GG-001 BEFORE THE ENVIRONMENT COURT CHRISTCHURCH REGISTRY ENV-2016-CHC-47. Of an appeal under section 120 of the Resource Management Act 1991

Transcription

1 BEFORE THE ENVIRONMENT COURT CHRISTCHURCH REGISTRY ENV-2016-CHC-47 IN THE MATTER BETWEEN Of an appeal under section 120 of the Resource Management Act 1991 BLUESKIN ENERGY LIMITED Appellant AND DUNEDIN CITY COUNCIL Respondent BRIEF OF EVIDENCE OF GRENVILLE BARRON GASKELL GALLAWAY COOK ALLAN LAWYERS DUNEDIN Solicitor on record: B Irving Solicitor to contact: C F Hodgson P O Box 143, Dunedin 9054 Ph: (03) Fax: (03) bridget.irving@gallawaycookallan.co.nz campbell.hodgson@gallawaycookallan.co.nz BI V4 GG-001

2 Introduction 1. My full name is Grenville Barron Gaskell. I hold a Bachelor of Commerce and Administration qualification from Victoria University. I am the Chief Executive of the New Zealand Wind Energy Association (NZWEA). I commenced in this role in May Prior to May 2016 I held roles in the energy industry and finance sector. Of relevance in this instance was my work at Meridian Energy where I held management roles in the asset management, generation, trading and retail parts of the Company. 3. In my positions at NZWEA and Meridian Energy I have gained knowledge of renewable energy technologies, New Zealand electricity market operations and international developments in wind energy. 4. In particular, as Chief Executive of NZWEA I receive extensive information on international trends in wind energy and the use of renewable energy to reduce man made carbon emissions. I prepare strategy papers for the NZWEA Board and seek to advance the mission and objectives of the Association as detailed in paragraph 8. Scope of Evidence 5. In this evidence I will discuss the following: (a) (b) (c) Brief outline of the New Zealand Wind Energy Association, its role and activities. Summary of the status of electricity generation capacity in New Zealand and governmental targets for renewable generation. The role that small scale wind projects have in contributing to the achievement of governmental targets. 6. I confirm I have read and agree to comply with the Code of Conduct for Expert Witnesses in the Environment Court Practice Note This evidence is within my area of expertise except where I state that I am relying on facts or information provided by another person. I have not omitted to consider material facts known to me that might alter or detract from the opinions that I express. BI V4 GG-002

3 1 New Zealand Wind Energy Association 7. The New Zealand Wind Energy Association (NZWEA) is a non- Governmental, non-profit, membership-based industry association that works towards the development of wind energy as a reliable, sustainable, clean and commercially viable energy source. Our membership includes around 40 companies involved in the New Zealand wind energy sector, including: most of the major electricity generator-retailers (Genesis Energy, Meridian Energy, Mercury Energy and Tilt Renewables); a number of smaller electricity generators and retailers; a number of major international wind turbine manufacturers; and a range of other companies with interests ranging from site evaluation through to operations and maintenance. 8. NZWEA s Mission and Objects are set out in the Association s Rules under the Incorporated Societies Act 1908 as follows: Mission The mission of the Association is to promote the uptake of New Zealand s abundant wind resource as a reliable, sustainable, clean and commercially viable energy source. Objects The objects of the Association are to achieve its mission... by means of: (a) policy advocacy with local and central government officials and elected representatives, regulatory bodies, industry groups and other interested organisations to raise the awareness of, and develop the concept of Wind Energy in New Zealand; (b) organising seminars, conferences and other promotional and educational events, and to distribute information, relating to Wind Energy in New Zealand; (c) providing a forum for external and internal networking, discussion and co-operation amongst persons with an interest in Wind Energy in New Zealand; (d) promoting the economic, environmental, social and other benefits of Wind Energy in New Zealand; and (e) promoting research and development of Wind Energy technology in New Zealand. BI V4 GG-003

4 2 New Zealand Electricity Generation 9. Electricity is an essential service and a means by which people and communities provide for their social, economic and cultural wellbeing and for their health and safety. 10. The electricity sector in New Zealand uses mainly renewable energy sources such as hydropower, geothermal power and increasingly wind energy. In 2015 electricity generation was 81% renewable with the remaining generation utilising coal and natural gas. 11. Hydro generation is the largest source of electricity generation in New Zealand. Wind generation complements existing hydro-generation facilities, allowing New Zealand to optimise the use of important water resource and providing additional security against the risk of the dryyears that reduce generation capacity. 12. Wind energy varies little on a long-term basis. Wind farms in New Zealand generate electricity for up to 90% of the time. By diversifying our sources of generation and by providing a reliable, long-term source of energy and with its synergies with the hydro system, wind generation makes an important contribution to the security of New Zealand s electricity supply. 13. After a period of declining demand, electricity production increased 1.6% in The Ministry of Business Innovation and Employment is forecasting growth averages of between 0.4% and 1.3% each year in their latest forecast scenarios and forecasts up to 2,300MW of new wind capacity could be built by In 2013, the latest available data i, the level of New Zealand s CO 2 emissions from the electricity sector were 53% above The Emissions from thermal electricity generation was 5,043 kt C02-e with geothermal generation contributing a further 749,000 t C02-e. Emissions per GWh of coal generation was 1,003 t C02-e, 501 t C02-e for thermal generation and 125 t CO2-e for geothermal generation. A copy of the New Zealand Energy Greenhouse Gas Emissions Report 2013 is attached at Appendix A. 15. New Zealand has nearly 700 MW of installed wind capacity. On an annual basis this generates around 6% of all electricity supplied. In my BI V4 GG-004

5 3 opinion wind generation is proven and reliable form of electricity in New Zealand. International benchmarking has confirmed wind turbines in New Zealand are some of the best performing wind turbines in the world. 16. Consents have been issued for a further 2,200 MW of capacity. Governmental targets for renewable generation 17. New Zealand has a target of 90% renewable electricity generation by 2025 as set out in the New Zealand Energy Strategy ii. This target is also referred to in the preamble to the National Policy Statement for Renewable Electricity Generation The renewable electricity target is important to reduce emissions from the electricity sector and contribute towards the Government s commitment under the Paris Climate Change Agreement. 19. New Zealand is a signatory to the Paris Agreement which became legally effective internationally on 4 November 2016.The Paris Agreement requires a reduction in green house gas emissions to 30% below 2005 levels by This will require savings of at least 22.5 Mt C02-e. 20. Most recent Ministry of Business Innovation and Employment modelling of Electricity Demand and Generation Scenarios (EDGS) confirm that under all five modelled scenarios the 90% renewable electricity target will not be reached by A copy of the Electricity Demand and Generation Scenarios and Results Summary published by the Ministry of Business, Innovation and Employment August 2016 is attached at Appendix B. 21. The Government has identified 3 key priority areas by which to reduce emissions as detailed in the draft New Zealand Energy Efficiency and Conservation Strategy The 3 areas are: Improving process heat efficiency and switching from fossil fuels to renewable energy. Moving to a more efficient and low emissions transport system using new technologies to benefit from renewable electricity such as electric vehicles. BI V4 GG-005

6 4 Further increasing renewable electricity generation to meet the 90% target and promoting the innovative and efficient use of electricity. A copy of the strategy is attached at Appendix C to this evidence. 22. The implementation of strategies in the Government s priority areas are expected to increase electricity demand and require new sources of generation. 23. Electricity sector emissions may therefore increase further unless demand growth is met with new renewable electricity generation. The EDGS provides details of expected generation developments which includes both new diesel and natural gas power stations being required to meet demand in The Environment Court identified in its decision on the Mahinerangi Wind Farm iii the impact greenhouse gases were having on climate change and that by ensuring demand growth is met with new renewable electricity generation, carbon dioxide emissions will not increase (with resulting climate change benefits). In the event that this new renewable generation also displaces existing generation (i.e. by being dispatched in preference to more expensive sources of generation that produce greenhouse gas emissions) this could result in a net reduction in carbon dioxide emissions. 25. The last wind farm commissioned in New Zealand was at Flat Hill Bluff in While the expected production of the Blueskin Bay wind turbine of around 7 GWh pa is lower than larger multi-turbine wind farms, it represents an important project in the development of the New Zealand wind industry utilising a smaller scale wind site and provides renewable generation which reduces the requirement to produce electricity using fossil fuels. Role of Small Scale Wind Projects 26. Studies undertaken by the Parliamentary Commissioner for the Environment iv confirm that large scale wind farms can only ever occupy a small portion of a country s wind locations. Small microclimates which have funnelling or hilltop attributes are very favourable for community wind projects. BI V4 GG-006

7 5 27. Internationally small scale community owned wind farms are a growing sector to utilise available wind resource and increase local energy independence while reducing carbon emissions. 28. Denmark, Germany, Austria and the Netherlands have high levels of community ownership which have played a major role in the development of wind energy. 29. In addition to the benefit of increased renewable electricity generation, the Blueskin Bay project is a pilot for the community owned business model in New Zealand with returns being directed to the local community. 30. Therefore in my opinion the Blueskin Bay project takes on increased significance for the sector because it: Develops a smaller scale high potential wind site. Providing renewable electricity and assisting to reduce carbon emissions from fossil fuels and; Establishing an organisational and tactical blueprint for developing community-owned, renewable energy generation projects. Conclusion 31. New Zealand has a target of 90% renewable electricity generation by 2025 to reduce emissions from the electricity sector and contribute towards the Government s commitment under the Paris Climate Change Agreement. 32. The Paris Climate Change Agreement target requires New Zealand to reduce emissions to 30% below 2005 greenhouse gas emission levels by 2030 and will require savings of at least 22.5 Mt C02-e. 33. Most recent Ministry of Business Innovation and Employment modelling of Electricity Demand and Generation Scenarios 90% target will not be reached by 2025 based on current projections of new supply and increasing demand. 34. The Blueskin Bay wind project provides new renewable generation which supports the achievement of the Government s target. BI V4 GG-007

8 6 35. In addition to the benefit of reducing carbon emissions the Blueskin Bay project would establish New Zealand s first community wind energy enterprise which has been internationally proven as a successful model to utilise smaller scale wind resources... Grenville Gaskell 27 January 2017 References ii New Zealand Energy Strategy published August 2011 by the Ministry of Economic Development. iii Upland Landscape Protection Society Inc. versus Clutha District Council, Otago Regional Council & TrustPower Ltd., Decision No. C 85/2008, 25 July iv PCE Report Wind Power, People and Place (2006b) Parliamentary Commissioner for the Environment, PCE Report (2006a) Get smart, think small. Wellington Parliamentary Commissioner for the Environment. BI V4 GG-008

9 Grenville Gaskell Appendix A New Zealand Energy Greenhouse Gas Emissions Report 2013 published by the Ministry of business, Innovation and Employment December BI V2 \ \ GG-009

10 ENERGY MODELLING AND SECTOR TRENDS 14 Energy 2013 CALENDAR YEAR EDITION Greenhouse Gas Emissions Key Messages Energy Sector Emissions 32% ABOVE the 1990 level Road transportation produces 40% of all energy sector emissions 7,136 5,762 Electricity generation emissions DECREASED 19% from 2012 Introduction This publication presents information on greenhouse gas emissions from the energy sector for the calendar years Energy sector emissions are responsible for slightly less than half of New Zealand s total gross emissions. Total gross emissions include agriculture, energy, industrial processes and waste sector emissions, but exclude emission reductions from land use change and forestry. Emissions are presented as carbon dioxide equivalent (CO 2 -e) of the direct greenhouse gases carbon dioxide, methane and nitrous oxide based on updated global warming potentials (see Technical Notes on page 10). This publication updates the annual series and includes revised numbers for where improved data or methodologies have been applied. New Zealand is a signatory to both the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol first commitment period. As an Annex 1 country under the UNFCCC, New Zealand is committed to produce a national inventory of greenhouse gas sources and sinks. As a signatory of the Kyoto Protocol, New Zealand has accepted that for the period 2008 to 2012 it will take responsibility for all emissions in excess of 1990 levels. The energy sector emissions data presented in this publication will feed into New Zealand s Greenhouse Gas Inventory that will be published by the Ministry for the Environment and submitted to the UNFCCC in April In addition to energy sector emissions, New Zealand s Greenhouse Gas Inventory includes emissions from agriculture, industrial processes, solvent and other product use, waste and land use change and forestry. WANT A CLOSER LOOK? For detailed data, visit: GG-010

