Speech to Business Energy Council breakfast

Energy and Resources

Thank you very much for providing me the opportunity to speak at the Business New Zealand Energy Council breakfast meeting again.

I always look forward to this event, and I am pleased to update you on the priorities for this Government in the Energy and Resources portfolio. This is the third year I have been before you, outlining our priorities and my work programme for the coming year.

Thank you, David, for the introduction.

I’d also like to thank Neal [Barclay] from Meridian for hosting us this morning and Tina [Schirr] from BEC.

It’s fair to say a lot has happened since I was here a year ago.

Thank you for the critical parts you have all played to get us through. You literally kept the lights on – and industry running where possible.

As we move into 2021, dealing with COVID-19 continues to be a priority for our Government.

Keeping the virus out, and New Zealanders safe is front and centre for us.

But so is how we rebuild and recover from the impacts of the pandemic; recognising the need to build a more resilient, fairer and sustainable future for all New Zealanders.

COVID-19 has caused many to reflect on whether to accept the status quo, or step up to the change we really need.

Our Government understands that the economic recovery from COVID-19 provides an opportunity to address some of the long-standing sustainability and environmental challenges facing Aotearoa New Zealand, including the serious threat of climate change.

Our support for a strong and speedy economic recovery must be inclusive, it must be productive, and it must push us further - and faster - toward our climate change goals.

We are committed to paving the way toward more low-emission technologies and the infrastructure needed for a 21st century New Zealand. I want every energy investment decision to consider how more energy efficient, cleaner technology can be deployed to move us closer to a low-emissions economy.

And, on that, 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, they recognise what is technologically and economically realistic, and they consider the impact the pathways will have on people.

Encouragingly, the draft report shows we have the tools and technologies available today to make big strides towards a clean and productive industrial sector.

New Zealand exporters rely on our clean green brand and there will be new opportunities for our industries as we transition to a zero carbon economy.

In the energy sector most of the Commission’s recommendations align well with actions the Government is already taking, or is getting underway, assures us that we are on the right track.

The Government will make decisions on emissions budgets by the end of the year once we see the Commission’s final report, due at the end of May.

In the meantime I look forward to hearing insights from this sector on how it intends to seize opportunities to transition toward decarbonisation.

You will all be familiar with our Energy Strategy slide that illustrates our priorities and work in the sector.

It’s a real pleasure to see how far we have progressed on all components of the jigsaw, and you will see more movement as we further pull together these pieces of strands into a cohesive and integrated strategy, fit for the future – I look forward to working with a broad range of stakeholders as we continue this programme of work.

Labour’s election pledge to bringing 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 have heard the views that achieving 100 renewable electricity is too difficult and 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, and I believe we must focus on all our levers.

Getting to 100 per cent renewable electricity as well as decarbonising the wider energy system by having cleaner transport and industrial heat, requires major change and investment in modern technologies

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.

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 $30 million initial study will investigate pumped hydro to eliminate the need for fossil fuels in our electricity system, a recommendation of the Interim Climate Change Committee.

The Lake Onslow and 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.

We recently announced $70 million for our Government Investment in Decarbonising Industry (GIDI) Fund. This initiative supports businesses through the economic recovery from COVID-19, by helping them 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 emissions, so GIDI is a great example of how we are investing in a more sustainable economy.

MBIE and EECA are currently reviewing the First Round of applicantions and I’m very much looking forward to announcing the first tranche of projects next month.

In recent months, I have been encouraged to hear about the pledges and actions by some of our businesses here in New Zealand to reduce their reliance on fossil fuels and develop targets and strategies to keep doing more.

Making the cuts in industrial energy emissions that the Commission highlights are both feasible and necessary to meet our 2050 target, calls on us to accelerate and expand our work. As the most carbon-intensive fossil fuel, we need to look at coal as a priority.

That is why this Government has a manifesto commitment to phase out fossil fuels in process heat by preventing the installation of new low and medium-temperature coal-fired boilers. I am currently considering advice from officials on the best mechanism to implement this.

But targeting future coal use will not be sufficient to bend the curve on our existing industrial emissions. We have an opportunity now, following last year’s amendments to the Resource Management Act, to provide councils with national direction in addressing industrial greenhouse gas emissions. I am working with the Minister for the Environment to develop a nationally-consistent ruleset for regulating coal boilers and as wjell as encouraging energy efficiency and best available technology across all existing sources of fossil fuels used by industry.

