Source: New Zealand Government
Thank you very much to the Business Energy Council and Genesis for inviting me along bright and early this morning!
As has come as a bit of a tradition I’m going to talk about my priorities for 2023, and the important programmes that government and industry are working on together.
It is a matter of maintaining momentum and looking to delivery across the programme.
Auckland’s extreme flooding event and the impacts of Cyclone Gaberielle across the north-east of New Zealand has changed the narrative on how long we have until we need to mitigate and adapt.
More extreme weather events are here – and they are here to stay.
Like many of you I expect, I had a first-hand look a few weeks ago at the flooding damage at Transpower’s Redclyffe site, as well as the work Unisys was doing to fix broken power lines in Puketapu.
I want to acknowledge here how well the lines sector pulled together in the aftermath of the cyclone with offers of help from other parts of the country. Well done, and thank you. I know you worked extremely hard to make that happen.
The footage we have all seen of flooded homes and land, broken roads and land slips is a powerful reminder of how vulnerable infrastructure can be.
As we work to ensure we are more resilient, we know Government can’t solve these issues alone. The people and companies represented in this room play a crucial role in the energy transition. This could involve the construction and operation of renewable energy generation, or finding ways to decarbonise our industry and transport sectors.
We’re focused on the long-term strategic work of system change – to build a more resilient, affordable, secure and decarbonised energy system to create the jobs of tomorrow for our children’s future.
In order to do this, we need to listen to, and work with, industry and small businesses and continue to focus on the issues that matter.
I’m conscious that, as operators in the energy system, you are bringing to the table much of the investment we need to transform our energy system.
You’re also on the frontlines of implementation, and you can bring a practical perspective to how government strategies and investments affect things at the project level.
A key part of the system change that is required, that the Interim Climate Change Committee (ICCC) identified, is to resolve New Zealand’s dry hydro year problem.
A dry year solution would be a huge step towards our climate change goals and set us up for a secure and sustainably powered future for generations to come. But it’s by no means an easy problem to solve. We’d need an extra 3 to 5 terawatt-hours of renewable energy that can be turned on as needed. That’s about 10 per cent of our current annual consumption.
The New Zealand Battery Project was set up to explore the feasibility of pumped hydro and other possible renewable energy solutions to the dry year problem.
I recently announced that Cabinet has agreed to proceed to the next stage of detailed business cases for the pumped hydro option or a suite of alternatives to that – the portfolio approach of biomass, hydrogen and flexible geothermal.
Solving New Zealand’s dry year problem won’t be cheap; the options are estimated to cost between $13 and close to $16 billion dollars.
But neither is the status quo using coal and gas to plug the energy gap every time we have a dry hydrological year.
High-level, conservative estimates based on the Climate Change Commission’s emissions pricing, show that in 2035, the cost of keeping the lights on in a dry hydro year will cost approximately a billion dollars for gas and factoring in emissions pricing. For coal it would be $1.6 billion – just for one year.
By 2050, it would be $1.3 billion for gas, and $2.2 billion for coal –for just one dry hydrological year.
It is simply not sustainable – in any sense of the word – to rely on expensive fossil fuels to store our energy into the future. We have to find alternatives. Other alternatives come with costs too. The ICCC concluded in its report that overbuilding renewables would be costly and would lead to significant energy wastage during normal times.. and would be reliant on high electricity prices and will require significant levels of shortage and demand response.
With 88% renewable electricity, and 2,609 GWh of new generation committed as last year, there is massive potential for supply and demand; Transpower has received a record number of enquiries for connection – a total of 124 for this financial year. That’s double the previous year. For comparison, they received just five enquiries in 2018/19.
However, we cannot simply add more intermittent generation such as wind and solar without adding firming or baseload.
These are exactly the trade-offs and the questions that the NZ Battery project must weigh up. And that we must do it in a systematic and evidenced based way. These are the answers that as a sector and a country we must answer.
We can develop low-emissions, long-term alternatives that will deliver secure electricity supply, allow us to decarbonise other parts of the economy, AND put downward pressure on electricity prices by pegging them to renewables.
In our election year, I look forward to each party putting their penny down on the form of specific policies on how to address the fundamental problem of dry hydro years and how we store energy in a renewable form for the future.