11 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT SNAPSHOT 2013 Emissions from transport continue to dominate in 2013, making up 44% of total emissions in the energy sector, slightly up on the previous year. In fact, transport emissions are greater than electricity, manufacturing and fugitive emissions combined. By fuel type, liquid fuels are responsible for the majority of emissions. Over three quarters of liquid fuel emissions come from the transport sector. DETAILED DATA TABLES ARE AVAILABLE AT: energy-modelling/data FIGURE 1A: Energy Emissions by Sector 2013 (kt CO 2 -e) 0% 10% 20% 30% 40% Transport Manufacturing Electricity Fugitive Agriculture Forestry & Fishing Transformation Commercial Residential 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Gas Liquid Fuels Coal Geothermal Biomass FIGURE 1B: Energy Emissions by Fuel 2013 (kt CO 2 -e) 0% 10% 20% 30% 40% 50% Liquid Fuels Gas Coal Geothermal Biomass 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Transport Electricity Manufacturing Fugitive Primary Industries Transformation Commercial Residential MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-011

12 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT 2013 EMISSIONS BY FUEL 3 New Zealand s energy sector emissions were 31,659 kt CO2-e in 2013, down 3% from Since 1990, the base year for Kyoto Protocol obligations, New Zealand s energy sector emissions have increased in total by 32%, averaging 1.2% growth per annum. During this period New Zealand s GDP grew by over 215%. In 2013, higher hydro and geothermal electricity generation together with lower electricity demand reduced the need for electricity generation from coal. This resulted in a significant decrease in emissions from coal combustion. Liquid fuel combustion, driven by the transport sector, continues to dominate, at over 55% of total energy sector emissions. An increase of 50% between 1990 and 2003 is largely responsible for New Zealand having one of the largest increases amongst Annex 1 countries in energy sector emissions since Natural gas combustion emissions increased up until 2001 as the chemicals industry (manufacturing synthetic petrol and methanol) and electricity generators took advantage of the relatively cheap Maui and Kapuni gas contracts. In the late 1990s, synthetic gasoline production stopped in New Zealand and by 2003 rising gas prices led to the closure of Methanex s methanol plant at Motunui followed by the Waitara Valley plant in During 2012, both trains at Motunui were restarted, and in late 2013 the Waitara Valley plant was restarted. Fugitive emissions, including those associated with geothermal electricity generation, dropped 11% from 2012, driven mainly by reduced coal mining. TABLE 1: Energy Emissions by Fuel Type (kt CO 2 -e) Calendar Year Liquid Fuels Natural Gas Coal Biomass Total Combustion Fugitive Total ,974 7,086 3, ,428 1,566 23, ,022 9,275 2, ,338 1,996 30, ,476 7,363 6, ,657 2,456 35, ,762 6,991 4, ,593 2,683 32, ,773 7,636 3, ,199 2,990 32, ,833 7,053 3, ,809 2,747 31, ,722 7,402 5, ,280 2,415 32, ,036 7,199 4, ,504 2,154 31, / % 1.6% 26.9% 22.6% 31.6% 37.5% 31.9% 1990/2013 p.a. 1.8% 0.1% 1.0% 0.9% 1.2% 1.4% 1.2% 2012/ % -2.7% -17.6% -3.0% -2.6% -10.8% -3.2% % of total 2013 energy CO2-e emissions FIGURE % 22.7% 13.0% 0.4% 93.2% 6.8% 100.0% FIGURE 3: Energy Emissions by Fuel Type (kt CO 2 -e) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Total Liquid Fuels Natural Gas Coal Fugitive Biomas MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-012

13 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT 2013 EMISSIONS BY SECTOR DETAILED DATA TABLES ARE AVAILABLE AT: energy-modelling/data 4 As mentioned in the previous section, most of the decrease in emissions seen between 2012 and 2013 was due to decreased coal-fired electricity generation. The 21% decrease in emissions from electricity generation (excluding geothermal) was mostly due to coal generation decreasing from 2,712 GWh in 2012 to 1,624 GWh in Note that emissions from geothermal electricity generation are captured in the fugitive sector. For information on electricity generation emissions, see page 6. Transport emissions have increased 60% since 1990 and now account for over 44% of all energy sector emissions. Transport emissions are broken down by mode on page 5. Transformation industries includes all energy transformation industries other than electricity generation (e.g. oil refining). The large drop is due to the production of synthetic gasoline ceasing in the late 1990s. Manufacturing sector emissions increased by 11%, driven primarily by the chemicals subsector. For a sector-by-sector breakdown of manufacturing industries, see page 7. Definitions of the sectors described on this page can be found on page 10. TABLE 2: Energy Emissions by Sector (kt CO 2 -e) Calendar Year National Transport Electricity Generation Manufacturing Industries Transformation Industries Other Sectors Subtotal Combustion Fugitive Total ,775 3,493 4,758 2,500 2,902 22,428 1,566 23, ,356 Table 2: 5,356 Energy Emissions 6,358 by Fuel Type 1,147 (kt 3,121 28,338 1,996 30, ,113 8,518 5,603 1,185 3,238 32,657 2,456 35, ,933 6,240 5,200 1,246 2,974 29,593 2,683 32, ,095 5,482 5,343 1,328 2,951 29,199 2,990 32, ,094 4,997 5,258 1,340 3,120 28,809 2,747 31, ,856 6,385 5,356 1,329 3,354 30,280 2,415 32, ,075 5,043 5,955 1,246 3,185 29,504 2,154 31, / % 44.4% 25.1% -50.1% 9.7% 31.6% 37.5% 31.9% 1990/2013 p.a. 2.1% 1.6% 1.0% -3.0% 0.4% 1.2% 1.4% 1.2% 2012/ % -21.0% 11.2% -6.2% -5.0% -2.6% -10.8% -3.2% % of total 2013 energy CO2-e emissions 44.5% 15.9% 18.8% 3.9% 10.1% 93.2% 6.8% 100.0% FIGURE 4 FIGURE 4: Energy Emissions by Sector (kt CO 2 -e) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Total National Transport Manufacturing Industries Electricity Generation Other Sectors Fugitive Transformation Industries MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-013

14 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT 2013 TRANSPORT BY MODE 5 Domestic transport includes all transport where the journey begins and ends in New Zealand. Off-road use is accounted for in the sector in which the activity occurs. For example, emissions from fuel used by a tractor on a farm are included under agriculture energy emissions. Emissions from fuel combusted by international aviation and sea-going vessels are included here. However, these are reported only as a memo item in New Zealand s Greenhouse Gas Inventory, as recommended in the Intergovernmental Panel on Climate Change (IPCC) guidelines. Road transport emissions constitute by far the largest share of domestic transport emissions. At 12,688 kt CO2-e in 2013, these made up 40% of all energy sector emissions. While road transport emissions in 2013 were up 69% over 1990 levels, the trend has been flat since about This is due to a flat trend in transport activity combined with improving fuel efficiency. The transport of passengers and freight by rail tends to be less carbon intensive than by road. TABLE 3: Transport Emissions by Mode (kt CO 2 -e) Calendar Year DOMESTIC INTERNATIONAL Road Rail Aviation Marine Total Aviation Marine Total Total , ,775 1,333 1,056 2,389 11, , , ,356 1, ,579 14, , , ,113 2,324 1,126 3,450 17, , , ,933 2,327 1,028 3,356 17, , , ,095 2,337 1,078 3,416 17, , ,094 2,438 1,029 3,467 17, , ,856 2, ,506 17, , ,075 2, ,493 17, / % 87.8% -9.9% 49.6% 60.4% 89.2% -8.1% 46.2% 57.4% 1990/2013 p.a. 2.3% 2.8% -0.5% 1.8% 2.1% 2.8% -0.4% 1.7% 2.0% 2012/ % -3.9% 3.6% 28.7% 1.6% -0.1% -1.0% -0.4% 1.2% % of total 2013 energy CO2-e emissions 40.1% 0.5% 2.7% 1.2% 44.5% n.a. n.a. n.a. n.a. FIGURE 5: Domestic Transport Emissions by Mode (kt CO 2 -e) 16,000 14,000 12,000 10,000 8,000 6,000 Total Road Aviation Marine Rail 4,000 2, MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-014

15 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT 2013 ELECTRICITY EMISSIONS DETAILED DATA TABLES ARE AVAILABLE AT: energy-modelling/data 6 Emissions from electricity generation, including geothermal fugitive emissions, were 5,792 kt CO2-e in Emissions fell 19% over the year as Huntly s coal and gas units were used less after hydro generation returned to more normal levels. Coal fired plants produced 1,080 GWh less electricity in 2013 compared to 2012, and this resulted in a 40% drop in coal emissions. Genesis Energy has put two Huntly coal and gas units into long-term storage, one of which is in the process of being decommissioned. These older and less efficient technologies are being pushed out of the market by cheaper and cleaner technologies such as geothermal and wind, which have lower emissions. Geothermal and wind energy increase baseload electricity generation meaning that less thermal baseload generation is required. The emissions intensity of New Zealand electricity generation is low by international standards due to the high proportion of demand met by hydro generation. While this provides a strong base in good hydro years, electricity emissions remain sensitive to rainfall in the key catchment areas. For 2013 the approximate emissions intensities for generation by fuel type were 720 kg CO2-e/MWh for coal, 420 kg CO2-e/ MWh for gas and 120 kg CO2-e/MWh for geothermal. TABLE 4: Electricity Emissions by Fuel (kt CO 2 -e) Calendar Year Natural Gas Coal Liquid Fuels Biomass Total Thermal Geothermal Total , , , , , , ,420 3, , , ,658 2, , , ,191 1, , , ,466 1, , , ,670 2, , , ,415 1, , , / % 240.3% -78.0% 565.3% 44.4% 164.3% 53.4% 1990/2013 p.a. 0.6% 5.5% -6.4% 8.6% 1.6% 4.3% 1.9% 2012/ % -40.1% -16.7% -3.2% -21.0% -0.2% -18.8% % of total 2013 energy CO2-e emissions 10.8% 5.1% 0.0% 0.0% 15.9% 2.4% 18.3% FIGURE 6: Electricity Emissions by Fuel (kt CO 2 -e) 10,000 8,000 6,000 4,000 2,000 Total Natural Gas Coal Geothermal Biomass Liquid Fuels MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-015

16 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT 2013 MANUFACTURING SECTORS 7 This section includes emissions from fuels combusted in factories, plants or mills, as well as for electricity generation where the primary purpose is to support an onsite manufacturing activity. This does not include emissions from chemical processes such as hydrogen, steel or cement production as these emissions are considered industrial process emissions according to IPCC guidelines. However, emissions from methanol production are reported under manufacturing in this report and in New Zealand s Greenhouse Gas Inventory. Emissions from the food industries have made up most of New Zealand manufacturing industry emissions since These emissions are largely the result of coal and gas used to raise heat for dairy processing. Emissions from the Chemicals sector have been increasing as Methanex returns its methanol production to full capacity. Figure 7 shows a distinct drop in emissions from the chemicals sector from 2003, when methanol production fell in the midst of rising gas prices. TABLE 5: Manufacturing Emissions by Sector (kt CO 2 -e) Calendar Year Chemicals Pulp, Paper & Print Food Mining & Construction Non-metallic Minerals Other Total , ,126 4, , , , , ,068 5, , , , , , , , , , , , , / % -1.8% 28.4% 56.1% 43.8% -41.1% 25.1% 1990/2013 p.a. 3.9% -0.1% 1.1% 2.0% 1.6% -2.3% 1.0% 2012/ % -2.4% -2.9% 3.2% 61.7% 27.3% 11.2% % of total 2013 energy CO2-e emissions 4.1% 1.7% 6.8% 1.8% 2.2% 2.1% 18.8% FIGURE 7: Manufacturing Emissions by Sector (kt CO 2 -e) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Total Food Chemicals Other Mining & Construction Pulp, Paper & Print Non-metallic Minerals MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-016

