Energy: Cooperation, investment and a new market model

There is no getting away from the fact that the energy sector has a major role to play in New Zealand reaching its goal of zero emissions by 2050.

Energy production and use accounts for 40% of our greenhouse gas emissions, according to the Ministry for the Environment’s Greenhouse Gas Inventory 1990-2020. This is the second largest sector for emissions behind agriculture, which accounts for 50% of our emissions.

New Zealand’s use of fossil fuels in transport and heating are areas where renewable energy can make a difference. Rapid reductions in emissions from these two areas through electrification will require a substantial increase in investment in the development of renewable electricity generation and transmission, and associated capabilities.

Solar and wind farm energy are high on the shopping list to create more renewable energy and in a country with plenty of wind and a fair amount of sunshine, there is ample opportunity to harness these natural resources.

Where to from here?

Victoria University weather and climate researcher and Climate Change Commissioner Dr James Renwick says he believes many of our energy companies have been more focused on short-term consistent supply of power than on long-term changes to our energy capabilities.

“There are a lot of unknowns so some of the risk is understanding the best way to proceed.  What is the best mix of renewable energy? Where do we install it?  What will the demand be?  Forecasting the future is fraught with danger.”

Dr Renwick says the distribution network for renewable energy could be quite different to what we have now.

“The old model has been big hydro dams with power lines that transmit energy around the country.  If you go to a more locally distributed, intermittent generation model such as solar panels on roofs, you’ll have bits of electricity coming and going from all parts of the country and it becomes harder to maintain a stable flow instead of monolithic production.”     

The government is in the process of developing an energy strategy for the country to help the transition to a low carbon economy. This will include a highly-renewable, sustainable and efficient energy system by 2050.   

Transpower Deputy Chair Dean Carroll MInstD, who has more than 30 years’ energy industry experience, says there are a lot of moving parts being worked on to get to zero emissions.

“Transpower has released a long-range scenario planning document, Whakamana I Te Mauri Hiko – Empowering our Energy Future, which investigates the implications of achieving the twin goals of reducing transport and process heat emissions and the implications of this for a very significant increase in renewable energy generation.”

“It is clear that the multiple challenges identified in the report will require collaboration of multiple actors to achieve the climate goals set.”

Meridian Energy Chair Mark Verbiest CFInstD says Meridian chose the path of renewable energy about 14 years ago.

“When Meridian was established, it was the only energy company with totally renewable assets. The company understood its point of difference and has always been very clear on its path – part of our DNA.”

But Verbiest, who is also chair of Summerset Group Holdings and Director of ANZ Bank, says it’s a massive challenge to create additional renewable energy sources and deliver to customers by 2050. 

“Every company and board should have its own plan to address climate-related issues, which are genuine business risks that have to be addressed,” Verbiest says.

“We (Meridian) roughly generate about 30% of New Zealand’s electricity.  If we thought about it in terms of maintaining market share, we would need to potentially build another 15–20 additional power stations of scale.

“From go to whoa, for a wind farm, is an eight-to-ten-year timeframe. You need to find a  to find a site, get through consenting obligations, engage with stakeholders, with technology, stand up a crew and contractors and then it’s two-to-three year build sites – that’s a massive challenge.’’

New market model needed?

To meet the government’s goals, New Zealand will have to double the amount of generating capacity in a renewable form and both Renwick and Carroll question whether the current market-driven system can deliver what is needed by 2050.

“Cooperation will get us there, not competition.  Companies should be working in a synergistic way, there should be more conversations between them,” says Renwick.

Carroll says the backbone of the country’s major electricity assets were built in an integrated planning environment with all assets state owned. These were then sold with the establishment of a market model to determine new investment. 

“The market has worked well to date, however looking through a climate lens, it has become important to achieve very rapid progress in a co-ordinated way.  With multiple parties now determining the investment required for the whole industry, it is a challenge to create a proxy integrated system plan.  Efficient long-term infrastructure investment, such as into transmission, requires judgements to be made on a whole-of-system basis.”

Verbiest says, although in the current competitive model and the Commerce Act restrict competitors from talking to each other, he believes all companies have the same aims to assist to decarbonise NZ and will cooperate to get the right outcomes for this country and the planet.

But, he says, changes to the Resource Management Act (RMA) will be vital in supporting investment in both rapid renewable generation and the electricity network.

“It is important to avoid the situation whereby it is too difficult to consent renewable development projects in a reasonably short timeframe.  If we are serious about decarbonising, the new RMA framework must allow for the localised environmental impacts of projects to be balanced against the climate benefits that renewable energy brings,” Verbiest says.

However, there are also many opportunities for an industry hell-bent on supporting the government’s net zero plans. That includes a commercial imperative, according to Renwick.

“Being at the forefront is good for business, we would be impressive internationally and likely to attract investment and customers to the sector.”

Verbiest agrees. “If New Zealand becomes energy self-sufficient, it could attract new industries here while our own products made with clean energy will have a greater appeal internationally.” 

Verbiest is very clear that the direction must be led by each company’s board.  

“We’re very clear it is for the board to set the tone and strategy with considerable analysis provided by the management team.  That’s our job and there isn’t one board member at Meridian who isn’t passionate about addressing this issue. It’s a constant discussion at the board.”

No matter what their role in this complex industry, all will be keenly waiting on the outcome of the government’s energy strategy knowing that the regulatory or policy environment will be key to reaching zero emissions in 2050. 

The Chapter Zero NZ webinar (held on 28 September) expanded further on this topic including a Q&A session with Mark Verbiest and Dean Carroll facilitated by Julia Hoare. A recording and summary of the event is now available.