Speech notes for launch of NZ Energy Strategy. Grand Hall, Parliament Buildings, Wellington
Slide 1: Title
I’m thrilled to be here today for the launch of this Strategy, which is the result of much hard work, and input from stakeholders. Thanks for that.
Slide 2: Climate Change Solutions
The Energy Strategy responds to two major challenges that our energy sector faces. These challenges are now widely agreed: fighting climate change by reducing our emissions, and ensuring we have secure, clean energy at an affordable price.
We have already announced a target of 90 percent renewable energy generation by 2025. This will not compromise security of supply. Last month’s emissions trading announcement provided many of the details on how we could get there. The New Zealand Energy Strategy takes us a step further.
Slide 3: Renewables future makes economic sense
Under an emissions trading scheme, the electricity sector will face the costs of greenhouse gas emissions from 2010. Electricity generated from fossil fuels will cost more to produce, and further improve the viability of renewable alternatives.
This graph shows the expected costs for new electricity generation. We already know from recent investment by major generators in wind and geothermal, that many of these projects are already competitive with fossil fuel alternatives. Assuming a medium term emissions price of $25 per tonne of CO2 emissions, substantial additional quantities of new geothermal and wind are clearly economic. Although it is likely to be some time before the international and New Zealand carbon price reaches $25 per tonne, new power stations last for decades and it is likely those building them will take into account the longer term cost of emissions.
Given the growing international consensus that the world should reduce its greenhouse gas emissions, not only does a high renewables target makes good environmental sense, it also makes economic sense. Building more fossil fuel generation would increase the future cost of reducing electricity emissions.
Slide 4: Low carbon electricity
New Zealand’s electricity costs are already low compared to international averages. And as a nation, because the majority of our generation is already renewable, the cost of reducing emissions from electricity in New Zealand is much lower than in other countries. This will give our businesses an increasing point of comparative advantage into the future.
We also minimise the risk that New Zealand’s electricity system could become reliant on imported LNG. If that happened, New Zealand’s electricity prices would be linked to international oil and gas prices for the first time in our history. The resultant price increases would make the increases in the last decade look modest. Focusing on renewables makes an LNG future very unlikely.
Slide 5: Opportunities to reduce electricity emissions
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 being offset to achieve carbon neutrality. 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 6: Role of fossil fuel generation
There’s a good reason why we didn’t go for a 100 percent renewable target, and it’s because of security of supply and cost. Fossil fuels, especially gas, will continue to have an important, albeit declining role for some time to come.
They provide security, versatility and stability in how electricity is supplied. The government’s recent successes in stimulating gas and oil exploration will help to ensure we can use our indigenous resources, rather than imports.
But while some fossil fuelled electricity is needed, we don’t need lots more of it.
The final strategy confirms the government’s view that all new generation should be renewable, except to the extent needed to ensure security of supply. We don’t believe there should be any need for new fossil fuel plants to be built for baseload generation for at least ten years.
The ship is already turning. Since the draft NZES was released in December last year, Mighty River Power is no longer re-firing Marsden B on coal, Contact Energy is deferring the gas-fired Otahuhu C while it invests two billion dollars in renewables. We’ve got major wind farm expansion being built at Makara and elsewhere by generators large and small like Meridian, Trustpower and New Zealand Wind Farms. We are already seeing the first major expansion in geothermal electricity for decades.
Over time, pricing emissions, and other initiatives contained within the Energy Strategy, give a strong economic signal to investors to build renewables rather than more gas or coal fired.
The Prime Minister has today announced that the government is providing additional leadership via the state-owned generators, who between them generate around two-thirds of New Zealand’s electricity. The government does not believe it is in the interests of the country for the SOEs to build any more base-load thermal generation. The government will be writing to the SOE generators to make it clear that it expects them to follow this guidance.
We are also considering additional measures to ensure our message is loud and clear, for all generators, not just SOEs. Competitive neutrality between the private sector and SOEs is important. As the Prime Minister mentioned, we are considering amendments to the Electricity Act to limit new baseload fossil fuel generation over the next ten years. We expect to make a decision on this before Christmas.
Slide 7: Barriers to consenting renewables reduced
Achieving our renewables target means it’s essential that economic renewable projects gain resource consents and are built.
The NZES has no statutory effect under the RMA. More national guidance on renewable energy is required.
As the Prime Minister has said today, the government is preparing a National Policy Statement on renewable energy. This does not meant renewables at any environmental cost. We know water is a renewable resource but our unmodified rivers are a finite resource, valued by New Zealanders. We don’t need to dam lots more rivers. Nor do we need windfarms on every ridgeline. But our commitment to renewable electricity, and to reducing greenhouse gas emissions, requires a substantial increase in renewable capacity overall. The graphs in the New Zealand Energy Strategy show we expect most of this will come from geothermal and wind power in the years to come.
Blaming the RMA for historical underinvestment in infrastructure has always been misguided. The reality is that under this government new motorways, power stations, transmission facilities, schools, hospitals and so on, have been consented and built without undue RMA delays. This multi billion dollar investment in infrastructure is proof that the RMA is sound legislation that does not stop appropriate developments.
Nevertheless, the government does play a role in ensuring that consenting processes are completed in a timely way. This is especially important as we move through the transition to more renewables. 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 no criticism of local authorities. The same environmental rules apply but the one-step process can save developers, opponents and territorial authorities the time, stress and cost of two hearings where an appeal seems almost inevitable. Transpower's Upper North Island Grid Upgrade was of course recently called in.
