Energy Trusts of NZ Autumn Conference
It’s a pleasure to be here today. Thank you Karen [Sherry] for the introduction and thanks to the Energy Trusts Executive for inviting me to speak at tonight’s event.
It is an exciting time to come to speak to trustees of distribution companies.
For many decades the electricity industry was largely stable and secure with little change. As you are well aware that is all changing. New technologies such as batteries and smart EV chargers are already beginning to change how New Zealanders consume electricity.
These changes and their knock on effects to how we consume electricity are likely to have a profound impact on the industry in the next 30 years.
So how do we continue preparing for disruption while unlocking the benefits?
Enabling new technologies has the potential to greatly lower the cost of electrification. And it will be critical to managing peak demand and supporting increased renewable electricity generation as we decarbonise our energy system.
Network innovation and developing a market for demand response, can play a key role in unlocking benefits from new flexible distributed energy resources.
Responding to this change and uncertainty requires nimble and astute management and governance. I’m confident the sector fully understands the need to rise to the challenges the future brings.
However, there are also more immediate challenges for the entire industry. New Zealand is currently experiencing stressed wholesale electricity pricing driven by low hydro-lake storage and tight gas supplies.
I am continually monitoring the situation to ensure that demand continues to be met and that the market is responding in an efficient and appropriate way. Additionally, my officials are working with Transpower, the Electricity Authority, and the Gas Industry Company (GIC) to establish systems and processes to enable a coordinated whole-of-sector response to manage the situation should hydro storage levels continue to decline
The current market conditions show the need for us to think seriously about ‘dry year’ energy storage, particularly in a future with a 100% renewable electricity grid.
The NZ Battery Project is investigating options to resolve this ‘dry year risk’ problem in a highly renewable electricity system. The $30 million dollar initial study will investigate pumped hydro to eliminate the need for fossil fuels in our electricity system. It will provide comprehensive advice on the technical, environmental and commercial feasibility of a grid level, renewable energy storage solution.
Pumped hydro at Lake Onslow, as well as other smaller scale pumped hydro options, are the focus of the study, with other technologies being assessed as comparators.
The first phase of this project is on track to report back in late 2021.
As a Government we understand the importance of our energy sector in the transition to a carbon neutral economy by 2050 and the crucial role industry participants play in this transition. We are working now to ensure we have the right regulatory settings in place to support this change.
This government was re-elected with a strong mandate to tackle climate change, there was multi-party support for the Zero Carbon Act, the Climate Change Commission is up and running, and it will deliver its final advice to Ministers before May 31, with government decisions due by the end of the year.
The Government is developing the first Emissions Reduction Plan which incorporates sector specific policies to meet the first emissions budget for 2022 to 2025. This will be in place by the end of the year.
In parallel, work is underway to develop Emissions Reductions Plans for the next two emissions budgets which will take us to 2035.
There is a significant amount of work to be done across Government and regulatory agencies. I would like to acknowledge the work of the Electricity Authority and the Commerce Commission to ensure we have the settings right to support increased electrification of the economy, by ensuring we have the right incentives in place to encourage innovation and the adoption of new technologies.
New Zealand has a number of large firms with emissions intensive, highly integrated processes. These firms face a significant challenge in reducing their emissions. Consultation in 2020 on Accelerating Renewable Energy and Energy Efficiency looked at a number of options for reducing industrial emissions, and development of sectoral low-carbon roadmaps using a just transition approach. This is similar to the CCC’s draft recommendation to work with hard-to-abate industries to develop a long-term strategy for decarbonisation and identify whether any bespoke R&D efforts are required for these industries in New Zealand.
We will be carefully considering options for developing a strategy, collaborating with industry and fostering knowledge-sharing in relation to these hard-to-abate emissions.
We recently announced the first successful applicants for our $70 million Government Investment in Decarbonising Industry (GIDI) Fund, which will see companies across New Zealand optimising their energy use and switching to cleaner fuels.
The GIDI fund provides crucial financial support to business and industry to help them switch from boilers run on coal and gas to cleaner electricity and biomass options. This helps create jobs in the clean energy sector, and future-proofs our economy.
In total 14 companies will receive $22.88m in co-funding to help their businesses transition away from fossil fuels. This will achieve up to 10 percent of the gross long lived emission reductions required from the Climate Commission’s first draft carbon budget - the same as taking 49,000 cars off the road.