17 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT OTHER SECTOR EMISSIONS For the purposes of the National Greenhouse Gas Inventory, Other Sectors includes the residential, commercial/ institutional sectors and agriculture, forestry and fisheries. This includes fuel combustion for stationary energy, such as space heating in the commercial sector, and off-road mobile combustion, such as on-farm vehicles in the agricultural sector. Emissions allocated to the residential sector have decreased 26% since 1990, while commercial sector emissions increased by only 1%, despite increasing household numbers and GDP. This is the result of a shift toward electricity as a primary energy source for both sectors. As electricity generation is DETAILED DATA TABLES ARE AVAILABLE AT: energy-modelling/data itself considered a sector, switching from primary fuels such as gas or coal - to electricity, causes an apparent decrease in emissions in the sector in which the energy is consumed. Emissions from the primary industries sector have increased 39% since 1990, in line with increased production. Approximately 30% of 2013 emissions in these sectors come from mobile combustion of liquid fuels, such as off-road vehicles on farms. Note that these are combustion emissions only. Emissions resulting from enteric fermentation and manure management are not energy-related emissions, so are captured elsewhere according to IPCC guidelines. TABLE 6: Other Sector Emissions (kt CO 2 -e) Calendar Year Commercial Residential Primary Industries Total ,224 2, ,536 3, ,669 3, ,456 2, ,462 2, ,644 3, ,803 3, ,706 3, / % -26.3% 39.3% 9.7% 1990/2013 p.a. 0.0% -1.3% 1.5% 0.4% 2012/ % -7.0% -5.4% -5.0% % of total 2013 energy CO2-e emissions 2.8% 1.8% 5.4% 10.1% FIGURE 8: Other Sector Emissions (kt CO 2 -e) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Total Primary Industries Commercial Residential MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-017

18 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT 2013 FUGITIVE EMISSIONS 9 Fugitive emissions are those which arise from the production, processing, transmission and storage of fuel, and from nonproductive combustion. These emissions have decreased 28% over the last three years, with the largest decline coming from the coal mining subsector. Emissions from natural gas processing and flaring had increased considerably in previous years. This was partly due to the decline in methanol production from 2003, which resulted in an increase in emissions vented from the Kapuni gas treatment plant. Previously, high-co2 gas from the Kapuni low temperature separation plant had been exported for methanol production. During 2012 and 2013 methanol production increased causing gas processing emissions to decrease. In addition, flaring of natural gas at offshore oil fields increased significantly since Some offshore oil fields are permitted to flare natural gas produced along with oil if it is not economically viable for a dedicated pipeline to be built to transport the gas onshore. Combusting the natural gas results in lower emissions than simply venting it due to the higher global warming potential of methane relative to carbon dioxide. Geothermal electricity generation is another significant and increasing source of fugitive emissions. These emissions are considered fugitive as they are the result of the extraction process rather than combustion. Other leakage includes natural gas losses at the point of consumption. TABLE 7: Fugitive emissions (kt CO 2 -e) Calendar Year Coal Mining and Post-mining Operations Gas Transmission and Distribution Gas Processing and Flaring Oil Transportation, Refining and Storage Geothermal Other Leakage Total , , , , , , , , / % -32.9% 96.6% 16.7% 164.3% -5.7% 37.5% 1990/2013 p.a. -0.7% -1.7% 3.0% 0.7% 4.3% -0.3% 1.4% 2012/ % -4.0% -20.8% -6.2% -0.2% 1.4% -10.8% % of total 2013 energy CO2-e emissions 1.0% 0.6% 1.8% 0.0% 2.4% 1.0% 6.8% FIGURE 9: Fugitive emissions (kt CO 2 -e) 3,000 2,500 2,000 1,500 1, Total Gas Processing and Flaring Geothermal Coal Mining Other Leakage Gas Transmission and Distribution Oil Transportation, Refining and Storage MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-018

19 NEW ZEALAND ENERGY GREENHOUSE GAS EMISSIONS REPORT Technical Notes Carbon Dioxide Emission Factors Carbon dioxide emission factors are used to calculate the amount of CO2 emitted per unit of fuel combusted. Other emission factors that do not involve combustion or the use of fuel are expressed in terms of emissions per unit of production, or some other kind of activity. Oxidation factors are used to account for incomplete combustion. Carbon dioxide emission factors, both before and after oxidation, are presented in the detailed data tables at: energy/energy-modelling/data/ greenhouse-gas-emissions Non-Carbon Dioxide Emissions Non-carbon dioxide emissions are highly dependent on the conditions of combustion. For example, a litre of diesel used for industrial heating produces a different level of methane emissions than the same amount used in a vehicle. Consequently, methods for calculating non-carbon dioxide emissions differ by sector. Carbon Dioxide Equivalent Emissions Carbon dioxide equivalent (CO2-e) emissions are calculated based on the ratio of the radiative forcing of one kilogram of greenhouse gas emitted to the atmosphere to that of one kilogram of carbon dioxide over a given time horizon. This report uses the global warming potentials from the Fourth Assessment Report of the IPCC: Methane (CH 4 ) = 25 Nitrous oxide (N 2 O) = 298 Previous editions of this report used values of 21 and 310 respectively, which were specified in the Second Assessment Report of the IPCC. Biomass Emissions Carbon dioxide emissions from the combustion of biomass are not included in this publication, but methane and nitrous oxide emissions from biomass are. This is because any carbon dioxide emissions from woody biomass are captured in the Land Use, Land Use Change and Forestry (LULUCF) category, while carbon dioxide emissions from biogas emissions are accounted for in the Waste category. Sector Definitions Domestic Transport: includes emissions from fuels combusted for domestic road, rail, air or waterborne transport. Emissions from off-road vehicle use are included in the sector where the activity takes place. Electricity Generation: includes emissions from thermal combustion plants whose primary business activity is electricity generation. Plants that generate electricity to support another primary business activity are included in the manufacturing sector. Manufacturing Industries: includes emissions from fuels combusted in plants, factories or mills, and fuel combusted for electricity generation where the primary purpose is to support the manufacturing activity. Emissions from methanol production are reported in the manufacturing sector in this report and in New Zealand s Greenhouse Gas Inventory. Transformation Industries: includes emissions from fuels combusted by energy-producing industries during conversion processes, eg petroleum refining, synthetic petrol production, and oil and gas extraction and processing. Other: includes primary industries (agriculture, forestry and fishing), commercial and residential. Fugitive: includes emissions which arise from the production, processing, transmission and storage of fuels, from non-productive combustion, and from geothermal electricity generation. Voluntary Corporate Greenhouse Gas Emissions Reporting Information and emissions factors for individuals and organisations wishing to calculate greenhouse gas emissions from their activities can be found in the Ministry for the Environment s publication Guidance for Voluntary Greenhouse Gas Reporting at: mfe.govt.nz/climate-change/reportinggreenhouse-gas-emissions/voluntarycorporate-greenhouse-gas-reporting Industrial Process Emissions Industrial process emissions are those which arise from chemical reactions in which carbon dioxide is a byproduct, rather than the result of fuel combustion. Examples of industrial processes in New Zealand include the production of iron, and steel, aluminium, hydrogen, cement, lime, urea and methanol. Industrial process emissions are not included in this report, with the exception of emissions resulting from methanol production which are reported as energy-related emissions in the manufacturing sector. Data Revisions New Zealand Energy Greenhouse Gas Emissions 2013 includes many small revisions to time series due to improvements in data collection and emission factors. These improvements are made in order to better align with IPCC guidelines and are often the result of Expert Review Team recommendations. Revisions may be due to the inclusion of emissions that were not captured in past reports, such as waste oil combustion in the manufacturing sector or gas leakage at the point of consumption. They may also be the result of more accurate country-specific or site-specific emission factors being developed, as has been the case for many geothermal electricity generation plants. As IPCC default emission factors are generally conservative, establishing a local emission factor normally results in a decrease in calculated emissions. The Ministry of Business, Innovation and Employment gives no warranty on the accuracy, completeness or usefulness of any information in this publication. The Ministry shall not be held liable for any claims whatsoever arising from the use of this paper. The Ministry must be acknowledged when any information from this publication is used, reproduced or quoted. ISSN (print) ISSN (online) This work is licenced under a Creative Commons Attribution 3.0 New Zealand Licence. MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT GG-019 MB 13022_Dec14

20 Grenville Gaskell Appendix B Electricity Demand and Generation Scenarios and Results Summary published by the Ministry of Business, Innovation and Employment August 2016 BI V1 \ \ GG-020

21 Electricity demand and generation scenarios SCENARIO AND RESULTS SUMMARY August 2016 GG-021

22 ABOUT THIS REPORT Published August 2016 By Ministry of Business, Innovation and Employment 15 Stout Street PO Box 1473 Wellington ISBN: (PDF) This work is licensed under the Creative Commons Attribution-NoDerivs 3.0 New Zealand. To view a copy of this license, visit creativecommons.org/licenses/by-nd/3.0/nz/ GG-022

23 Contents 1 Key Results Purpose of the EDGS Scenarios summary Electricity demand Electricity energy demand Peak electricity demand Electricity Supply Appendix A - Scenario assumptions Input price assumptions GDP projections Demographic projections Disruptive Technology uptake Gas Supply and price References MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 2 GG-023 Electricity Demand and Supply Scenario: Scenario & Results Summary

24 1 Key Results Both peak and total electricity demand is expected to grow out to 2050 Total electricity demand growth averages between 0.4% and 1.3% each year in our scenarios out to Peak electricity demand is expected to grow, reaching between 6,560 MW and 8,060 MW by 2040 in our scenarios. The possible closure of New Zealand s Aluminium Smelter at Tiwai Point is a key uncertainty to the future of electricity demand. Total electricity demand would not return to current levels until the late 2020s in our modelling if the smelter closed in The percentage of electricity generated from renewable sources is expected to increase Renewable electricity supply is expected to grow to meet increasing demand. More geothermal and wind generation capacity is built in all our scenarios and these technologies are the lowest cost options to meet additional new baseload demand in most scenarios. Up to 2,530 MW and 790 MW of new wind and geothermal capacity is built respectively between 2016 and In all our scenarios remaining large coal fired generation capacity is retired between 2020 and In a scenario with low cost and abundant gas supply and low carbon prices long term, the percentage of renewable electricity generation remains at a similar level as it is today. This is due to a mixture of renewable and gas fired baseload generation capacity being built to meet growing demand. High uptake of electric vehicles and in home batteries can lead to increased renewable generation and reduced reliance on flexible gas fired generation Investment in solar PV systems with batteries could reach around 390,000 by 2040, in a scenario in which solar PV capital costs fall to NZD 3.16/W for a 3 kw system and battery costs fall to NZD 167/kWh. Charging electric vehicles predominately overnight, means little additional demand is added to peaks periods, as transport electricity demand increases with high electric vehicle uptake. Investment in residential solar panels with batteries can maximize household use of solar generation and shift household demand away from peak periods. Additional transport electricity demand from a high uptake of electric vehicles can be met by new geothermal, solar PV with batteries, and wind generation. There is less need for flexible gas fired peaking generation if the daily residential demand profile has lower peaks. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 3 GG-024 Electricity Demand and Supply Scenario: Scenario & Results Summary

