Director lens on the energy sector

Webinar Summary

A challenging sector

Dr Renwick outlines how electricity and heat (energy generation and use) accounts for the biggest percentage of emissions both globally and domestically. While New Zealand boasts significant renewable electricity production (predominantly hydropower), the sector still faces major challenges in the global effort to decarbonise.

Reducing emissions in the energy sector will require a number of approaches including:

• Electrification (Increased EVs, public transport and removing inefficient vehicles)
• New energy sources for process heat
• Energy efficiency (reductions in consumption, insulation and improved technology)
• Substituting biomass / biogas and utilising Carbon Capture and Storage (CCS)
• Green hydrogen production
• Reduced fossil fuels (increase in renewable sources and distributed generation).

There are two key issues currently facing the energy sector in New Zealand. Firstly, improving the grid to more efficient and cost-effective models balancing intermittent supply, distributed generation and storage requirements. Secondly, the need for increased sectoral cooperation and investment, which will need to be market driven.

Longer-term adaption will also be required to operate in a more variable and extreme environment. For the energy sector, this will affect the changing seasonality of hydro and wind supply as well as the seasonality of demand.

Building resilience is key.

While New Zealand is starting from a good base, the energy sector is the biggest player both in finding more sustainable solutions and also supporting the transition for other sectors. The key to this will be increased renewable generation, electrification, improved resilience and coordination – while reducing inequities and ensuring a just transition that does not disadvantage any parts of our community.

A plan for long-term stewardship

Chair of Meridian, Mark Verbiest says that when Meridian was established in 2012, it was set up with purely renewable generation assets with climate-related issues front and centre of the strategy.

The board sets the overall strategy but Meridian has also established a Safety and Sustainability Subcommittee. This group provides a specific lens on the company’s internal emissions, monitoring progress quarterly. There is also an incentive structure for senior management for reaching internal emissions milestones.

The role of electricity gentailers

Gentailers have a role in driving the transition to renewable energy which will likely out-pace any policy or regulation. 

The urgency is already being felt. Mark says that in order to build a mid-sized power station it takes around 7-8 years including design, acquiring land, technology, contracting, consent etc. He estimates that Meridian will require a further 15-20 stations by 2050, which means one every 1-2 years.

An energy strategy may be another year away and the sector can’t afford to wait. Work is required cross-sector, working with the lines companies and others in the system to develop the infrastructure required to support the transition.    

Reporting for duty

Meridian has just released its 4th voluntary Climate Related Disclosure report based on the TCFD framework. Mark’s advice to other directors is to not look at reporting as a compliance exercise but see it as a way to bring strategy to life.

He highlights how Meridian’s first effort simply pointed out all of the things they were going to have to do in the future but now sees the report as a sophisticated, comprehensive document. He describes how there is nothing new or unusual about Meridian’s governance mechanisms but good practice included quarterly monitoring and oversight by the Audit and Risk Committee.

Sustainable leadership for the sector

Meridian’s Climate Action Plan has a focus on sustainable leadership in the sector and supporting customers to decarbonise. As part of their own internal efforts to reduce emissions by 50% by 2030, Meridian is also looking at the 90% of emissions produced through its supply chain. They have established a code of conduct for suppliers and monitor these emissions quarterly as part of their measurement process.

In addition, the board and business is focused on how to assist its commercial and industrial customers to decarbonise and set targets to convert from fossil fuel energy to electricity. Part of this process is assisting customers with solutions and contract terms which provides certainty around investment. A distributed generation retail team has also been established to support domestic customers to increase their usage efficiency, providing savings and value to customers and returning the remainder to the grid. 

Driving climate aspirations

Deputy Chair of Transpower, Dean Carroll, outlines the company’s aspirations to create "the right grid, in the right place, at the right time" and allocate the appropriate levels of human and financial capital to deliver on the strategy set by the board. This planning included the use of various scenarios, modelling the associated power flow, analysing the investment required and energy shortfalls to inform the board’s decision making. 

Transpower is also about to begin a consultation process on the Net Zero Grid Pathways Plan. The plan outlines two phases - enhancing the existing grid backbone to 2035, and planning a larger grid backbone with new interconnections beyond 2035.

Dean encourages directors from all sectors to review this plan and input into the consultation.

A roadmap for national electrification

Transpower recently signed the first grid-scale solar agreement and is supporting electrification of the economy through its Electrification Roadmap.

Another initiative being explored is Renewable Energy Zones as a new way of connecting renewable electricity generation and major electricity users to the electricity network without grid connection. This solution would co-locate major transmission to renewable energy opportunities and reduces inefficiencies. A pilot is currently underway in Northland but there are still issues to overcome. 

Directors should be aware these initiatives are happening, take part in the consultation process and understand the regulatory and policy resets required to move forward. 

Ensuring reliability and resilience

For Transpower, ensuring the reliability and resilience of the network during the transition to renewables is still a huge challenge. As seen in both Australia and Europe recently, grid stability and control is very difficult to manage. New Zealand has seen a record number of ‘peak loads’ in the past year, thermal plant reliability is declining, battery storage solutions evolving and the current grid is nearing end of life.

Dean identifies a number of initiatives directors to be aware of including Transpower’s Net Zero Emissions Pathway, the Regulatory Control Period (RCP4) proposal for the Commerce Commission for 2025-2030 and the Electricity Authority’s Future Security and Resilience Project.

Taking a collaborative approach

Dean highlights the need for cross-sector coordination and cooperation. The current sector assets were a result of central planning in the 1950s-60s but we now have a more decentralised model. To address this challenge, the sector needs visibility of what players are planning alongside strong collaboration.

Directors have an important role as they decide on the strategic choices for their own businesses. If directors are looking at these investments for their organisation, they need to become conversant in the electricity space and gain fuller awareness of the risks and opportunities.

Let’s talk about hydrogen

We can’t talk about the energy sector without mentioning green hydrogen and whether it will live up to its hype.

Mark talks about the growing interest in green hydrogen, pointing the number of submissions of interest and scale of the planned projects in the Deep South as indicators of the potential of hydrogen as an energy option. He highlights how a flexible demand response and the ability to sell power back into the market helps the economic case.

Plans are already underway overseas to utilise green hydrogen. The Economist recently profiled a in-development hydrogen-fuelled steel plant in Sweden. Green hydrogen may also be used to produce green ammonia which could be used as an agriculture fertiliser or used in heavy-transport.

Technology and scale will inevitably reduce the cost to produce green hydrogen, which makes it a genuine option in then transition to suitable energy.

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The session included a Q&A session. For the responses, please refer to the on-demand recording.

These insights are a broad summary of the topics discussed in the webinar and not direct quotes from the panellists.