Labour’s election pledge to bring forward our target of 100 per cent renewable electricity by 2030 demonstrates this Government’s bold commitment to decarbonising our electricity system at a faster rate.
We cannot wait and hope our way toward a low emissions future.
Removing fossil fuels from our electricity system, while we also increase electricity demand, will be challenging, so we are getting on with the task of finding a solution.
As you all know, the Electricity Price Review recommended phasing out the Low Fixed Charge regulations as they are poorly targeted and have unintended consequences for many households. It’s clear that the existing regulations also pose a challenge for distribution pricing reform.
The Electricity Authority’s 2020 Distribution Pricing Scorecards highlighted that progress towards more efficient pricing has stalled due to the Low Fixed Charge Regulations.
Getting distribution pricing right will be vital as New Zealand looks to decarbonise the economy through increased electrification, and in making sure investment in new technology happens in the right place on the network.
You have asked me if I have any concerns about how the electricity distribution is performing, given that it’s a key element of electricity infrastructure. Your sector and members will play a key role in delivering our energy future, particularly as efficient distribution pricing reforms will also help to provide the right incentives for consumers to install decentralized energy resources. This will help ensure they get benefits that can match the technology costs and aren’t receiving subsidies from other consumers.
My officials have engaged with distribution companies, along with others in the industry, to help design a phase-out mechanism for the low fixed charge regulations.
I have been clear that I am concerned about the potential for a phase out to increase costs for households that use little electricity, and are already in energy hardship but I am aware that the industry would like certainty on the future of the regulations by the end of June 2021. I am keeping this date in mind.
While I have instructed officials to develop measures to limit any adverse impacts of a phase out of the regulations for those in energy hardship, I also expect the industry to take a prominent role in ensuring a smooth transition that supports vulnerable consumers.
It is extremely important to me that consumers are supported as we transition to a low carbon economy. Significant progress has been made implementing the Electricity Price Review recommendation to support consumers in energy hardship.
The Government is well-advanced in establishing the new Consumer Advocacy Council to provide evidence-based advocacy for residential and small business electricity consumers. We expect to appoint the Chair in the near future, and then move on to appoint Council members and establish the secretariat.
We are establishing an Energy Hardship Expert Panel, to bring together four to five individuals that collectively have key perspectives and expertise on energy hardship, have a good working knowledge of the drivers of energy hardship and are connected across government, industry and the NGO sectors.
The Panel will recommend policy priorities and actions to alleviate energy hardship in New Zealand.
We are currently working through our appointment process for the Expert Panel, and decisions will proceed to Cabinet for approval. We are also in the process of holding a series of online energy hardship forums, including an online Hui with iwi, to share information and gather advice and possible solutions.
We have made progress on drafting a definition of energy hardship and associated indicators to help measure and track energy hardship over time. There will be public consultation on this in the coming months.
The Support for Energy Education in Communities (SEEC) Programme is part of a suite of new government initiatives to lift people out of energy hardship and will provide funding to help more people have warmer homes and lower energy bills. A total of up to $1.26 million is available in the first funding round which closed on 9 February. MBIE had a huge response – and it was pleasing to see a diverse range of initiatives across the applications. Announcements on the successful applications will be made very soon.
A $28 million Māori and Public Housing Renewable Energy Fund has been established to trial small-scale renewable energy technologies. The funding for Māori housing projects will be allocated over four years until mid-2024 through an open application process. The Government recently sought and received a large number of Expressions of Interests and applicants will shortly be advised on the outcome of their applications and next steps.
Another policy area we are working on is the Electricity (Hazards from Trees) Regulations, which regulates tree trimming near power lines, helping protect electricity supply and public safety.
And I understand you have concerns about the adequacy of the Regulations.
I appreciate the input energy trusts have put into the review that MBIE is doing on this matter.
The issues relating to these hazards are complex and I expect to release a discussion document for consultation later this year and look forward to hearing your feedback.
So, to finish up, while it’s not without its challenges, it is a very momentous time to be involved in the energy sector right now, and I would like to acknowledge all the important work the Energy Trusts of New Zealand is doing, including the contribution energy trusts make to programmes like Warmer Kiwi Homes. We are proud of the third party funding that has been leveraged through the programme to date as it has allowed us to offer insulation and heating retrofits at low or no cost to many vulnerable households.
I would like to thank you again for your invitation and for giving me the opportunity to speak to you tonight.