25 2 Purpose of the EDGS The Electricity Demand and Generation Scenarios (EDGS) are created to be used by Transpower and the Commerce Commission to assess future proposals for planning for capital investment in the transmission grid. The role of the EDGS is set out in the Commerce Commission's Transpower Capital Expenditure Input Methodology Determination (Capex IM). Under the Capex IM, the EDGS provides a set of scenarios against which Transpower s proposals for major capital expenditure can be tested. The scenarios are designed to investigate key uncertainties in the electricity sector including: The type and location of electricity generation supply, considering: o Technology costs (for existing and emerging generation technologies) o Resource availability and cost (particularly for natural gas) o The global response to climate change (particularly the price of carbon emissions). The characteristics and location of electricity demand, considering: o The size and structure of the economy o The future of heavy industry in New Zealand, particularly New Zealand s Aluminium Smelter at Tiwai Point o The size and structure of the population o The price of electricity compared with alternative energy sources o Energy efficiency and demand side participation in the electricity market o Uptake rate of new technology such as electric vehicles and Solar PV Five scenarios have been developed to explore a plausible range of uncertainty about the future electricity system. The scenarios do not represent forecasts of the future and should not be interpreted as such. None of the scenarios are considered to be more likely, or less likely, than the others, and no significance should be attributed to their labels, which have been chosen to help users identify the scenarios and distinguish between them; they are not intended to convey a view that one scenario is better or worse than another. This document is intended to provide a summary of the modelled scenarios and results while the Energy Modelling Technical Guide (see Reference 1) provides technical detail of the modelling approach. 3 Scenarios summary The Mixed Renewables scenario has a mixture of geothermal and wind plant built, starting in This scenario assumes an average of 1% annual electricity demand growth, reflecting moderate GDP and population growth, and current views on relative technology cost and expected fuel and carbon prices. The High Grid scenario assumes higher GDP and population growth rates leading to higher electricity demand across all sectors; with 1.3% per year growth in grid connected electricity MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 4 GG-025 Electricity Demand and Supply Scenario: Scenario & Results Summary

26 demand. Higher gas exploration effort results in higher domestic gas supply with a flat wholesale gas price of around $6/PJ to The Global Low Carbon scenario assumes a high carbon price and lower cost renewable technology (wind and solar) which leads to more renewable build. This scenario assumes high uptake of petrol hybrid vehicles and solar PV systems, and flat electricity demand per household due to efficiency measures. In the Disruptive scenario a reduction in technology costs leads to high uptake of Solar PV with batteries and electric vehicles. Both total electricity demand and grid connected demand increases as the additional electric vehicle demand is only partially offset by solar generation. Peak and off peak retail electricity price signals lead to flattening of demand, with a lower peak demand through battery load shifting and off peak EV charging. In the Tiwai Off scenario Tiwai shuts at the start of 2018 and lower GDP growth leads to lower electricity demand across all sectors, averaging 0.4% p.a. Some existing thermal generation retires due to the drop in energy demand in the short term. With less capacity on the system more flexible North Island generation is built in the early years to meet peak requirements. 1 Scenarios are modelled and results are published to Uncertainty in assumptions and results increases the further in the future they occur. We have chosen to reference results and assumptions in 2040 instead of 2050 in this summary report. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 5 GG-026 Electricity Demand and Supply Scenario: Scenario & Results Summary

27 Table 1 Key Assumptions by scenarios Mixed Renewables High grid Tiwai Off Global Low Carbon Disruptive Demand and oil and carbon prices GDP Medium High Low Medium Medium Residential demand per household Tiwai load from start of 2018 Medium High Low Low Medium 572 MW 572 MW 0 MW 572 MW 572 MW Carbon prices $56 in 2030 $10 $56 in 2030 $152 in 2030 $104 in 2030 Oil price Medium High Very Low Low Medium-Low Population Medium High Low Medium Medium Gas supply availability Retirement Huntly Rankin units Cost of wind generation Electricity supply mix Medium High Medium Medium Medium End of 2022 End of 2026 End of 2019 End of 2022 End of 2022 Medium Medium Medium Low Medium Hydro availability Medium Low Medium Medium Medium Technology uptake and peak demand Solar uptake Medium Low Medium High Very High EV uptake Medium Low Medium Medium with high petrol hybrids Very High Peak demand projection Medium High Very Low Medium Low MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 6 GG-027 Electricity Demand and Supply Scenario: Scenario & Results Summary

28 4 Electricity demand 4.1 Electricity energy demand Grid electricity demand growth ranges between 0.4% p.a. in our Tiwai Off scenario and 1.3% 2 p.a. in our High Grid scenario out to Demand growth is 1.0% p.a. in the Mixed Renewable scenario. Demand is expected to grow over time as our population, the economy, and household incomes grow 3. The Tiwai Off scenario has the lowest demand with the assumption that New Zealand s Aluminium Smelter closes, reducing the grid connected demand by 12% in The Tiwai Off scenario also assumes the lowest GDP and population growth. The High Grid scenario has the highest grid demand by 2040 because of higher GDP and population growth in this scenario and low levels of distributed generation. Grid demand is higher in the Disruptive scenario than all other scenarios except the High Grid scenario. This is due to charging of the 1.77 million vehicles in this scenario by However, this higher grid demand is partly offset by 1,600 GWh of household Solar PV generation in Total consumer demand, which includes the demand meet by household solar PV, is at a very similar level in the Disruptive and High Grid scenarios by the early 2040s. Figure 1 Electricity demand projections at grid exit point Electricity demand in the Global Low Carbon scenario is higher than in the Mixed Renewables scenarios for the majority of the 2020s and 2030s, despite having the same GDP and demographic assumptions. This is due to higher carbon price in the Global Low Carbon scenario leading to fuel switching away from higher carbon intensive fuels to electricity, particularly in the industrial sector, as shown in Figure 3. 2 Grid connected demand grows by 1.3% in the High Grid scenario. 3 Energy demand is modelled by sector, using a combination of econometric models, production based forecasts for high energy intensive industry and a vehicle fleet model for transport demand. Full details of the energy demand modelling is provided in the Technical Guide see Reference 1. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 7 GG-028 Electricity Demand and Supply Scenario: Scenario & Results Summary

29 Residential demand is assumed to remain constant per household in the Global Low Carbon scenario. Total residential demand grows (due to increasing household numbers) at a lower rate than in the Mixed Renewable scenario (see Figure 3) and means consumer electricity demand is the same in the Mixed Renewables and Global Low Carbon scenario by the mid- 2040s. Grid connected demand in the Global Low Carbon scenario falls below that in the Mixed Renewables in the 2040s due to increasing household solar generation offsetting grid demand. Figure 2 Consumer electricity demand projections Figure 3 Electricity demand by sector MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 8 GG-029 Electricity Demand and Supply Scenario: Scenario & Results Summary

30 4.2 Peak electricity demand Peak demand growth varies across all the EDGS scenarios by 2040, reaching about 8,060 MW in 2040 in the High Grid scenario, 7,685 MW in the Mixed Renewables scenario and 6,560 MW in the Tiwai Off scenario. In the Tiwai Off scenario national peak demand reduces by 572 MW in 2018 due to the reduction in South Island baseload demand when the New Zealand Aluminum Smelter closes, as shown in Figure 4. North Island peak demand is not directly affected by the smelter closure; however both National and North Island peak demand growth in the Tiwai Off scenario is lower than in the Mixed Renewables scenario in later years, due to lower assumed GDP and population growth. Figure 4 Peak demand for New Zealand and the North Island The Disruptive scenario has a lower peak demand than both the Global Low Carbon and Mixed Renewables scenario, despite having higher electricity energy demand. This is due to a higher uptake of both electric vehicles and solar PV with batteries. The Disruptive scenario assumes that there is a within-day peak and off-peak retail price signal which incentivises charging of electric vehicles outside peak periods. Total EV energy demand is allocated by hour of the day based on the following assumptions: 80% of charging occurs between 11pm and 5am 10% of charging occurs between 5pm and 11pm 10% of charging occurs during the day evenly allocated between 9am and 5pm This means that little of the additional electric vehicle demand in the Disruptive scenario is allocated to the peak period, reducing the ratio between peak demand and energy in this scenario. In the Disruptive scenario, there is a high uptake of residential 4 solar PV, the majority of which is installed with a battery, (over 580,000 solar and battery systems installed by 2050). Household solar and battery operation is modelled on an hourly basis 5 to maximise own use of 4 Moderate commercial solar PV uptake is also assumed, with 3,268 commercial solar installations in The Technical Guide provides more details of solar and solar with battery modelling; see Reference 1. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 9 GG-030 Electricity Demand and Supply Scenario: Scenario & Results Summary

31 solar generation and to shift demand from peak periods, allowing the battery to be charged from the grid in off peak periods, when solar is not generating, and supply the household in peak periods. Solar and battery systems reduce winter evening peaks by around 490 MW in 2040 and 800 MW in 2050 in the Disruptive scenario In the Global Low Carbon scenario there is significant uptake of solar PV systems (180,000 systems installed by 2040 and 360,000 systems by 2050), however investment in solar PV occurs predominantly without batteries and we do not see the effect of batteries shifting demand from the peak periods as we did in the Disruptive scenario. 5 Electricity Supply Electricity supply is modelled using the Electricity Authority s General Expansion Model (GEM) 6. More details of the supply side modelling methodology are available in the Energy Modelling Technical Guide 7. Appendix A provides a summary of some of the key input assumptions to the GEM model. Full details of assumptions used in the model including the costs of new and existing generation technology are published by MBIE. 8 By 2040 between 4,000 to 5,000 MW of new electricity capacity is needed in most scenarios to meet growing electricity demand, as shown in Figure 5. However, if New Zealand s Aluminium Smelter closes before 2040 then only 2,000 MW may be needed. Figure 5 Change in Electricity Capacity from 2016 to The GEM model is made available on the Electricity Authority website, see Reference 2. 7 See Reference 1. 8 See Reference 3. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 10 GG-031 Electricity Demand and Supply Scenario: Scenario & Results Summary

32 Geothermal and wind capacity increases in all scenarios between now and In most of the scenarios, geothermal and wind plant are the cheapest to build, with a long run marginal cost 9 (LRMC) ranging from $80 to over $100 per MWh 10 as shown in Figure 8. Figure 6 shows the new build capacity by fuel type in the Mixed Renewables scenario. We can see there is both new geothermal and wind plant built in the scenario, from the early 2020s. Figure 6 - New generation capacity built in the Mixed Renewables scenario 11 Figure 7 shows the new build in the Tiwai Off scenario. When compared to the Mixed Renewables scenario build in Figure 6 we can see little new capacity is required with the closure of New Zealand s Aluminium Smelter. 9 The LRMC is the average wholesale price per MWh of generation that a generator needs to earn to cover all plant costs (in this context including capital financing costs, carbon costs, fuel costs, O&M costs). 10 Costs are real 2014 NZ dollars. 11 Some small 10MW diesel reciprocating peakers are built in the early years in the modelling. This is an artefact of the electricity modelling to meet dry winter energy demand requirements. This is discussed in more detail in our Technical Guide, see Reference 1. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 11 GG-032 Electricity Demand and Supply Scenario: Scenario & Results Summary

