New Zealand Energy Strategy to 2050 Powering Our Future Towards a sustainable low emissions energy system October 2007 Acknowledgement The development of this New Zealand Energy Strategy has involved the help of dozens of organisations, associations, interest groups and individuals. Many have submitted documents and offered comment, either informally or formally, on the ideas and options raised in this strategy. These contributions have been invaluable to developing New Zealand’s future energy path. This report is printed onto 9lives satin paper which is 55 per cent recycled containing 30 per cent post-consumer and 25 per cent pre-consumer recycled fi bre. The paper mill holds a Forest Stewardship Council Custody Certifi cate and is both ISO 14001 and ISO 9001 accredited. The ink used in the production of this report is 100 per cent vegetable based, mineral oil free and based on 100 per cent renewable resources. Ministry of Economic Development Head Offi ce, 33 Bowen Street, Wellington Telephone: +64 4 472 0030 Facsimile: +64 4 473 4638 ISBN 978-0-478-31087-0 (print version) ISBN 978-0-478-31085-6 (HTML) ISBN 978-0-478-31086-3 (PDF) New Zealand Energy Strategy | 2007 Part 1 Introduction Contents Foreword 5 Part 1: Our vision 7 1. Introduction 8 1.1 Engagement with stakeholders 9 1.2 Links with other policies 9 1.3 Our energy system 11 2. Our challenges 12 2.1 Energy security 12 2.1.1 Electricity security of supply 13 2.2 Climate change 13 3. Our energy vision for New Zealand 15 4. From vision to action 16 4.1 Progress made 16 4.2 Strategic leadership 17 4.2.1 Key actions 17 4.3 Markets, regulation and security of supply 18 4.3.1 Electricity 18 4.3.2 Transport 18 4.3.3 Energy diversity 18 4.3.4 Key actions 19 4.4 Pricing greenhouse gas emissions 20 4.4.1 Key actions 20 4.5 Using energy more effi ciently 21 4.5.1 Key actions 21 4.6 Promoting renewable energy 22 4.6.1 Electricity 22 4.6.2 Transport 23 4.6.3 Direct use of biomass 24 4.6.4 Key actions 24 4.7 Facilitating environmentally sustainable energy technologies 24 4.7.1 Key actions 25 4.8 Supporting consumers through the transition 26 4.8.1 Key actions 26 1 New Zealand Energy Strategy | 2007 Part 1 Introduction 5. Our direction 27 5.1 Pathway to a low emissions future 27 5.1.1 Reducing energy sector emissions 29 5.2 Effect of this strategy on prices 38 5.2.1 Electricity costs 38 5.2.2 Transport fuel costs 40 5.3 Conclusions 40 Part 2: Our actions 41 6. Introduction 42 6.1 Delivery 43 6.2 Implementation 43 6.3 Monitoring and assessment 43 7. Resilient, low carbon transport 44 7.1 Our direction 46 7.2 Linking with other strategies 48 7.3 The progress we’ve made 49 7.4 Our actions 49 7.4.1 Managing the demand for travel 50 7.5 More effi cient transport modes 51 7.5.1 Land passenger travel 51 7.5.2 Land and marine freight movement 52 7.5.3 Aviation 53 7.6 Increasing the effi ciency of the vehicle fl eet 54 7.7 Developing and adopting a diverse range of fuels 55 7.7.1 Biofuels 56 7.7.2 Electric powered vehicles 56 7.7.3 LPG 57 7.7.4 Hydrogen 58 7.8 Short-term oil security 58 7.9 Into the future 58 8. Security of electricity supply 59 8.1 Our direction 60 8.2 Factors affecting security 61 8.2.1 Energy sources and generation options 62 8.2.2 Supply security in a market context 62 8.2.3 Supply security with a greater proportion of renewable generation 64 8.2.4 Coordination of generation and transmission 65 8.2.5 Oversight of supply security 66 8.2.6 Managing dry-year security in the market context 66 8.2.7 Role of fossil fuel power stations 66 8.2.8 Role of demand-side response 67 2 New Zealand Energy Strategy | 2007 Part 1 Introduction 8.3 The progress we’ve made 67 8.3.1 Encouraging effective competition and investment 67 8.3.2 Investment in transmission and distribution networks 67 8.3.3 Gas market initiatives 67 8.4 Our actions 68 8.4.1 Improving market arrangements 68 8.4.2 Managing intermittent renewable generation 68 8.4.3 Facilitating transmission planning and upgrades 69 8.4.4 Improving gas market arrangements and availability 69 8.4.5 Improving demand-side response 69 8.4.6 Enabling lines companies to undertake energy effi ciency initiatives 70 8.4.7 Reviewing supplier obligations 70 8.5 Into the future 70 9. Low emissions power and heat 71 9.1 Our direction 72 9.1.1 Refl ecting the cost of emissions 72 9.1.2 Our renewable energy potential 73 9.1.3 Distributed generation and small-scale generation 74 9.1.4 Direct use of indigenous energy resources for