Labour Party - Speeches

Engineering a sustainable electricity industry

20.06.2008

Address to the Electricity Engineers Association Conference

Your conference last year would have been my first opportunity to meet with you formally.

Unfortunately, a pressing overseas commitment involving my Climate Change responsibilities intervened. Luckily my colleague, Judith Tizard, was able to stand in for me.

In any event, it's been an extremely busy 12 months, and a great deal has happened in both my energy and climate change portfolios over that time.

So I thought that I would start by looking briefly at the big picture, and then move to some items that will be of more specific interest to your membership.

We have set an agenda for economic transformation that puts us on a path to an environmentally sustainable and prosperous future.

As part of that direction, we have set targets and actions to reduce energy emissions.

You'll no doubt be aware of the Emissions Trading Scheme, which establishes the framework for pricing all greenhouse gas emissions.

It is, by any standards, a comprehensive scheme which will, over time, include all sectors of the economy, including the energy sector, and all greenhouse gases.

Legislation to enact this scheme is currently going through the Parliamentary process.

The New Zealand Energy Strategy - and the New Zealand Energy Efficiency and Conservation Strategy as an action plan under the Energy Strategy - also contain complementary targets and actions to reduce energy emissions.

The NZEECS is founded on the principle that, as a country, we should invest in energy efficiency where this is cheaper than investing in more energy capacity.

We have actions underway across the whole energy sector to support increased efficiency.

This is affordable - it is underpinned by the best cost-benefit analysis we have ever had.

It leads to environmental benefits by reducing greenhouse and other emissions - and at the same time contributes to our future energy security.

The NZEECS will support the ETS by assisting people to respond more effectively to emissions pricing signals - that is, by facilitating training skills and technology deployment to actually do things to reduce energy use and emissions.

It will also address non-price barriers to reducing emissions by working in areas where the ETS price signal will not be so effective, such as - for instance - the landlord/tenant situation.

Split incentives can mean that in some circumstances neither the landlord nor the tenant has sufficient interest in investing in efficiency.

You'll be aware that the Ministry of Economic Development is responsible for reporting to me on the implementation of the NZES and the NZEECS, and is the agency with primary responsibility for overall energy policy.

With these new strategies in place, the government agreed earlier this year that it made good sense to incorporate energy efficiency policies as part of the Ministry's overall energy policy responsibilities.

As part of this change, the Ministry of Economic Development will also assume responsibility for monitoring EECA - the main agency charged with implementing the government's energy efficiency agenda.

The ETS will support the NZEECS by putting a price on greenhouse emissions, thus making investments in energy efficiency, conservation and renewables more cost-effective.

This will be especially important if, as expected, the international price of greenhouse emissions increases over time.

So you can see that our energy efficiency goals and emissions trading proposals are complementary and mutually reinforcing elements of our policy to reduce greenhouse gas emissions.

Both are also designed to foster development of a sustainable future for New Zealand, with a reliable and resilient system delivering sustainable, low emissions energy.

You'll be aware that we have set a target that by 2025, 90 percent of our electricity generation will be from renewable resources.

Most of this is supplied from hydro generation, which varies depending on rainfall, while the rest is from geothermal and wind.

So how much new electricity generation will actually be needed to achieve the 90 percent target?

We currently have around 6100 megawatts of renewable generation capacity, and 2800 megawatts of fossil fuel generation - providing around 40,000 gigawatt-hours of electricity.

Electricity demand is expected to grow by around 20 percent by 2025, which would require approximately 3500 megawatts of additional generation capacity.

To achieve the proposed renewable electricity target, the majority of new generation investment would need to be renewable.

This implies that we need around 175 megawatts of new renewable generation capacity every year.

Current investment by generators proves what MED also advises me, and that is that our renewables are affordable.

More than 400 megawatts is presently under construction and an additional 499 megawatts is consented but not yet in construction, and another 2491 megawatts is in consent processes.

To achieve our 90 percent renewables target, it's essential that suitable renewable energy projects gain resource consents.