33 Figure 7 - New generation capacity built in the Tiwai Off scenario The GEM 12 model does not take account of revenue adequacy for existing plants when considering retirement and new build investment decisions. In the Tiwai Off scenario exogenous assumptions 13 were made to retire Taranaki CCGT (baseload gas fired plant) at the start of 2018 at the time New Zealand s Aluminium Smelter closes and to retire the remaining two Huntly Rankine units 14 at the start of Modelled results in Figure 7 show that 500 MW of new gas peaking plant is built by 2024 in the Tiwai Off scenario. The level of the peak demand is higher relative to the amount of electricity energy demand in the Tiwai Off scenario after closure of New Zealand s Aluminium Smelter. The shift from less flexible baseload gas generation to more flexible gas fired generation makes sense given the shift to a higher peak to energy demand ratio. However, it is relevant to note that short term pricing dynamics and revenue adequacy to cover the cost of investment for the new peaking plant in the Tiwai Off scenario has not been captured in the modelling. An alternative option to meet short term demand requirements could be to extend the life of existing coal and gas fired Huntly Rankine units, which could delay some of the new gas peaker build in the Tiwai Off scenario. In the High Grid scenario, which assumes a low carbon and gas price and a higher domestic gas supply, new baseload gas fired plant 15 costs are competitive with geothermal and wind. Figure 8 shows the LRMC assuming gas and carbon price of $6/GJ and $10/tCO 2 e. The solid black line on the chart shows the LRMC of a new gas fired baseload plant at just below $80/MWh, at a similar level to the lowest cost new geothermal plant. In most scenarios the gas and carbon price increase well above $6/GJ and $10/tCO 2 e, meaning new gas fired baseload costs increase and these plant are not built in these scenarios. 12 GEM determines build and retirement decisions based on a least cost of electricity supply optimisation. 13 Exogenous assumptions based on publically available information; however there is much uncertainty and alternative assumptions as to the operation or retirement of existing thermal plant is plausible. 14 The Huntly Rankine units can generate using a combination of coal and gas. 15 New gas fired baseload plants are combined cycle gas turbines (CCGT). MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 12 GG-033 Electricity Demand and Supply Scenario: Scenario & Results Summary

34 Figure 8 - Long Run Marginal Costs of new non-peak generation projects ($6/GJ gas, $10/tCO2e carbon Wind Geothermal $/MWh Hydro Other Gas baseload Coal 0 Lignite Cumulative GWh for renewables and price indicator line for thermals However, in the High Grid scenario abundant gas supply, flat gas price and low carbon price assumptions mean than new gas fired baseload costs remain competitive with geothermal and wind, and two 475 MW gas fired baseload plant are built in this scenario, one in 2027, the other in Figure 9 shows the High Grid scenario build profiles by technology type out to The retirement date for the existing Huntly coal and gas fired Rankine units is assumed to be later in the High Grid scenario (at 2026, compared with 2022 in the Mixed Renewables scenario). The Huntly units help to meet growing demand in the first half of the 2020s, deferring new build requirements. Figure 9 New generation capacity built in the High Grid scenario New wind capacity ranges from 190 MW to 2530 MW by 2040 across the scenarios. More wind is built in the Global Low Carbon and Disruptive scenarios, where there is a higher carbon price. However, less wind is built in the High Grid scenario, particularly in early years, where MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 13 GG-034 Electricity Demand and Supply Scenario: Scenario & Results Summary

35 there is a lower carbon price and significantly more gas available for baseload generation and later retirement of the Huntly Rankine units. Figure 10 shows the LRMC of new non-peaking generation projects with a gas and carbon price of $7/GJ and $150/tCO2e, which are the prices assumed in 2030 in the Global Low Carbon scenario. In the Global Low Carbon scenario wind capital costs are assumed to be 10% below those in all other scenarios, which is also reflected in the LRMC in Figure 10. Figure 10 - Long Run Marginal Costs of new non-peak generation projects ($7/GJ gas, $150/tCO2e carbon, 10% lower wind capital costs) Wind 120 $/MWh Geothermal Hydro 40 Other 20 0 Gas baseload Cumulative GWh for renewables and price indicator line for thermals There is 1,500 MW of new wind capacity built by 2030 and 2,300 MW between 2016 and 2040 in the Global Low Carbon scenario. In the Disruptive scenario is 1,150 MW of new wind capacity built by 2030 and 2,530 MW between 2016 and Coal and Lignite LRMC are over $160/MWh and are not shown on the chart MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 14 GG-035 Electricity Demand and Supply Scenario: Scenario & Results Summary

36 Figure 11 New generation capacity built in the Global Low Carbon scenario Wind is intermittent and requires back-up plant at peak times. Gas peaking plant provides this security in the most scenarios. Less gas peaking plant is required in the Disruptive scenario because household batteries help to shift demand from peak periods. Figure 12 - New generation capacity built in the Disruptive scenario There is 620 MW of new gas peaking plant built by 2030 and 820 MW between 2016 and 2040 in the Global Low Carbon scenario. In the Disruptive scenario 540 MW of new gas peaking plant is built by 2030 and 660 MW between 2016 and Much of the additional transport demand in the Disruptive scenario is met by baseload geothermal and solar generation. This is possible as the demand profile is flatter in the Disruptive scenario. This is largely due to electric vehicles, which are predominately charged in overnight periods and because batteries installed with solar can maximise solar own use and shift demand to reduce peak demand. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 15 GG-036 Electricity Demand and Supply Scenario: Scenario & Results Summary

37 Figure 13 - Electricity generation in 2040 Coal generation is likely to play a smaller part in electricity generation once the two remaining Huntly Rankine units close. In the year that these units retire, electricity generation from coal will fall to less than 600 GWh 17. Greenhouse gas emissions will fall in the range of 700 to 1,556 kilotonnes of carbon dioxide equivalent (kt CO 2 e) depending on the mix of generation that replaces them. Reduction in electricity generation emissions in the early 2020s is largely due to the retirement of the two Huntly units (see Figure 15). Solar PV generation continues to grow, with between 100,000 and 390,000 residential and commercial solar units installed by 2040 in these scenarios. However this has a small effect on total generation as it will only make up 1% to 3% of electricity generation in Baseload gas generation is likely to fall if the carbon price rises. The High Grid scenario is the exception where it is assumed that there is cheap gas available for electricity generation and the carbon price is flat at $10 per t CO 2 e. The percentage of electricity generated from renewable sources, shown in Figure 14, ranges between 81% and 91% across our scenarios in In the Global Low Carbon and Disruptive scenarios 90% renewable generation is reached by the mid-2020s and mid-2030s respectively. In both cases the renewable target is reached at the time that a baseload gas fired peaking plant retires in the modelled results. 17 The remaining coal generation is mostly cogeneration in industry such as dairy. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 16 GG-037 Electricity Demand and Supply Scenario: Scenario & Results Summary

38 Figure 14 Share of electricity generated from renewable sources Figure 15 - Electricity greenhouse gas emissions A wholesale electricity price indicator is determined for each scenario (see Figure 16). The price indicator is set based on the LRMC of the new build entering the market in each scenario. The methodology is based on the premise that investors are unlikely to build new generation unless they anticipate prices at or above LRMC when their plant is running in the future This methodology does not consider short term dynamics of the electricity spot market where offers are largely based on SRMC as opposed to LRMC and should not be used as an electricity price forecast, particularly in the short term, as it does not take account of short term dynamics in the electricity market. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 17 GG-038 Electricity Demand and Supply Scenario: Scenario & Results Summary

39 Lower cost plants are built first in each scenario and we can see that the wholesale electricity price indicator increases as more expensive plants are built in each scenario. In the Global Low Carbon scenario the price increases are lower than in the Mixed Renewables and Disruptive scenario in the 2020s. This is because the capital cost of new wind generation and hence LRMC (which is setting the price) is lower in this scenario. In the Tiwai Off scenario, new baseload plant is not required until later in the scenario and hence the price remains flat for longer. In the High Grid scenario increasing baseload demand is met through additional generation from existing baseload gas and coal generators with a later retirement date for the Huntly Rankine units, new low cost geothermal and new baseload gas fired plant in the early years delaying build of more expensive plant and the increase in the wholesale electricity price indicator. Figure 16 - Wholesale electricity price indicator MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 18 GG-039 Electricity Demand and Supply Scenario: Scenario & Results Summary

40 Appendix A - Scenario assumptions 1 - Input price assumptions 19 The crude oil projections from 2020 onwards are based on the International Energy Agency (IEA) World Energy Outlook scenarios (WEO 2015) 20. Projections between 2016 and 2020 are based on World Bank commodity price forecasts (February 2016) 21 and trended to the 2020 IEA scenario values. Similarly, carbon price projections are based on the IEA scenarios, with the exception of the High Grid scenario in which the carbon price is $10 per tonne of carbon dioxide equivalents across the modelled period. Projections between 2016 and 2020 are interpolated from the 2016 price to the 2020 IEA value. Prices in the charts below are on a real 2014 basis. Table 2: Sources of input price assumptions Scenario IEA Oil Price Scenario Carbon Price Scenario Mixed Renewables New Policies IEA New Policies High Grid Current Policies NZ Current Market Global Low Carbon IEA 450 IEA 450 Disruptive Midpoint of Mixed Renewables and Global Low Carbon Midpoint of Mixed Renewables and Global Low Carbon Tiwai Off Low Oil Price IEA New Policies Figure 17 - Input price assumptions 19 All prices are quoted in real 2014 New Zealand dollars 20 See Reference See Reference 5. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 19 GG-040 Electricity Demand and Supply Scenario: Scenario & Results Summary

41 2 - GDP projections The central GDP projection is based on the New Zealand Institute of Economic Research (NZIER) projections. The average annual growth rates by industry in their 2015 Q4 report were used. This is a proprietary report and produced quarterly. The Treasury Fiscal Growth Model 22 was used to determine the high and low GDP projections by changing the labour force input assumptions. High and low labour force projections were informed by Statistics New Zealand population projections. Figure 18 - GDP projections at a national and sector level 3 - Demographic projections The population projections are from Statistics New Zealand. The 10 th, 50 th and 90 th percentile correspond to the low, medium and high trajectories. The household projections are also based on Statistics New Zealand projections. Figure 19 Demographic projections 22 See Reference 6. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 20 GG-041 Electricity Demand and Supply Scenario: Scenario & Results Summary

42 4 Disruptive Technology uptake Disruptive technology includes solar PV, solar PV with batteries and electric vehicles. Solar PV and solar PV with battery investment are modelled using a financial model which includes hourly solar PV and battery operation and household demand. The numbers of electric vehicles in each scenario are an output of the Ministry of Transport s Vehicle Fleet Emissions Model. 23 Figure 20 Solar PV uptake Figure 21 Electricity demand from electric vehicles 23 More details of both the transport and solar PV modelling methodology is available in the Technical Guide, see Reference 1. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 21 GG-042 Electricity Demand and Supply Scenario: Scenario & Results Summary

43 Figure 22 Vehicle fleet composition MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 22 GG-043 Electricity Demand and Supply Scenario: Scenario & Results Summary

44 5 - Gas Supply and price Figure 23 Gas Supply Gas price is modelled based on the gas demand and the cost of gas supply assumed in each scenario. 24 Figure 24 Gas price excluding and including the cost of carbon for each scenario 24 More details of gas supply and demand modelling are available in the Technical Guide, see Reference 1. MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 23 GG-044 Electricity Demand and Supply Scenario: Scenario & Results Summary

45 References 1. Energy Modelling Technical Guide, Published online at: 2. The GEM model is made available on the Electricity Authority website 3. Electricity Demand and Generation Scenarios assumptions and results published online 4. IEA, World Energy Outlook World Bank commodity price forecasts 6. Treasury Fiscal Growth Model, New Zealand MINISTRY OF BUSINESS, INNOVATION & EMPLOYMENT 24 GG-045 Electricity Demand and Supply Scenario: Scenario & Results Summary

