ERANZ speech April 2021

Energy and Resources

It is a pleasure to be here tonight.  Thank you Cameron for the introduction and thank you for ERANZ for also hosting this event.

Last week in fact, we had one of the largest gatherings in our sector, Downstream 2021.

I have heard from my officials that the discussion on both days was robust and highlighted some of the real issues our sector will be dealing with.

There was also plenty of discussion about the New Zealand Battery project and Labour’s election pledge to bringing forward our target of 100 per cent renewable electricity by 2030 so we can decarbonise our electricity system faster. 

We have heard the views that achieving 100 per cent renewable electricity is too difficult or expensive, or that we should focus on decarbonising other areas of the energy system first. But these views wrongly assume that we can only achieve progress on one thing at a time. I believe we must focus on all our levers.

You will all be aware of the Climate Change Commission’s draft advice on the first three emissions budgets. It confirms the reality of the climate change response New Zealand must make.

The proposed emissions reductions pathways, aimed at meeting the net-zero carbon target by 2050, are ambitious, but they also recognise what is technologically and economically realistic.

Once the Commission provides its final report the Government will consider the advice and we will develop our first Emissions Reduction Plan for New Zealand.

We cannot wait and hope our way toward a low emissions future and the energy sector is going to have to do some heavy lifting.

So it has been heartening to see recent renewable energy investment decisions by some generators.

Contact is developing a new 152 megawatt, $580 million geothermal power station at Tauhara near Taupō, which I had the pleasure of visiting last week, while Meridian Energy will build New Zealand’s second-largest windfarm near Napier - a 41-turbine, 176 megawatt project - at a cost of $395 million.

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.

The New Zealand Battery project has been set up to address the issue of New Zealand’s lack of dry year storage in our electricity system. The first phase is an initial feasibility study to identify the best options to achieve this objective.

The study is looking at pumped hydro at Lake Onslow, as well as other smaller scale pumped hydro options, with other technologies being assessed as comparators. Lake Onslow is   providing a useful ‘base case’ to which to compare these other technologies. The only way we will know if Lake Onslow is a viable option is if we do this initial work. Good progress is being made and I will soon be announcing the members of the Technical Reference Group.

I am conscious that we are currently experiencing high electricity wholesale prices, with hydro lakes being relatively low for this time of year.

Gas supplies are tight, and tighter than might have been expected a year ago, largely due to declining production from the Pohokura gas field.

In these circumstances I expect wholesale electricity spot prices to be higher than average, but I question whether they need to be as high as they have recently been.

I also question whether forward wholesale contract prices for the coming months are higher than they need be.

Many businesses buy electricity at wholesale prices, or are exposed to spot prices, and they are suffering.

Retail prices for commercial customers and households are also rising, which may reflect rising wholesale prices.

Electricity consumers can ill-afford higher power prices.This is why I have asked officials for advice on the level of wholesale prices.

I want to be assured that the current level of wholesale prices is commensurate with the level of scarcity in the market and the risk of a shortage later this year.

And I want to know what, if anything, might be done to moderate wholesale prices without increasing the risk of a power shortages.

The Electricity Authority has a work programme to improve performance of the wholesale market – I am not asking officials to duplicate that work.

How the electricity market will operate with a large pumped hydro scheme or other options to manage dry years will be explored as part of the NZ Battery project.

And I have already asked the Gas Industry Company to investigate the functioning of the gas market and report back by the middle of the year.

As well as climate change goals, and ensuring the market is working well, this Government is also focussed on ensuring affordable energy in New Zealand. We need an agile, competitive and innovative energy market to ensure energy prices remain affordable.

The Electricity Price Review in 2018 found that while the market is working well overall, it is not delivering for everyone, and many people struggle with the cost of power. A number of work streams are underway in response to its recommendations including:

  • the establishment of a Consumer Advocacy Council and an energy hardship expert panel and reference group   
  • Development of an agreed definition of energy hardship and indicators to measure progress
  • We have set up a $17 million fund to support consumer advocacy and energy hardship to progress this work.
  • And we introduced the  Winter Energy Payment, which gives up to $750 a year to people to heat their homes in winter.  

Another EPR recommendation was to phase out the low fixed charge regulation as they don’t send the right price signals and  unintentionally shift costs to households with low incomes and high electricity consumption.

While I accept the findings of the Review, I remain concerned about the impact phasing out these regulations could have on consumers. I have asked my officials to further explore options to support vulnerable consumers through the phase out.

I am very interested in hearing from industry how they can support this transition.

ERANZ is doing its bit to address energy hardship. In September 2020, I launched the extended pilot for EnergyMate. The pilot has now expanded to deliver at eight different locations including South Taranaki, South Auckland, Rotorua, Lower Hutt, Levin, Kaitaia, Dunedin, and Christchurch.

For the industry, EnergyMate continues to assist with the relationship between vulnerable customers and their electricity company. It has the potential to empower families to be more proactive in approaching their retailer when experiencing energy hardship.

I would also like to acknowledge the Electricity Retailers’ Association members and partners for showing leadership in delivering practical and tangible solutions to energy hardship. I want to acknowledge the joint effort across the sector and community organisations. These groups already have strong connections with their communities and without their support it would be that much harder to help.

It is hard to imagine that it has been a year since New Zealand went into alert level four and the entire nation went into lockdown. I want to thank ERANZ and the rest of the industry for its focus on keeping the lights on for consumers, and keeping disconnection level low during that time and in the subsequent change in alert levels.   

 Last year we launched $70 million Government Investment in Decarbonising Industry (GIDI) Fund to help businesses adopt energy efficiency measures and switch from fossil fuels like coal and gas to clean energy for process heat. This part of the energy sector accounts for 9 per cent of our [gross] emissions, so GIDI is a great example of how we are investing in a more sustainable economy.

I’m very much looking forward to announcing the first tranche of projects very, very soon.

The phase-out of natural gas from our energy system is an important but complex task. As we transition, our natural gas market will need to continue to provide secure and affordable energy for our electricity system, and keep some of our major manufacturing companies operating. The question for the Government is how we can best support this phase-out, while ensuring that consumers can still access the energy they need.

I have also seen interesting results from the hydrogen network trial that was part funded by the Government.

FirstGas intends to blend hydrogen into the North Island natural gas network from 2030, with conversion to a 100 per cent hydrogen grid by 2050.  An exciting prospect indeed as we move toward a low-emissions economy.

I have asked the GIC to investigate the current settings in the natural gas market around contractual arrangements and how these affect the overall availability and flexibility of natural gas.

Meanwhile, we are amending the Gas Act to provide clear regulatory powers for information disclosure issues that may have significant downstream impacts, such as on electricity markets, or create risks for security of supply.

The resolution of deal between Meridian and New Zealand’s Aluminium Smelter means we now have a greater understanding and knowledge of the short term national electricity supply and demand picture until 2024.

The extended timeline for the smelter’s operations provides a valuable opportunity to work with stakeholders to transition of the Southland economy, develop potential new uses of the smelter site, and for Transpower to open up new options for the use of Manapouri’s electricity elsewhere in the country.

Areas I am particularly proud of, some which I have already raised include:

  • The initiatives to addressing energy hardship and the affordability of energy. The findings of the Electricity Price Review are critical to ensure our energy supply remain affordable for all users.
  • The Clean Car Standard, and addressing the emissions of our vehicle fleet.
  • Launching the NZ Battery project to investigate methods to address the dry-year risk.

I look forward to a productive and interesting time ahead for the Energy and Resources portfolio.

So, to wrap up, I think this is a very exciting time to be involved in the energy sector as we take significant steps toward decarbonising our economy.