We will therefore be providing guidance for local authorities on the importance of renewables, through a National Policy Statement on Renewable Electricity Generation.

This will influence consent decisions, as well as regional and district plans as they are revised.

We intend to notify this NPS next month and have it in place early next year, in order to influence the many renewable energy projects that are being proposed.

This does not mean renewables at any environmental cost - but it does mean enabling consenting processes to be completed in a timely way.

The Minister for the Environment can "call-in" consent applications for nationally significant projects and refer them to a Board of Inquiry, or directly to the Environment Court - speeding up decisions that would in all likelihood be appealed anyway.

Using call-in processes is not a criticism of local authorities, and does not undercut environmental protections.

The same environmental rules apply, but the one-step process can save developers, objectors and councils the time, stress and cost of two hearings where an appeal seems almost inevitable.

Turning now to other items that may interest you, we have responded to strong concerns expressed by electricity lines businesses about Part 4A of the Commerce Act.

The Commerce Amendment Bill was introduced in March, and the Select Committee expects to report back next month.

The two proposed changes to the Act of interest to those of you involved in the electricity distribution business are:

The Bill represents a particular win for consumer-owned electricity lines companies, which are currently subject to the same regulatory requirements as the large, investor-owned companies.

In future they will only have to disclose information to the Commerce Commission, rather than meet the more demanding requirements faced by other electricity lines companies.

This is because they're owned by their consumers, which means that they are more likely to act in the consumers' interests.

Nevertheless, protection for consumers lies in the provision allowing consumers of a lines business to petition the Commission to recommend to me that the business be made subject to the same regime as non consumer-owned lines businesses.

There are special provisions applying to Transpower to recognise its unique position among lines companies.

The other piece of legislation in which you will have a particular interest is the Electricity Industry Reform Amendment Bill.

The first is to make it easier for owners of lines businesses to sell the output of the generation they were permitted to own under the earlier amendments to the Reform Act - EIRA as we know it.

The objective is to encourage the owners of lines businesses to invest in permitted generation, especially generation from renewable energy sources.

The second main change is to narrow the scope of ownership separation by focusing on geographic areas where there is potential for the exercise of market power and anti-competitive practices - namely, where lines and supply are co-located.

This will be achieved by allowing owners of lines businesses to be involved in generation and retailing without limits outside of their lines area.

At the same time, ownership separation rules will be retained where lines and supply are located in the same area.

Currently, the owner of a lines business can only invest without quantity limitations in "new renewables", which are defined to exclude hydro and geothermal generation using traditional technologies.

The new definition will include all renewables, to reflect the government's policy of encouraging the development of renewable energy.

This Bill has been considered by the Commerce Select Committee and was reported back in early June.

Another, and related, area of interest to you will have been the passing last August of regulations governing distributed generation.

These were drawn up to enable connection of distributed generation in conformity with consistent connection and operational standards.

You will also be aware, no doubt, of our review of continuance of supply to rural consumers post 2013.

The obligation to supply to those places supplied as at 1 April 1993 was due to expire at the end of March 2013.

Following consultation, we have decided to revise section 62 of the Electricity Act so that this obligation to supply will no longer expire in 2013.

This continuing obligation to supply may be met either by using lines, or by alternative local generation where the local consumers agree.

We are allowing lines companies to meet this obligation in a more cost-effective way by providing the flexibility to accommodate new energy technologies as they become feasible and cost-effective in various situations.

Maintaining security of supply is a priority, and this applies to rural consumers just as much as to those in towns and cities.

Now that consumers will have that certainty, I hope to see lines companies and consumers focus on whether there are better ways to meet their needs - for example, utilising on-site renewable sources and improving efficiency.

I am confident that the Act will be amended in ample time to achieve this objective.

A couple of months ago we issued, under the RMA, a new National Policy Statement on Electricity Transmission.

This requires RMA decision makers to consider the national significance of a reliable and secure electricity supply - as well as adverse environmental effects - when they assess proposals for our national transmission grid.

