Keynote Address to New Zealand Geothermal Association Seminar

  • Harry Duynhoven
Energy

Good morning and welcome to the 2005 New Zealand Geothermal Association Seminar Series. I would like to thank Dr Stephen White for the invitation to deliver the keynote address to this year’s seminar series.

This has been a year of significant change for the energy sector. Change often brings opportunities, so it is appropriate that this year’s seminar series is themed around geothermal opportunities. I will come back to this topic later, but first, I’d like to provide you with a perspective on the broader energy scene from the government’s point of view.

Sustainable Energy

The Government’s focus is sustainable energy. Contrary to what some think, sustainability does not mean promoting environmental objectives above all else. It means advancing the economic, social and environmental objectives that New Zealanders value together.

New Zealand is one of many nations pursuing growth through sustainable development; development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.

In January 2003, the government’s Sustainable Development Programme of Action identified energy as one of four areas for action. Since then many government agencies have been working to define what sustainable energy means for New Zealand. One major outcome of this work was October's publication of the Sustainable Energy discussion document.

The document provides a context within which sustainable energy issues can be considered over the longer term. It is not a plan or strategy for energy and it does not review existing policy. Rather it explores what a sustainable energy system might look like, and how we might move toward it.

The government is using the document as a basis for an initial discussion with key stakeholders in energy through to March 2005. We will draw on the results of this discussion and build on the ideas expressed in the document as it develops policies to take New Zealand further towards a sustainable energy system.

But what do we mean by sustainable energy? We have identified three key characteristics the New Zealand energy system will need in order to deliver on the economic, social and environmental goals of sustainability. They are pretty obvious: the energy system needs to be reliable and resilient; environmentally responsible; and fairly and efficiently priced.

I urge you to actively participate in the consultation process, to consider how geothermal energy can best contribute to a sustainable energy system, to let us know what we as government could be doing better to promote this, and what you as an industry could be doing better.

Security of Supply

One of the pillars of a sustainable energy system is that it is reliable and resilient. Ensuring security of electricity supply is a critical issue for all New Zealanders and for the government. It is imperative to both manage the risk associated with dry years, and to ensure that New Zealand has new generation capacity over long term to meet the projected growth in energy demand.

Heavy reliance on hydro electricity has left New Zealand vulnerable to the effects of weather variability. Dry years have sharply demonstrated the dependence of both consumers and industry on electricity as a key element of our economy and our lives.

We now have an Electricity Commission, among whose tasks is to manage security of supply. Legislation passed last month has provided the Commission with the tools it needs to do so, through forecasting supply and demand, improving the function of the market, and if necessary procuring backup generation to ensure that security of supply is maintained in dry periods.

But diversification of our fuel mix is also important, to improve the resilience of our electricity system. Ongoing development and utilisation of geothermal resources will help ensure continued electricity supply for both New Zealand consumers and industry during dry periods, and at times, to reduce the likelihood of future energy crises.

Recent Energy Outlooks provided by MED predict that the composition of energy supply will change as demand increases, the Maui gas field declines and new technologies for the production, delivery and use of energy become more economically viable.

MED’s scenarios show renewable energy sources playing an increasing role in meeting demand growth, and geothermal playing a particularly important role.

Geothermal energy is already of great importance to New Zealand’s energy supply, contributing approximately 7% of total electricity generation and 38% of primary renewable energy supply in 2003.

We look forward to seeing that increase. This government is well aware of the role geothermal energy can play in New Zealand’s future economy and energy mix. That is why we continue to put in place initiatives directed at the promotion of renewable energy and sustainable development.
RMA Review

One thing that we have done is to amend the Resource Management Act. In planning and consenting processes, Councils are now required to have particular regard to the benefits to be derived from the use and development of renewable energy. The definition of renewable energy explicitly includes geothermal. This change was made in response to the experience of renewable developers that renewable projects had been harder to consent than non-renewable ones, because of their greater footprint on the local landscape. This amendment levels the playing field somewhat.

Further amendments are on the way, to streamline the process in general. The five key issues addressed by the RMA review will all be relevant to geothermal energy, that is,

a.Balancing local and national interests
b.Local resource management planning
c.Resource consent processing
d.Natural resource allocation
e.Capacity and practice in local government.

In particular the government has asked for work on geothermal energy allocation. Cabinet has directed that officials are to report back on this work programme by 30 June 2005.