The intention is for national direction to be in force by 31 December 2021 to align with the climate change amendments to the RMA coming into effect.  The Government will consult with the public on this in the coming months.

We will continue to support our industrial sector through the Energy Efficiency and Conservation Authority‘s business programmes such as the Energy Transition Accelerator to help kiwi businesses plan their transition to low emissions. That is why this Government has committed to doubling EECA’s information, technical assistance and technology demonstration support for business.

Despite the years ahead having many uncertainties, I am pleased that the immediate future of the Tiwai Point Smelter is not one of them.  As a result of the deal between Meridian and NZAS 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 the valuable opportunity to work with stakeholders to put in place the plans we need to support the transition of the Southland economy, including potential new uses of the smelter site, and for Transpower to make the necessary transmission investments to open up new options for the use of Manapouri’s electricity.

It also provides the opportunity to work with NZAS to understand the remediation requirements for the Tiwai site, the area being of great cultural and environmental importance, to mana whenua and the wider community.

The Government is continuing its discussions with Rio Tinto around NZAS’ transmission costs, but as we have repeatedly said, remediation of the smelter site remains an important area of focus for these discussions.

As we discuss the winding down of the Smelter, the liquidation of Tamarind is forcing the Crown to step-in as a provider of last resort to fund decommissioning of the Tui oilfield, has sharpened the focus on the petroleum sector specifically.

We expect industry to follow good practice in all areas of their work, and this does include cleaning up after itself. To date, there have been commercial incentives for companies to follow good practice in all areas of their work, including cleaning up. This gives companies the social licence to operate, and it preserves options for future projects.

Decommissioning is both a critical and normal part of operations. Critical, because there are significant health and safety, and environmental risks, that can arise if it’s not done.

Normal, because it should be an activity that is planned for as part a whole-lifecycle approach to resource development and use, rather than an unexpected cost.

Decommissioning the Tui offshore oil field is a first for New Zealand and a new role for the Crown. The costs to taxpayers are significant, in the hundreds of millions of dollars, and the Government will not risk a situation like Tui happening again.

In light of this, we are taking steps to strengthen petroleum sector decommissioning provisions. As a first step, I intend to introduce a Crown Minerals Act Amendment Bill that provides an explicit obligation on petroleum permit holders to decommission when they cease production, together with strengthened powers for the regulator to ensure industry compliance.

For many, the statutory changes we introduce will clarify existing expectations and spell out best practice: that decommissioning must be carried out, as well as adequately provisioned and planned for.

We are developing a regulatory regime to support this, and we will see the regulator step up its monitoring, with powers to periodically assess financial capability, and to require adequate financial security for decommissioning purposes.

In addition, where we see behaviour that does not meet the standards we expect across all areas of the CMA, we are giving the regulator access to new compliance and enforcement tools that provide effective and proportionate responses.

This work is a priority for our Government and we intend to introduce the Bill this year, and to develop options for the regulations, in parallel. We know that this is an area of significant interest for many, and there will opportunity to provide feedback on both the Bill and the design of the regulations later this year.

The Climate Change Commissions’ draft report also contains a recommendation about stopping new natural gas and LPG connections from 2025.

I am aware of the media attention that has been received due to this draft recommendation. I wish to reassure New Zealanders that this won’t mean the imminent end of the classic kiwi BBQ.

Residential and commercial consumption of gas makes up a small proportion of our overall gas demand – approximately nine per cent in 2019. The phase-out of natural gas from our energy system is a complex issue and the CCC has made clear that it has a use-by-date in New Zealand.

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. This will include considering what the most efficient emissions reductions areas may be within the market.

For example, our current gas distribution infrastructure provides many opportunities for alternative lower emissions fuels to be used, including the use of biogas and hydrogen. These are all matters the Government will need to consider before making recommendations about the future of natural gas use in commercial and residential applications over the next thirty or so years.

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.

Commercial arrangements in the market are evolving, and we are experiencing a period of transition from traditional arrangements in the market.

The current market, commercial, and regulatory settings in the market must be fit-for-purpose for supporting our decarbonisation.

This is why 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.

This investigation has no predetermined outcomes and is not about changing upstream settings to unlock more gas reserves; it is about ensuring that the market continues to efficiently allocate gas to its highest value uses.

I have asked the GIC to focus on two areas.

The first area is how our settings in the gas market support security of electricity – particularly during periods of heightened demand, and whether these are fit for purpose for supporting thermal generation during the transition.