We know many are of the view that the call-in process should be used more frequently as we transition to a renewables future. All requests for a project to be called-in will be considered on a case-by-case basis, but in my view, the call-in power is there to be used, and I expect more projects to be called-in in the future. The Ministry for the Environment will be providing guidance on the use of the call-in power.
Slide 8: Oil dependence
I’d like to reiterate what the Prime Minister has said on transport – it is a challenge to reduce emissions in this sector.
Our future prosperity depends on having a clean, secure and reliable energy system. It’s a critical issue for all New Zealanders and the government.
Oil accounts for around half of our total energy needs. The vast majority of oil is imported, making us vulnerable to disruptions in supply and price rises that are beyond our control.
Slide 9: Opportunities to reduce transport emissions
Our focus in transport is on energy efficiency, more public transport and alternative fuels.
The benefits are clear – apart from reducing our contribution to climate change, we can have cleaner air and less reliance on imported oil. Although not designed because of peak oil concerns, measures which reduce greenhouse gas emissions from transport also reduce our dependence on oil, which will be of comfort to those worried about peak oil.
Slide 10: Our transport future
Let’s look forward to what our light vehicle fleet might look like in 2050. Although we don’t know what the exact mix of fuels will be, our vehicle fleet and fuel mix in 2050 will be different to today’s. The speed at which alternative fuels are being developed internationally is driven by both climate change and energy security. We want to be in a position to adopt these new technologies promptly. To help us prepare, we’re establishing an expert group to facilitate the transition to low carbon fuels and new vehicle technologies.
Slide 11: Total energy emissions savings.
It’s clear that to make a difference to our emissions we need to make changes in many areas. But it’s also clear that this is achievable, and we can put our emissions on a downward path, while not putting security of supply at risk.
I am very confident about our energy future. 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. With our determination to take action, with New Zealand’s natural advantages, with our support for emerging technologies like marine energy, second generation biofuels and new electric vehicle technology, and with your help, I am confident that our energy system will be secure, clean and affordable.
Slide 12: Energy efficiency is crucial
Before Jeanette talks about the Energy Efficiency and Conservation Strategy I would like to make two points on efficiency.
There was widespread acclaim for the government’s proposed principle in the draft NZES that as a country we should invest in efficiency where this is cheaper than new capacity, using a discount rate of 5 percent real. Since then analysis internationally as part of international climate change negotiations has reinforced our view that this principle is important.
The graph shown is an illustration of international greenhouse gas reduction opportunities. It shows both volume and costs. It is indicative of international costs, not New Zealand costs. For example, renewable electricity is far cheaper in New Zealand, as is reducing deforestation emissions. But what the graph has highlighted to the world is shown in the left hand part of the graph, which shows there are very significant gains to be made from improved efficiency of energy use which save more money than they cost.
The Energy Efficiency and Conservation Strategy, which Jeanette will describe reinforces this. It is now underpinned by the best cost-benefit analysis we’ve ever had as a country. It’s robust, and what it shows that there are some very significant gains to be made through energy efficiency, which are cost effective.
Energy efficiency will make us wealthier because it reduces on-going energy costs, and has many ancillary benefits, including improved health. It is also crucial to achieving our environmental and sustainability goals. With the help of the NZEECS we will achieve significant advances for the benefit of our citizens.
So, it gives me great pleasure to pass over to Jeanette. As I do, I would like to thank Jeanette Fitzsimons for her sterling efforts, ably backed up by the government officials for the various government departments, EECA, and the Electricity Commission. Your efforts have been worthwhile. I’m confident that the specificity of the proposed actions under the NZEECS will sheet home accountability for achieving these objectives and so ensure that this strategy will be achieved in practice.
I would like to thank again those people who contributed to the development of the Energy and the Energy Efficiency and Conservation Strategies, many of whom are here today.
We are very grateful to all those that took the time to make submissions and give us the benefit of their considered views on the wide range of issues covered by the draft strategies.
The government has invested a considerable amount of time and effort into developing these strategies. We’re determined that the momentum generated will continue.
It is critical that the government continues to engage and involve stakeholders in our journey to a sustainable and low emissions energy future.
As part of that, the Ministry for Economic Development and EECA will be running a technical briefing on these two strategies next week in Wellington, and there will be more engagement with stakeholders as we move into the implementation phase.
Local government, with their regulatory and planning responsibilities, will have a big part to play in delivering many of the initiatives of these strategies. The government will be engaging with local government to work on implementing these strategies, especially focusing on areas where we don’t have working partnership.
To stay accountable, we will be publishing a report each year that outlines the progress we’ve made in implementing the Energy and the Energy Efficiency and Conservation Strategies.
And to stay relevant, we’ll be reviewing the implementation of the strategies every five years. We’ve been told by stakeholders that the energy sector needs greater policy and regulatory certainty. So unless there are substantial changes internationally that make this strategy unworkable, I don’t anticipate that we will be reviewing the fundamental vision and direction set out in the Energy Strategy.
The next few years in the energy industry will be both challenging and exciting, and we look forward to working with key stakeholders as we move towards the development of a sustainable nation.
Thank you for attending, and I invite you to pick up a copy of the documents on your way out.