heat 75 9.2 The progress we’ve made 76 9.2.1 Enabling renewables 76 9.2.2 Encouraging direct use 77 9.2.3 Facilitating distributed generation 77 9.3 Our actions 77 9.3.1 Valuing low emissions energy 77 9.3.2 Maximising the contribution of renewables electricity 78 9.3.3 Leadership on the future role of fossil-fi red generation 80 9.3.4 Carbon capture and storage 80 9.3.5 Environmental effects and the Resource Management Act 80 9.3.6 Coordination of transmission and renewable generation investment 81 9.4 Into the future 81 10. Using energy more effi ciently 82 10.1 Our direction 83 10.2 The progress we’ve made 84 10.3 Our actions 84 10.3.1 The New Zealand Energy Effi ciency and Conservation Strategy 85 10.3.2 Filling information gaps 85 10.3.3 Government discount rates 85 10.3.4 Opportunities for greater energy effi ciency 86 10.3.5 Promoting energy effi ciency 87 10.4 Into the future 89 3 New Zealand Energy Strategy | 2007 Part 1 Introduction 11. Sustainable energy technologies and innovation 90 11.1 Our direction 91 11.2 The progress we’ve made 93 11.2.1 Energy Research Roadmap 93 11.2.2 Public energy research and development 93 11.2.3 International partnerships and collaborative research 93 11.3 Our actions 94 11.3.1 Enabling zero and low carbon technologies 94 11.3.2 Energy innovation priorities 94 11.3.3 Increasing capabilities and improving coordination 95 11.3.4 Strengthening international linkages 96 11.3.5 Accelerating innovation 96 11.4 Into the future 97 12. Affordability and wellbeing 98 12.1 Our direction 99 12.2 Our actions 99 12.2.1 Household energy use 99 12.2.2 Transport accessibility 101 12.2.3 Making informed energy choices 102 Glossary 103 New Zealand’s energy fl ows for the 2006 calendar year 107 4 New Zealand Energy Strategy | 2007 Part 1 Introduction Foreword The New Zealand Energy Strategy is an important part of a package of initiatives the government is introducing to advance sustainability and economic transformation, and to help New Zealand respond to climate change. The quest for sustainability is a defi ning issue of the 21st century. It has taken on a new urgency because of the scale of the environmental challenge the world faces. Traditional patterns of development and fast growing populations have put a huge strain on our planet. This government has put sustainability high on its agenda. In doing so, it has issued a call to action to make New Zealand a truly sustainable nation. Becoming truly sustainable is not only the right thing to aspire to – it’s also the smart thing to do. In a world that cares about sustainability, positioning New Zealand as sustainable is critical to our common future. It is fundamental to New Zealand’s ability to achieve our economic transformation objectives to ensure our future prosperity and international competitiveness. Making New Zealand sustainable can also stimulate new kinds of business opportunities to transform our abundant natural resources into higher value products, while protecting the environment. Government leadership on lowering New Zealand’s environmental footprint is making signifi cant headway. The government has released a proposal for an emissions trading scheme that will, in time, cover all sectors and all greenhouse gases. Tackling climate change will require each and every one of us to do what we can, with all sectors playing their part. The New Zealand Energy Strategy sets the strategic direction for the energy sector to contribute to New Zealand’s future prosperity and sustainability. Set within a framework of competitive markets and effective regulation, the strategy will ensure the right conditions for capital investment in coming years and provide leadership on energy security and climate change issues. The New Zealand Energy Strategy specifi cally responds to the challenges of providing enough energy to meet the needs of a growing economy, maintaining security of supply and reducing greenhouse gas emissions. The New Zealand Energy Strategy, along with the New Zealand Energy Effi ciency and Conservation Strategy, will take sustainability to new levels, by introducing initiatives that champion renewable energy across power generation and transport, energy effi ciency at home and at work, and the development and deployment of sustainable energy technologies. 5 New Zealand Energy Strategy | 2007 Part 1 Introduction The government has set a target for 90 per cent of electricity to be generated from renewable sources by 2025.