A significant work stream that is delivering on our climate change targets to decarbonise our energy system, is the Government Investment in Decarbonising Industry or GIDI fund. Over just the first three rounds, $63 million has been invested across 51 major industrial decarbonisation projects, catalysing $100 million in private funding to deliver an expected lifetime carbon abatement of 7.18 million tonnes of CO2 – equivalent to taking around 130,500 cars off the road.
Projects range from switching fossil fuel boilers to electrode or biomass boilers for process heat, the use of industrial heat pumps as well as heat recovery and efficiency improvements.
With almost all political parties in our Parliament on board with the commitment to meet carbon budgets, there is good consensus about the need to lower emissions.
Obviously, there are sometimes differences in HOW we achieve them. So, when we hear politicians talk about the ideal state of a low emissions economy, it’s critical that you also get the detail on how their plan will work.
The GIDI fund is ensuring decarbonisation happens faster than it otherwise would have, and it’s a smart investment. These ar all projects that are occurring when they are because of partnership with industry. This is critical for us to meet on carbon budgets and our NDC targets. Failing to do this will cost NZ inc.
By recycling ETS revenue back into domestic abatement New Zealand reduces its need to buy expensive carbon credits on international markets. The investment is in New Zealand and through GIDI is getting some of the cheapest abatement we could possibly deliver. I have seen some projects come in as low as $19 per tonne.
Last year we boosted GIDI with $650 million of funding over four years to expand the number and type of projects that can receive money, so we can further decarbonise our energy system, without de-industrialising it.
There is a tremendous amount of work going on to prepare our energy system for the future.
A key part of the journey is the Gas Transition Plan to set realistic, but ambitious, pathways for the fossil gas sector to decarbonise in line with the first three emissions budgets out to 2035, while signalling the longer-term direction out to 2050.
There has been intensive work in the sector on this and potential scenarios will go out for general consultation later this year.
At the same time there is work underway to review our Electricity Market Measures to support the transition to a highly renewable electricity system and ensure there is alignment.
The Energy Strategy will address strategic challenges in the energy sector and signal pathways away from fossil fuels and towards net zero carbon emissions by 2050. These pathways need to ensure that energy is accessible and affordable, secure, and reliable, and supports New Zealanders’ wellbeing. Bringing New Zealanders along the journey will ensure the changes we need to make are well-planned, co-designed and lasting. This too, will go out for consultation in a few months’ time.
Similarly, we are concurrently developing a Hydrogen Roadmap to clarify the role hydrogen could play in the wider energy transition and to outline how the government can enable this sector. An interim Roadmap will be released mid-year, and a final Roadmap alongside the completed Energy Strategy by the end of 2024.
While we are taking out the emissions from energy, we are also ensuring we are growing more renewable energy.
We have major work underway to make the most of offshore wind and ensure that it’s done right. Our seas can produce more energy per unit than the global average. We’re consulting in two stages on a dedicated regulatory regime to ensure investors have the certainty they need to commit to projects. This is an area where we have made considerable progress in the last year and will be looking to maintain that momentum this year.
I’d like to recognise the important role upstream producers continue to play in New Zealand’s energy systems. Petroleum infrastructure has served our energy needs for decades. As these assets reach the end of their life, however, we need to ensure they are decommissioned in an environmentally responsible manner and that the costs of decommissioning do not fall on the public.
Resilience to disruptions is also important. Having a sufficient supply of onshore fuel stocks will help shield us from major disruptions to international oil and fuel markets, natural disasters and infrastructure failures.
We are moving ahead with the Fuel Resilience package for a domestic fuel stockholding obligation for fuel importers and wholesalers of 21, 24 and 28 days’ cover of diesel, jet, and petrol respectively. This will be coupled with Government procurement of an additional 70 million litres of diesel.
This is a challenging time for the sector. You are working to deliver energy and electricity systems of the future for New Zealand.
The move towards a decarbonised economy, and the increased electrification that involves, will be a challenging transition.
At the same time however, these challenges also present enormous opportunities for industry, and for the future of the country.
As a Government, we recognise that we simply cannot achieve our goals without the help of industry and the wider sector, and we look forward to the opportunity to partner further with you all.
Thank you.