46 GG-046 MB13742_2558

47 Grenville Gaskell Appendix C Draft New Zealand Energy Efficiency and conservation strategy BI V1 \ \ GG-047

48 DRAFT NZEECS GG-048 DECEMBER 2016

49 This document has been prepared on behalf of the New Zealand Government by : Ministry of Business, Innovation & Employment PO Box 1473, Wellington 6140 New Zealand Photo credit: Image one: Chris Williams. Exploring the geothermal wonders, Te Puia. Image two: C. Keeping the power going at West Wind farm, Makara. Image three: Sara Orme. The innovative, collaborative and solar-powered Te Oro Musical and Arts Centre, Glenn Innes. All cover photos are sourced from the New Zealand Story Group via ISBN: (online) December, 2016 Crown Copyright 2016 The material contained in this report is subject to Crown copyright protection unless otherwise indicated. The Crown copyright protected material may be reproduced free of charge in any format or media without requiring specific permission. This is subject to the material being reproduced accurately and not being used in a derogatory manner or in a misleading context. Where the material is being published or issued to others, the source and copyright status should be acknowledged. The permission to reproduce Crown copyright protected material does not extend to any material in this report that is identified as being the copyright of a third party. Authorisation to reproduce such material should be obtained from the copyright holders. DRAFT NZEECS GG-049 DECEMBER 2016

50 Foreword Minister of Energy and Resources It is an exciting and challenging time to be part of the energy sector, here in New Zealand and globally. Technological transformation, changing consumer preferences and demands, a growing focus on the critical role energy plays in business competitiveness, volatile commodity prices, the need to transition to a lower carbon economy all these factors are playing an important part in the ever-changing domestic and international energy context. Maximising the value we obtain from energy use enhances business performance, minimises household costs and benefits our economy as a whole. There are more opportunities for improving energy efficiency and productivity than ever. As a party to the historic Paris climate change agreement, New Zealand is committed to reducing greenhouse gas emissions. Our target is to reduce emissions to 30 per cent below 2005 levels by Businesses, individuals and the Government will need to work together to unlock our energy productivity and renewable potential to contribute to progress towards this target. New Zealand is blessed with an abundant supply of renewable energy resources, and already has one of the highest shares of renewable electricity generation in the world. To leverage our renewable advantage we should not only focus on renewable electricity generation but also energy-saving and fuel-switching opportunities in other sectors. Our greatest potential to reduce carbon lies in our process heat sector for industrial and commercial users, and in our transport sector; both have a much larger proportion of nonrenewable energy than electricity. We need to continue to build a willingness to do things differently, and awareness that energy efficiency and increased use of our renewable advantage are critical game-changers for our environment and our economy. This Strategy sets out the objectives, actions and targets for energy efficiency and renewable energy for the next five years, and will continue to support the New Zealand Energy Strategy I am confident that this Strategy will help steer businesses, individuals and the Government towards taking actions that will enable our transition towards a smarter, lower-carbon and more productive economy. Hon Simon Bridges Minister of Energy and Resources DRAFT NZEECS GG-050 DECEMBER 2016

51 Contents Foreword Minister of Energy and Resources... 3 Contents... 4 Introduction... 5 Why do energy productivity, efficiency and emissions reduction matter?... 5 How does the Strategy fit in with Government priorities?... 7 Unlocking our energy productivity and renewable potential... 9 Goal... 9 Objectives... 9 The three priority areas Renewable and efficient use of process heat Efficient and low emissions transport Innovative and efficient use of electricity What actions can we take? Businesses Individuals Public Sector agencies Cross-cutting actions How will we track progress? Targets Governance Glossary DRAFT NZEECS GG-051 DECEMBER 2016

52 Introduction This document; Unlocking our energy productivity and renewable potential, the New Zealand Energy Efficiency and Conservation Strategy (the Strategy), is a companion to the New Zealand Energy Strategy (the NZES). This Strategy sets the overarching policy direction for government support and intervention, and guides the work programme of the Energy Efficiency and Conservation Authority (EECA) over the next five years. The goal of this Strategy is to support New Zealand to be an energy efficient, productive and low emissions economy. It encourages businesses, individuals, and public sector agencies to take actions that will help us to unlock our renewable energy, energy efficiency and productivity potential, to the benefit of all New Zealanders. The International Energy Agency (IEA) has identified a number of potential benefits from increasing energy efficiency and renewable energy use (see the table below), including public benefits that support government priorities (such as economic growth and emissions reduction) and private benefits for businesses and consumers (such as lower energy costs). Multiple benefits of increasing energy efficiency and renewable energy use 1 Public benefits Employment and market growth in energy efficiency and renewables GDP growth Productivity and competitiveness Reputational benefits from reduced environmental impacts Energy system resilience and security Reduced reliance on imported fuels Emissions reductions Improved air quality Reduced public health costs Private benefits Cost reduction, energy affordability, low energy prices Productivity, competitiveness, product quality, employee comfort and satisfaction Reputational benefits from reduced environmental impacts Health and wellbeing, comfort, reduced respiratory illness Why do energy productivity, efficiency and emissions reduction matter? New Zealand s renewable energy resources are amongst the best in the world. In 2015, more than 80 per cent of our electricity was generated by hydro, geothermal or wind resources. 2 We have significant bioenergy, solar and marine energy potential. In this respect we are well ahead of other countries, which is why the gains to be made lie beyond electricity generation. 1 Adapted from the International Energy Agency (2014): Capturing the Multiple Benefits of Energy Efficiency. OECD/IEA: Paris. 2 Ministry of Business, Innovation & Employment (2016): Energy in New Zealand DRAFT NZEECS GG-052 DECEMBER 2016

53 Our electricity system only represents about 27 per cent of consumer energy demand, 3 and seven per cent of our gross emissions. 4 The majority of the other energy that we use is sourced from fossil fuels such as oil, coal and gas. In addition, we are not creating as much value from the energy we use as other countries. 5 This is called energy productivity, which is defined as Gross Domestic Product (GDP) per unit of energy used. Nor are we improving our energy productivity as fast as other countries, which could see us slip further behind. To meet our economic growth and climate change goals, we need to raise energy productivity and make greater efforts to reduce our energy-related emissions (see the table below). Raising energy productivity Countries around the world have recognised energy productivity is a critical factor in business competitiveness and innovation. New Zealand s energy productivity improvement is lagging behind other countries such as the US, UK and Australia. Raising energy productivity helps business reduce costs, innovate, manage risk and optimise systems. There is significant potential for our export industries to capitalise on high energy productivity, and on our renewable advantage. Reducing emissions and switching to renewables New Zealand has committed to reducing its greenhouse gas emissions. This includes our target of 30 per cent below 2005 emissions levels by 2030, and a long-term target of 50 per cent below our 1990 emissions levels by New Zealand s energy users can play a significant role in reducing our emissions through energy efficiency improvements. Converting from fossil fuels to renewable energy unlocks further emissions reductions and reduces dependence on energy imports. Embracing technology and innovation Technology is advancing rapidly. This is leading to changing consumer preferences and new innovations such as home electricity generation, intelligent energy management systems, energy storage and electric vehicles. New technologies give us greater choice about how to meet our energy needs, and enable us to use energy more efficiently and at lower cost every day. Cost-effective energy efficiency improvements could reduce New Zealand s energy use. For example, modelling by the BusinessNZ Energy Council shows energy efficiency improvements could be by as much as 11 to 14 per cent by However, EECA s activities and international experience 7 demonstrate that many barriers contribute to the limited uptake of energy efficiency (see the box below). By investing in energy efficiency, businesses can improve their competitiveness, gain brand advantages, lower operating and maintenance costs, and contribute to better working conditions. 3 Ministry of Business, Innovation & Employment (2016): Energy in New Zealand Ministry for the Environment (2016): New Zealand s Greenhouse Gas Inventory Sources: International Energy Agency (2016). In-depth Review of New Zealand 2016 and World Energy Council (2016) Trilemma Index. 6 BusinessNZ Energy Council (2016) 2050 Energy Scenarios 7 Sources include: 1) International Energy Agency (2011). Energy efficiency policy and carbon pricing. OECD/IEA: Paris. and 2) McKinsey and Company (2009). Unlocking energy efficiency in the U.S. economy. DRAFT NZEECS GG-053 DECEMBER 2016

54 This is particularly important in New Zealand s export-led economy for two reasons. First, we know productive firms are more likely to become exporters. Secondly, as climate change issues become more important, our export markets may start to focus more on the embodied carbon 8 in imported goods, and perhaps even services. In order to make the most of these opportunities and avoid falling behind our competitors, we need to continue to develop a productive economy where all regions and people have the opportunity to grow and prosper at the same time as reducing our emissions. New Zealand s emissions are mainly from the agriculture and energy sectors (including transport). The energy sector makes up nearly 40 per cent of gross emissions. 9 Based on current technology and without reducing existing economic activity, New Zealand s greatest potential to reduce emissions lies in our process heat 10 and transport sectors both of which are significant emitters. Even though energy efficiency can benefit businesses and households in many ways including lower costs opportunities may not be taken up. The non-financial barriers include: Imperfect information: Businesses and individuals can t fully assess the benefits of investment in energy efficiency measures. Split incentives: Those investing in energy efficiency measures are not always the ones receiving the direct benefit, e.g. a landlord provides appliances but the tenant pays the energy bills. Principal-agent problems: Organisations often split energy responsibilities across different parts of the business, so it s accounted for in different budgets. Behavioural barriers: It takes a deliberate effort to change the way an organisation thinks about energy use, e.g. providing good information, teaching new practices, and learning to think from a different perspective. This Strategy prioritises action in the process heat and transport sectors, as well as electricity generation and consumption because New Zealand stands to benefit greatly from making the most of its clean electricity resources. How does the Strategy fit in with Government priorities? The four priority areas in the NZES provide an overarching framework for this Strategy: diverse resource development (including the development of renewable energy) environmental responsibility efficient use of energy, and secure and affordable energy. The Strategy complements the NZES and the energy targets being developed by the Government. It also works in parallel with the Government s priority to build a more competitive and productive economy by improving energy efficiency and use of renewable energy to raise productivity, reduce carbon emissions and promote consumer choice (as outlined in the Business Growth Agenda). 11 The Strategy also contributes to transitioning New Zealand to a low emission economy, which is important in terms of meeting our climate change emissions reductions targets. 8 Carbon emissions associated with energy use and chemical processes during the extraction, manufacture, transportation, assembly, replacement and deconstruction of materials or products. 9 Ministry for the Environment (2016): New Zealand s Greenhouse Gas Inventory Process heat is energy used for commercial processes, manufacturing or heating. For example, meat and dairy processors use steam from boilers to sanitise equipment and process raw products DRAFT NZEECS GG-054 DECEMBER 2016

55 Altogether, the NZES, the emissions reduction targets, new energy targets, and the Business Growth Agenda signal the long-term direction for the energy sector. This replacement Strategy focuses on priorities and supporting actions over the next five years. A range of government initiatives are already underway which complement the direction set in this Strategy, including the: ratification of the 2015 Paris Agreement Electric Vehicles Programme review of the New Zealand Emissions Trading Scheme changes to the Energy Efficiency and Conservation Authority s levy funding, and work of the Electricity Authority (EA), Commerce Commission and the Ministry of Business, Innovation and Employment (MBIE) which takes account of the potential implications of emerging energy technologies. DRAFT NZEECS GG-055 DECEMBER 2016

