s commitment to renewable electricity, and to reducing greenhouse gas emissions, requires a substantial increase in renewable capacity overall. Our analysis done for the New Zealand Energy Strategy shows we expect most of this will come from geothermal and wind power in the years to come.

The government can also play a role in ensuring that consenting processes are completed in a timely way. The Minister for the Environment can 'call-in' consent applications for nationally significant projects and refer them to a Board of Inquiry or directly to the Environment Court – speeding up decisions that would in all likelihood be appealed anyway.

Using call in processes is not a criticism of local authorities. The same environmental rules apply but the one-step process can save developers, the community and councils the time, stress and cost of two hearings where an appeal seems almost inevitable. In January, in recognition of their national significance, the Minister for the Environment called in the Te Waka wind project in Hastings and referred it to the Environment Court, and the Te Mihi geothermal project, and referred that to a Board of Inquiry.

Slide 10: Using energy more efficiently

The Energy Strategy also states that as a country, we should first invest in energy efficiency where this is cheaper than building new capacity.

New Zealand has an enormous potential to improve the efficiency of our energy use, and in many cases achieve cost savings too. Making these improvements as a first priority will help reduce the load required from electricity.

The New Zealand Energy Efficiency and Conservation Strategy is an action plan under the Energy Strategy. It provides for a wide range of energy efficiency initiatives across all sectors and many partnerships. How we can all act on opportunities to improve energy efficiency will, I hope, have a place in your considerations of achieving carbon neutral electricity.

Slide 11: Opportunities to reduce transport emissions

Another part of the low emissions energy challenge relates to New Zealand’s use of oil. Currently emissions from transport energy use are a significant percentage of our carbon emissions and increasing.

The government has set a goal that by 2040, our per capita transport greenhouse gas emissions will be reduced by half of those in 2007.

This graph suggests that this goal will be achieved in large part by substituting oil with electricity and biofuels. The government has made an in-principle decision that we want to be one of the first countries to widely deploy electric vehicles.

This goal has obvious implications for the load required from electricity generation.

Slide 12: Resilient, low carbon transport

Our Energy Strategy modelling provides an estimate of likely electricity demand from electric vehicles, based on some assumptions. The modelling has assumed that by 2030 17 percent of the light fleet will be plug-in hybrid, then growing to 60 percent by 2050, with 80 percent of their travel in full electric mode.

Allowing for a greater efficiency from electric motors but also a growth in transport demand, by 2050, this 60 percent of the fleet is expected to require less than 30 petajoules of consumer electricity for this transport task – that is, around 8 GWh.

This is an additional 14 percent of the expected annual electricity demand of about 60 GWh by 2050.

The prospect of an electric vehicle fleet raises all kinds of other challenges – and possibilities. Certainly there will be issues for the power industry in both generation and transmission planning, and in ensuring that not everyone plugs their vehicle in at the same time that they are cooking dinner.

In terms of managing peak load, there is a potential benefit from having so many batteries connected to the grid with the ability for power to be drawn from the batteries to the grid.

And during the off-peak periods, there will be benefit in enabling more ‘must-run’ generation to be drawn up by battery recharges. Perhaps electric vehicles will actually enable more of the normal electricity demand to be met from intermittent renewables than would otherwise be the case – as it can act as a huge dispersed storage facility.

Within government work has already begun in modelling the implications of this level of electricity in transport.

Slide 13: Technology and Innovation

Reaching the government’s targets for low carbon energy for New Zealand depends on technological advances and ensuring new technologies are deployed and become commercially viable.

The government is determined to be an early adopter of technologies, and to support technological developments and uptake of new technologies that are appropriate for New Zealand.

Marine electricity generation is still in an early stage of deployment and the government is providing assistance in the trial of pre-commercial projects through a $8 million marine energy deployment fund.

The government has also announced an $12 million Low Carbon Technologies Fund to assist other energy technologies to be deployed.

Slide 14: end

The path that the New Zealand Energy Strategy sets out will take us to a future that is sustainable, where we emit less and where we have a system that is reliable and resilient.

For electricity in particular, it sets out the path to a carbon neutral future with a strong target of 90% of electricity being from renewables by 2025.

This target is achievable. We have the natural resources and sufficient potential renewable electricity generation is economically viable.

But it’s still a challenge – and the challenge is for all of us. There is a big job to do – for business, policy, research, communities – and we need to collaborate and think outside the square to achieve carbon neutrality.

It is very encouraging to see such a level of interest in this topic at this symposium on carbon neutral electricity. I hope this signifies enthusiasm to be involved from you all in helping the nation reach this goal.

The debate is no longer about whether we should aim for carbon neutrality. The debate is about how we can best achieve it. The questions I would like to leave with you are:

• Who needs to do what?
• How can we work together?
• How well can we get to carbon neutrality – bearing in mind all the other factors that contribute to sustainability – maintaining affordability and security of supply being paramount.

I am committed to listening to your suggestions about what government can do and how we can all work better together towards this goal.

I hope that this symposium will inspire you all to action and I look forward to hearing the outcome and your ideas and suggestions.

10.30am, Old Government Building Lecture Theatre 1,

Victoria University Pipitea Campus, Wellington