Climate Change

Another thing that we have done is to provide direct incentives for renewable energy through the climate change ‘Projects to Reduce Emissions’ programme. A week ago my colleague Hon Pete Hodgson announced a share of carbon credits have been awarded to geothermal power generation plant that Mighty River Power in conjunction with Tauhara North No 2 Trust plan to build. This plant is expected to come on stream sometime in 2006 and would provide about 39 megawatts of generation capacity and will have a life of around 25 years.

By avoiding the need for extra generation from fossil fuels, it has the potential to reduce greenhouse gas emissions equal to around 969,000 tonnes of CO2 during its life.

Climate change is a major challenge which affects all of us. The global economy is moving into a carbon constrained future. Restrictions on emissions will become stricter and therefore emissions will become more expensive, with time.

It is clearly in New Zealand’s best strategic interests to prepare our economy for this change, and be ready to take a competitive advantage. The emissions charge, to be introduced not before 2007 is part of this. It will mean that for the first time, environmental costs will begin to be factored into our energy choices. It is an example of sustainable energy thinking, where economic, environmental and social objectives are advanced together.

Energy Options

This year has been dominated by petroleum, aside from soaring crude oil prices, New Zealanders have been inundated with information about gas, specifically the potential shortfall that maybe created if no new domestic gas is discovered to replace the rapidly declining Maui reserves.

Gas from Maui has played a significant role in the New Zealand economy over the past 30 years. It has provided gas that has supported considerable economic growth albeit at low gas prices (between $2 and $3.50 per Gigajoule for several decades). This has created a legacy which this government has progressively addressed during 2004. The availability of cheap Maui gas has lead to a situation where more than 20% of New Zealand’s total electricity generation is from gas fired power stations, and at the same time has retarded local exploration activity due to the low rewards, up until now.

With Maui redetermination, the gas market rapidly readjusted so that new contracts reflected the cost of new gas at more than twice the price of the old gas. As gas plays an important part in New Zealand’s electricity generation, there have been flow-on effects into that market. It could be said that an adjusting gas market has raised electricity prices to a level that now makes many geothermal projects viable.

This situation has stimulated considerable public debate and it seems everyone has an opinion. Views range from lets “can it” given the exploration risks associated with finding domestic gas, others say go for “Maui in a can” a LNG solution, and other say coal and renewables “can do it”. However, it’s simply not that simple, all options for future generation present uncertainties, lead times, and environmental impacts.

We know that coal is available for use in thermal generation, and that the combustion of coal is environmentally the least attractive option for power generation. However, technologies to deal with removing environmentally harmful emissions including CO2 are rapidly advancing and it would be unwise to dismiss this abundant resource until we know more about its future.

Gas has a lot going for it as part of a diverse energy portfolio. New Zealand has the infrastructure and generation in place. Gas fired generation is reliable, flexible and comparatively efficient and clean burning compared to other fossil fuels, producing 40% less CO2 emissions than conventional coal fired plants. However, CO2 emissions from geothermal power stations are about 1/4 that of gas fired stations.

With both active geothermal and gas programmes occurring in different parts of the country, there could be real pressure on New Zealand heavy engineering manufacturers to meet demand. I understand that companies in New Plymouth are increasingly heavily loaded. Demand for steamfield piping and separator plant will add to this load.

It is exciting to see the level of geothermal drilling activity occurring in New Zealand at the moment. A number of new geothermal initiatives are being planned and hopefully we will hear about these very shortly. This response reflects the opportunity for investment in energy projects, particularly renewable ones.

Recent geothermal developments have seen 3 out of 4 have Iwi involvement either partial or full ownership. From Jim Lawless’s talk earlier this morning I understand that only 10% of the estimated 3600 MW generation capacity has been developed. He suggested, with various constraints that another 640 MW can still be readily developed. This suggests scope remains for greater Iwi investment in this strategic resource.

Of special significance is the development by local Iwi and Contact Energy of a combined geothermal energy and cultural experience at the former Wairakei Visitors Centre.

However, the presence of opportunities attracts competing interests and inevitably issues arise that must be amicably resolved in order to accommodate multiple interests, fair and equitable access to the resource, and national good.

In closing, the New Zealand energy sector is entering a new era. Government
and industry face a considerable challenge in providing the security of supply, economic, social and environmental outcomes that New Zealanders want. Investment in sources of renewable energy will play a key role. I am confident that you are aware of the opportunities and will meet the challenge.