56 Unlocking our energy productivity and renewable potential Draft Energy Efficiency and Conservation Strategy Goal Support New Zealand to be an energy efficient, productive and low emissions economy. We all have a part to play in unlocking our renewable and energy productivity potential. Businesses, individuals, the public sector and market participants are key groups that need to work collectively to solve problems and achieve sustained benefits for New Zealand. This Strategy identifies four objectives one for each key group, and one that all market participants can influence. Objectives 1. Businesses make energy efficient and renewable energy investments and adopt best practice energy management. 2. Individuals choose energy efficient technologies, adopt energy efficient behaviours and make greater use of renewable energy. 3. The public sector demonstrates leadership by adopting greater energy efficiency and renewable energy. 4. Market participants encourage the development and adoption of energy efficient and renewable energy products and services. The three priority areas The Strategy focuses on three priority areas to achieve its goal and objectives. Support New Zealand to be an energy efficient, productive, and low emissions economy 1. Renewable and efficient use of process heat 2. Efficient and lowemissions transport 3. Innovative and efficient use of electricity Government actions that support each priority area are outlined in the next section. 1. Renewable and efficient use of process heat Target: Decrease in industrial emissions intensity of one per cent per annum on average between 2017 and 2022 Process heat is used in the industrial and commercial sectors to create steam, hot water or hot gases. For example, meat and dairy processors use steam from boilers to sanitise equipment and process raw products, such as milk into powder. DRAFT NZEECS GG-056 DECEMBER 2016

57 Process heat makes up one-third of New Zealand s overall energy use and contributes nine per cent of gross emissions. Sixty per cent of process heat is supplied using fossil fuels, mainly coal and gas. The industrial sector is the largest end-user of process heat 80 per cent of total process heat use occurs in this sector. 12 Process heat offers one of our largest cost-effective opportunities to improve energy efficiency and switch from fossil fuels to renewable energy. It is estimated that the efficiency of the industrial sector s use of process heat could improve by four to 12 per cent between 2010 and It could also play a significant role in meeting New Zealand s 2030 emissions reduction target, while helping industries to be more competitive and meet their productivity goals. In the public sector, process heat is used in a number of ways including, to heat schools, universities, offices and other buildings, and create steam for sterilisation in hospitals. There are opportunities for local government to reduce emissions and offset other energy requirements by using new technologies to turn waste into energy at wastewater treatment facilities and landfills. Although public sector heat demand accounts for only 14 per cent of total use, demand is often located in communities, which can encourage local renewable heat markets to develop. Cost savings from process heat improvements in the public sector benefit New Zealanders by saving taxpayers money. 2. Efficient and low emissions transport Target: Electric vehicles make up two per cent of the vehicle fleet by the end of 2021 Transport accounts for around 36 per cent of New Zealand s energy use and 17 per cent of New Zealand s gross emissions. 14 Our transport system relies almost entirely on fossil fuels to power our cars, trucks, aircraft, rail networks and ships. Ninety per cent of transport energy is used in road transport. The fuel economy of vehicles entering our fleet is poor compared with other countries, and improvements in reported performance have stalled since New technology is creating opportunities for New Zealand to benefit from our high level of renewable electricity. This is already impacting on the design, operation and maintenance of transport infrastructure. It is essential that the regulatory environment enables the widespread introduction of new applications so the benefits of innovation can be realized. 16 New Zealand s long, skinny geography and geographical isolation make our road transport system particularly important. Our growing population and economy are placing increased demands on this system. Although vehicles will become more efficient, there is a risk that efficiency increases will not be sufficient to offset increased emissions from transport in the future. 12 Energy Efficiency and Conservation Authority (2016): Energy End Use Database accessible at 13 Source: Ministry of Business, Innovation & Employment and Energy Efficiency and Conservation Authority (2016): peer-reviewed by NZIER, scheduled for publication in early This is in addition to the 10 per cent efficiency gains expected to occur under business as usual. 14 Source: Ministry for the Environment (2016): Greenhouse Gas Inventory Vehicle choices that consumers and importers are making are tending to favour larger vehicles. 16 As outlined in the National Infrastructure Plan (2015). DRAFT NZEECS GG-057 DECEMBER 2016

58 Passenger transport There is scope for New Zealand to improve the energy productivity of passenger transport more quickly by taking steps to promote more efficient internal combustion engines, electric vehicles and other transport electrification. In addition, use of technology to build intelligent transport systems (ITS) and innovative spatial planning approaches (e.g. building around transport hubs) will reduce the need for private vehicles. Freight transport We need an efficient freight network with policy and regulatory settings to support growth, optimise the performance of the freight network and continue achieving productivity gains in the freight transport sector. 17 A highly competitive freight industry, increasing population growth and consumer expectations for rapid delivery of goods means that freight services and associated emissions are expected to grow steadily. New Zealand s freight task (volume of freight (tonnes), and how far it moves (kilometres)) is projected to increase by 48 per cent between 2014 and There is significant potential to improve our use of existing infrastructure through the efficient management of our heavy vehicle fleet, to tap into the potential energy savings. This improvement could involve investing in more efficient fleets and supporting changes in the behaviour of trucking firms, at both management and driver level. For example, trucks move freight more efficiently when they are carrying full loads. 3. Innovative and efficient use of electricity We already have a target to increase the level of renewable electricity to 90 per cent by Since this target was announced, the percentage of electricity generation has increased significantly, from 67 per cent in 2007 to 81 per cent in While we are well ahead of other countries in this respect, our energy productivity improvement has been slipping behind some other OECD countries. Electricity efficiency helps to build a more competitive and productive economy by enabling individuals and businesses to get more value and benefit from the energy they use. This frees up money for other purposes. Smarter energy use in buildings and more efficient products and appliances could deliver electricity savings for businesses and households. This is significant to New Zealand as many of our key exports are energy-intensive to produce. To remain competitive, it is important that we manage and reduce energy use and costs. Our challenge is to use our renewable electricity supply more productively so that our industries become amongst the least energy and carbon intensive in the world. International 19 and domestic 20 experience shows electricity efficiency investments can also lead to product quality improvements, reduced operating and maintenance costs and improved working conditions. 17 As outlined in the National Infrastructure Plan (2015). 18 Ministry of Transport (2014). National Freight Demand Study. 19 Where the monetised values from these multiple benefits are included, the payback periods of energy efficiency investments are typically halved. Source: International Energy Agency (2014): Capturing the Multiple Benefits of Energy Efficiency. OECD/IEA: Paris. 20 EECA works with many of New Zealand s largest energy users. Case studies demonstrating these benefits can be found at DRAFT NZEECS GG-058 DECEMBER 2016

59 Exciting new technologies are starting to give businesses and individuals more choice and control over how and when they use, and even produce, electricity. Technologies such as heat pumps, energy efficient lighting, smart metering and intelligent energy management systems (e.g. internet-connected appliances and devices) make it easier for businesses and individuals to manage and use electricity more efficiently, and can help to promote energy conservation. Other technologies, such as electric vehicles, solar panels and battery storage provide new opportunities to make use of renewable resources. This includes electrification of sectors that have, to date, relied on fossil fuels (e.g. from internal combustion engines to electric vehicles in the transport sector and substituting coal and gas use for electric technologies in the manufacturing sector). The target to increase the number of electric vehicles reflects this potential to make more of our renewable electricity advantage. What actions can we take? Energy efficient choices should ideally be enabled by well-functioning markets where incentives are clear and efficient, information is readily available, and competition and innovation are strong. However, where markets fail or face barriers, other measures may be required to realise the potential national benefits. This Strategy aims to foster productivity and renewables investment by removing any barriers and supporting innovation within competitive markets. These actions provide a starting point for key groups wanting to work with government to build an energy efficient, productive and low emissions economy. Businesses Strategy Objective: Businesses make energy efficient and renewable energy investments and adopt best practice energy management As significant energy users, businesses play a core role in driving technology adoption and demonstrating that efficient energy use can deliver substantial benefits to their bottom-line. New Zealand industries face intense competitive pressure and many exporters operate within tight margins. More efficient use of energy is an investment in future profitability and competitiveness. Businesses are responsible for around two-thirds of New Zealand s energy use and associated emissions. Most businesses can improve their energy productivity by up to 20 per cent through smarter energy use and investment in efficient technology. 21 Businesses can also reduce their carbon footprint by converting to renewable energy sources such as woody biomass, efficient electricity and geothermal. With the right investment planning and tools, energy is one of the few costs that businesses can control. Increasing the number of businesses that prioritise energy productivity and the use of renewable energy will deliver benefits both for those firms and to the New Zealand economy. 21 Source: EECA business website DRAFT NZEECS GG-059 DECEMBER 2016

60 There are a number of ways that businesses can take action, including: Industrial businesses can: Commercial businesses can: Freight businesses can: Adopt energy management systems and implement cost-effective projects. Switch to lower carbon fuels, such as wood, electricity, or geothermal. Employ a building management system. Choose a more efficient vehicle fleet and improve fleet management practices. Adopt best practice fleet management practices. Purchase more efficient vehicles, including electric vehicles. Adopt lower emissions fuels. To enable and foster businesses to take action, the government will: Supporting actions Implement the Electric Vehicles Programme to double the number of electric vehicle registrations each year to reach 64,000 by 2021 Existing MOT, EECA, NZTA Build on the government s guidance and mechanisms for businesses voluntarily reporting greenhouse gas emissions 22 Existing MfE, MBIE, EECA Consider and introduce means to support continuous improvement in the energy performance of commercial buildings Existing - extension EECA, MBIE Refocus EECA s business and freight programmes towards emissions and productivity opportunities in process heat and transport Existing - extension EECA, MOT Explore options for how we can increase efficient driving practices and the pace of adoption of more fuel efficient vehicles (including EVs) by businesses Existing - extension MOT, EECA Develop and implement a Process Heat Action Plan, with policies and programmes to improve efficiency of existing process heat plant, and encourage investment in efficient and renewable plant New MBIE, EECA Explore options for the accelerated uptake of more energy efficient and intelligent land transport technology (e.g. Smart Traffic Management) New MOT 22 Guidance on voluntary greenhouse gas reporting, accessible at DRAFT NZEECS GG-060 DECEMBER 2016

61 Individuals Strategy Objective: Individuals choose energy efficient technologies, adopt energy efficient behaviours and make greater use of renewable energy Individuals represent around one-third of New Zealand s energy use, primarily due to private transport and residential use. Individuals have the potential to improve their energy efficiency by over 20 per cent by taking a range of actions in the home, when they are out and about and in their communities. Individuals on their own, and also collectively as households, neighbourhoods, school groups, marae, churches and other communities, have the power to choose energy efficient technologies, adopt energy efficient behaviours and make greater use of renewable energy. In doing so, they can save money on their energy bills and on fuel costs, have warmer and healthier homes and improve wellbeing through active transport. Improvements to the warmth and dryness of homes have been linked to productivity improvements because they reduce the number of days off work and school. This means that collectively, the actions of individuals are vital to New Zealand s economic performance and progress, and health outcomes. New technologies can also help to promote energy conservation, while improving energy efficiency. There are a number of ways that individuals can take action, including: In the home: Out and about: In the community: Adopt energy efficient behaviours. Improve the warmth and energy performance of their home (e.g. insulation, draughtstopping, double glazing). 23 Purchase efficient lighting, appliances, water heating and space heating equipment. Practice efficient driving. Purchase a more efficient vehicle, including electric vehicles. Use a ridesharing scheme. Shift to public or active transport (e.g. walking or cycling). Undertake energy efficiency and renewable energy projects in schools, recreational facilities, marae and other community organisations. Participate in initiatives such as Project Litefoot, Enviroschools and programmes run by charitable trusts. 23 This includes rental homes and actions landlords could take to improve the energy efficiency, thermal performance and value of their rental properties. DRAFT NZEECS GG-061 DECEMBER 2016