It gives guidance to local governments across the country about the management and future planning of the national grid.

Its main purpose is to make it explicit that electricity transmission is a matter of national significance under the Resource Management Act - because an efficient and well-managed national grid is vital for communities, the environment and businesses across the country.

This national policy statement ensures that there is a balanced consideration of both these national benefits and the local effects of electricity transmission.

It contains 14 policies intended to facilitate the operation, maintenance and upgrading of the existing network and any new transmission networks - while at the same time managing any adverse environmental effects of the network, as well as adverse effects of other activities on the network.

I thought that, finally, I would touch on the question of new technologies, which I know is always of interest to engineers.

I particularly have in mind the potential for the use of marine energy, about which I'm enthusiastic.

I think it's a very promising emerging technology, and as an island nation we have tremendous opportunities for wide deployment.

It is important that we have a diverse mix of renewables, to give us more security of supply.

So the more diverse the renewable energy sources we have at our disposal, the better.

We anticipate that the main increase in renewable generation over the next decade will come from new wind and geothermal generation capacity.

It has the potential to make a valuable contribution to our future energy supply, based on the excellent potential we have for both wave and tidal generation.

Average wave power can exceed 100 kilowatts per metre of wave crest length, on the southwest-facing coasts of this country.

There are also significant tidal flows in some of our west coast harbours, and tidal currents in areas such as Cook Strait and Foveaux Strait, that have the potential to generate thousands of kilowatts.

Marine generation technology is now about where wind technology was 15 years ago.

Some of you will remember when the first wind turbine was erected in 1993 at Brooklyn in Wellington, as part of a research project.

We're now at a similar stage with marine generation, with a range of pre-commercial projects around the world putting marine generation devices in the water to trial the new technology.

That's why we have set up the Marine Energy Deployment Fund to kick-start the deployment of marine devices in our waters.

The Fund has eight million dollars to allocate over four years to pre-commercial projects, to give us some practical experience of what works in this environment.

Just three weeks ago I announced the first grant under the Marine Energy Deployment Fund to Crest Energy, for a project to deploy from one to three tidal stream turbine generators at the entrance of Kaipara Harbour, north of Auckland.

We are giving a grant of 1.85 million dollars to the Pouto Link Project, which is the first stage of Crest's plan for commercial-scale generation at Kaipara.

This is subject, of course, to resource consents for the project being obtained.

In this initial project, the turbines will be installed, connected to a small converter station on land and then fed into existing 11 kV transmission lines.

The major benefit is obviously obtaining practical knowledge of operation in a relatively harsh environment that will feed into the larger project and other marine energy projects.

This project will also provide enhanced electricity supply to a remote rural area on the Pouto peninsula, which is currently subject to intermittently poor supply.

Crest's ambitious aim is, in time, to be operating 200 turbines of up to 1 MW each at Kaipara.

That would generate 540 gigawatt hours of energy annually, or 1.3 percent of current electricity demand - enough to supply many tens of thousands of Kiwi homes with electricity.

To generate the same amount of electricity from coal would produce 520,000 tonnes of carbon dioxide - equivalent to the annual emissions from 160,000 cars.

Of course, this is not the only potential marine energy project under investigation, and there'll be up to two million dollars available from the Fund in round two.

I certainly want to see more devices in the water, so that we can improve our knowledge of how they perform in New Zealand conditions.

The latest budget also voted funds for research into deep geothermal which also has enormous potential in New Zealand.

The electricity industry is already changing, in part in response to the Energy Strategy the government has outlined, and in part in recognition that a more sustainable energy system is the only way to go.

This is an exciting sector to be working in, with plenty of opportunities in the offing, especially for those interested in innovation and sustainability.

Your programme reveals that there will be much to keep everybody interested and involved, and I hope that you will all enjoy the opportunities to discuss and debate the wide range of issues that will be covered.

Speeches

Engineering a sustainable electricity industry

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