The second area is around whether the current settings provide sufficient certainty/transparency about gas supply for their operations. 

I expect to receive the GIC’s report by the middle of this year.

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 Bill also increases the maximum penalties under the Act to align with the Electricity Industry Act, and is an important step to enhancing confidence in our energy markets, ensuring transparency and helping our markets to operate efficiently.

I am also pleased that the Electricity Authority will be placing new obligations on electricity sector participants to disclose information about thermal fuel availability. This will no doubt help inform the market, especially in times of hydro stress.

The Electricity Price Review (EPR) investigated whether the electricity sector is delivering fair and equitable prices to consumers.

The EPR noted that New Zealand’s electricity industry works well in many respects, but consumers would benefit from stronger competition, fairer and more efficient pricing, and more openness to new technologies. The EPR made six recommendations to increase retail competition and four to reinforce wholesale market competition – these recommendations are currently being progressed by the Electricity Authority.

The EPR found that consumers struggle to make their voices heard and have little influence over electricity sector decisions that affect them. The EPR also found that energy hardship is a pressing problem.

We are progressing a number of initiatives in response to the EPR findings including:

  • appointing a Consumer Advocacy Council for residential and small business electricity consumers
  • establishing an Energy Hardship Expert Panel to provide advice to Ministers on policy priorities for addressing energy hardship
  • We are also continuing work to phase out Prompt Payment Discounts and Low Fixed Charges which disproportionately impact those in energy hardship

Through 2021, we will continue to focus on green hydrogen as a clean and versatile fuel source fulfilling a role similar to that which hydrocarbons play today. Green hydrogen can help reduce global emissions, reduce New Zealand’s dependence on overseas energy sources, create significant export revenue, and create new jobs. New Zealand has a strategically important comparative advantage if we use our abundance of renewable energy to produce hydrogen without using fossil fuels.

Looking forward to 2021 in the near future we expect to see:

  • Obayashi and the Tuaropaki Trust commissioning their electrolyser at the Mokai geothermal field which has been delayed by COVID-19.
  • First Gas to publish its study on the suitability of its pipeline network for hydrogen transport, and
  • The Ports of Auckland to commission its hydrogen refuelling station along with a hydrogen bus for Auckland transport field trials.

To fully develop hydrogen’s potential however, we need to ensure a coordinated approach both locally and internationally.  This is why the Government is continuing to develop relationships with other countries interested in hydrogens potential, including Japan, South Korea, Singapore and Germany.  The importance of having a strategic roadmap for hydrogen’s development in New Zealand has been underscored by our engagements with international partners wanting to invest in green hydrogen projects in New Zealand.

Accordingly, the next step in our hydrogen strategy is to develop a hydrogen roadmap that will help chart the path towards a more renewable energy system and outline how hydrogen can play a role in decarbonisation, and energy resilience. The roadmap will focus on accelerating the establishment of an export orientated green hydrogen sector, optimising the utility of green hydrogen for New Zealand’s heavy transport fleet and to better understand other potential uses, such as to support remote communities.

A key purpose of the roadmap will also be to assess the future requirement for government support and funding to develop a hydrogen economy for New Zealand and for export purposes.

I have always been an advocate of the Government leading by example, and that is why, at the end of last year, the Government launched an initiative to be carbon neutral by 2025. Our Government has thus far committed $10 million to replace coal boilers in eight schools and two hospitals to move towards having a clean powered public service.

We also recently committed to a $28 million fund to support the installation of renewable technology, such as solar panels and batteries, on public and Māori housing as part of the COVID Response and Recovery Fund (CRRF) set out in Budget 2020. This project complements both our commitments to increasing both energy affordability and energy efficiency.

Technology investments and partnerships can help to develop technologies for abatement for hard-to-reduce emissions. Taranaki-based, Ara Ake has been established to facilitate development of low emissions energy in New Zealand.

The Advanced Energy Technology Platform was set up in 2019 to support and develop world-leading research capability in areas of advanced energy science and to deliver on Government’s advanced energy technology investment goals. Funding under this platform has been provided to a range of programmes, including programmes on delivering sustainable industry through smart process heat decarbonisation.

I hope we can all continue to successfully collaborate in 2021.  I believe this is fundamental for our transition to a low carbon economy that will benefit all New Zealanders.

I look forward to working with you this year and would like to conclude by thanking so many of you for your participation and engagement in 2020. It was a hard year and your contribution were much appreciated.

Thank you.