62 To enable and foster individuals to take action, the government will: Supporting actions Continue to provide information, advice and technical assistance to individuals on energy efficient and renewable energy technologies and practices, including advice on reducing costs and emissions Existing EECA Introduce new and periodically review minimum energy performance standards and labels for appliances, equipment and vehicles to ensure that potential consumers are provided with clear and accurate energy information at the point of sale Existing EECA Implement the Electric Vehicles programme to increase awareness of the benefits of electric vehicles and accelerate uptake through collaboration with the private sector to aggregate demand and increase model availability and affordability Existing MOT, EECA Implement recent changes to the Residential Tenancies Act requiring landlords to insulate residential rental homes 24 Existing MBIE Implement EECA s Warm Up New Zealand Healthy Homes Rental programme through to June 2018 Existing MBIE, EECA Develop approaches to continue to improve consumer access to energy information (including real-time) and leverage intelligent energy management technologies Existing - extension EECA, MBIE, EA (support) Support continuous improvement in the energy performance of new and existing homes through scheduled reviews of the building code and by increasing energy efficiency performance requirements over time Existing - extension MBIE, EECA Explore options for how we can increase efficient driving practices and the pace of adoption of more fuel efficient vehicles (including EVs) by households Existing - extension MOT, EECA Public Sector agencies Strategy Objective: The public sector demonstrates leadership by adopting greater energy efficiency and renewable energy The public sector is made up of central government and local government agencies, schools, universities, hospitals, prisons, wastewater facilities, landfills and other publicly owned buildings. Energy used by public sector agencies makes up seven per cent of New Zealand s total energy use. 24 Social housing (where tenants pay an income related rent) must be insulated by 1 July 2016 and all other rental homes by July See more at DRAFT NZEECS GG-062 DECEMBER 2016

63 The public sector can play a leadership role by directly reducing energy use and emissions, and incentivising wider action. Examples of actions that the public sector can take include using renewable energy to heat schools and universities, local councils using municipal solid waste and gas as energy sources, or improving energy performance by retrofitting existing buildings or through new builds. Central government can help co-ordinate diverse players and share best practices in order to encourage other public sector agencies to take action. Some councils, district health boards, universities and collaborating businesses are already demonstrating innovative ways to use renewable sources of process heat. The location of this heat demand in local communities can boost regional economic development and reduce coal use. Examples of renewable energy use in local communities include the Rotorua and Dunedin wood energy collectives, and the new six megawatt boiler at Burwood Hospital powered entirely by wood waste residues. To enable and foster public sector agencies to take action, central government will: Supporting actions Consider how public sector agencies can implement procurement policies that take into account life-cycle costs of products and services Existing MBIE Build on the government s guidance and mechanisms for voluntary reporting of greenhouse gas emissions, including the role of public sector agencies. Existing MfE, MBIE, EECA Refocus EECA s Crown Loans programme towards opportunities to reduce carbon emissions and leverage EECA s technical expertise to deliver economic and emissions benefits to New Zealand over the longer-term Existing - extension EECA Increase the number of public sector agencies that have NABERSNZ 25 ratings and that are implementing building energy performance improvement projects Existing - extension EECA As part of the Process Heat Action Plan, identify opportunities to increase public sector energy efficiency and renewable energy use in publicly-owned boilers New MBIE, EECA, MfE Cross-cutting actions Strategy Objective: Market participants encourage the development and adoption of energy efficient and renewable energy products and services This objective reflects the opportunities that require market participants to work together to achieve the Strategy s goal, recognising that responsibility for delivering actions is often shared. 25 NABERSNZ (based on the National Australian Built Environment Rating System) is an independent tool for rating the energy efficiency of office building, backed by the New Zealand government. NABERSNZ programme helps ensure buildings are performing at a high standard. DRAFT NZEECS GG-063 DECEMBER 2016

64 Efforts to improve our energy productivity and move to a low emissions economy provide national benefits for New Zealand. However, energy efficiency is more difficult to measure than energy consumption, is fragmented across the economy (as millions of devices and buildings contribute to it), and is rarely the primary focus for a business, agency or individual. Consequently, energy efficiency has traditionally been undervalued relative to other investment options. Low emissions technologies also suffer from a lack of investment relative to existing energy technologies, and they tend to be perceived as more risky. These issues can create a lack of trusted information and the skills and expertise needed to realise the potential benefits. In order to ensure New Zealanders gain access to cutting edge technologies and achieve a more energy efficient, productive and low emissions New Zealand, we need to innovate and build capability. Low investment in energy efficiency creates an absence of qualified energy efficiency experts and technicians resulting in an underdeveloped energy efficiency services market. To enable and foster coordinated actions across all four priority areas, the government will: Supporting actions Develop methods and guides to help businesses, individuals and other organisations quantify and monetise the multiple benefits of energy productivity and renewable energy Existing MBIE, EECA Support skills development in the energy management and renewable energy fields, in partnership with relevant tertiary and research institutions, and the business community Existing MBIE, EECA Support increased investment in energy research, development, and demonstration (RD&D) to help foster innovation in the development and deployment of next generation technologies and ensure future productivity gains Existing MBIE, Callaghan Innovation, EECA Continue to build on the contribution that renewable energy and energy efficiency expertise make to New Zealand s international connections, and ensure that the supporting data and research is upto-date and relevant Existing MBIE How will we track progress? Targets The government is developing energy targets to signal the longer-term direction for the sector, focusing on opportunities to increase the use of renewables and improve energy productivity. Those targets will sit above the targets in this Strategy. The government already has a target to increase the level of renewable electricity to 90 per cent by DRAFT NZEECS GG-064 DECEMBER 2016

65 Under this Strategy, we have identified targets and measures which can be used to track the impact of actions set out in the previous section. These targets sit under the priority areas and are set at a level which will help ensure that our policies remain relevant and are achieving the desired goal. With a growing international focus on emissions reduction and rapid change in energy technologies and use, these two sets of targets (long-term energy targets and the targets set under this Strategy) will provide a clear and aspirational direction for the energy sector and economy. The targets under this Strategy are: 1. Decrease in industrial emissions intensity (kg CO2-e/$ Real GDP) of one per cent per annum on average between 2017 and 2022 (new). 2. Electric vehicles make up two per cent of the vehicle fleet by the end of 2021 (existing under the EVs Programme). Process heat target The target to decrease industrial emissions intensity related to the process heat priority area, and takes account of both renewable and energy productivity potential. The target measures emissions intensity (CO2-e divided by Real Gross Domestic Product (GDP)) for selected industries, 26 recognising that the industrial sector accounts for a significant portion of process heat demand (combustion of fuel for heat use by industry). The target level has been developed using MBIE and Statistics New Zealand data, and will be supported through the development of a Process Heat Action Plan, which will draw on the lessons from EECA s recent carbon pilot programmes (Wood Energy South and Lower Carbon Meat and Dairy). Transport target The second target relates to the transport priority area and was set in March 2016 as part of the package of measures to encourage the uptake of EVs. To achieve the target, EV registrations will need to double each year until 2021, which will result in around 64,000 EVs (based on current estimates). This is an ambitious, but reasonable target given expected changes in technology and the expected impact of the EVs Programme. The EVs target complements New Zealand s existing advantage in renewable electricity. Electricity target Electricity continues to be a priority area under the draft NZEECS, with a particular focus on supporting technology uptake and innovation. This reflects the changing energy context and government s role in enabling market-led action, which benefits households and businesses (while maintaining energy security). In the residential sector the electricity demand per household has fallen since However, it is difficult to determine how much of the change in electricity demand is due to efficiency measures and how much is due to other factors. 26 Chemicals, metals and electricity generation are excluded as these include very large firms which would make the measure less useful or are not relevant to what is being targeted by the Strategy. A factsheet with further information on this target is available on the NZEECS consultation webpage. DRAFT NZEECS GG-065 DECEMBER 2016

66 There are a number of contributing factors which make forecasting problematic, particularly over a short time. 27 Some emissions reduction in the New Zealand electricity sector can be supported through smart grid developments. However, the Smart Grid Forum 28 concluded that New Zealand s electricity market is already well placed to support smart grid development and that specific market interventions, seen internationally, have resulted in negative consequences that we have done well to avoid. Based on this finding, setting a prescriptive target relating to smart grid development or new technology uptake is not recommended as part of this Strategy. The existing renewable electricity target of 90 per cent by 2025 (as set out in the New Zealand Energy Strategy ) sets an aspirational target without being prescriptive to any technology. This target is well-known and enduring, and continues to set the direction for investment in this sector. Having a mix of new and existing targets reflects the need to provide clear direction for future policy and action, while taking into account the expected changes in the economics of energy technologies and practices. Achieving these targets will require government, businesses, individuals and market participants to work together to develop the right mix of new policies and programmes to fully realise the opportunities that exist. Governance Alongside this, the lead agencies identified in the Strategy will be required to develop appropriate policy measures that contribute to the realisation of the targets and objectives. Existing measures will also contribute to the realisation of the targets and objectives (e.g. implementation of the insulation amendment in the Residential Tenancy Agreement). Any new policy proposals, including new regulatory, programme or funding proposals, will be subject to Cabinet decision-making processes prior to final approval. The final choice of policy to give further effect to realising the Strategy s objectives and targets will remain the prerogative of the Cabinet and, where appropriate, Parliament. This Strategy builds on achievements to date and does not include a full list of government energy efficiency and renewable initiatives. This approach will ensure the document stays relevant for its five-year life, and allows for initiatives to end and new programmes to begin. The full range of initiatives is listed by public sector agencies in their respective public accountability documents and websites. Supporting the Government s approach will be investment in quality energy end-use data and analysis. Good data is critical for reviewing existing programmes and informing new policy design. Data will continue to be published by MBIE, Statistics NZ, the Electricity Authority, the Gas Industry Company, the Ministry of Transport and EECA. 27 These include: temperature increases; higher population growth in warmer regions with lower heating requirements; changing household composition; a shift to more efficient appliances and lighting; improving home insulation; improved building standards; and, changing affordability of electricity for households. 28 Smart Grid Forum (August 2016) Relative progress of smart grid development in New Zealand. DRAFT NZEECS GG-066 DECEMBER 2016

67 Glossary Term Energy productivity Energy intensity Energy efficiency Gross emissions Energy emissions Intelligent transport systems (ITS) National transport Process heat Electricity generation and consumption Emissions intensity Meaning The value we get from our energy, defined as Gross Domestic Product (GDP) per unit of energy used (refer Energy Intensity). Energy intensity compares production in the economy, as measured by real GDP, with total energy demand, as measured by total consumer energy. It determines whether our reliance on energy to generate economic growth is increasing or decreasing. Something is more energy efficient if it delivers more services for the same energy input, or the same services for less energy input. For example, when a compact florescent light (CFL) bulb uses less energy than an incandescent bulb to produce the same amount of light, the CFL is considered to be more energy efficient. Gross emissions come from the agriculture, energy, industrial processes and product use, and waste sectors. They do not include emissions and removals from land use, land-use change and forestry. Greenhouse gas emissions (GHG) from the energy sector, including the production and use of energy (i.e. does not include GHG emissions from agriculture or any other sector apart from those that are energy-related). Intelligent Transport Systems (ITS) are those in which information, data processing, communication, and sensor technologies are applied to vehicles, infrastructure and transport users. In general, they can be categorised into three major areas: 1) vehicle systems; 2) traffic management systems; 3) travel information systems. ITS technologies increase the efficiency of the transport system and offer benefits in reducing congestion, fuel consumption, delays and emissions. ITS can play a role in reducing emissions by affecting the road traffic conditions and the dynamics of driving (Ministry of Transport definition). Emissions from the combustion and evaporation of fuel for all transport activity, regardless of the sector (excludes international transport). Process heat is energy used for commercial processes, manufacturing or heating; it is often generated by boilers. The heat is then used by businesses for a wide variety of applications such as timber processing and paper-making, food processing or milk drying. Emissions from heat energy are direct emissions from combustion of fuels (e.g. coal used in a boiler). Emissions from the combustion and evaporation of fuel where the primary purpose is to generate electricity. Greenhouse gas emissions intensity compares production in the economy, as measured by real GDP, with gross greenhouse gas emissions. It measures whether emissions have grown or decreased faster or slower than growth in the economy. DRAFT NZEECS GG-067 DECEMBER 2016

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