More discussion needed on broader energy targets

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More discussion needed on broader energy targets

22 Sep 2016 | Felicity Wolfe

By Felicity Wolfe, Energy News - Wed, 21 Sep 2016

Wider discussion is needed on New Zealand's future energy requirements and economic direction ahead of setting national energy targets, a BusinessNZ Energy Council study suggests.

The group has used its market-led 'kayak' and government-mandate driven 'waka' energy scenarios to look at potential economic outcomes which could arise if the Governments sets renewable energy targets for the wider economy.

The kayak scenario would see 2.1 per cent annual growth in GDP but overall energy intensity would remain stable at 2030, the work suggests. The waka scenario could result in the highest energy productivity outcome, but at a cost to industry which results in a more modest annual GDP growth forecast of 1.6 per cent.

BEC chair David Caygill says the divergence between the scenarios highlights the need to support a broad range of potential future paths. Options should be left to strengthen policy settings as a clearer view is gained in the future.

"Given the rapid uptake of new technologies, growing uncertainty and the increasing interconnectedness across the sector, it is imperative we get these targets right - even if they are aspirational."

The analysis highlights opportunities to improve New Zealand's productivity and renewable penetration in every part of the energy supply chain. It also suggests that, while productivity and renewables are "not necessarily mutually exclusive", a policy balance must still be struck.

Caygill says planning for the future is "never easy" and there is uncertainty in what technological innovations could evolve "to enable the future we want".

Scenarios

The council developed the two 2050 energy scenarios in 2014. It has applied them to targets the Government has signalled which aim to increase renewable energy use by industry and transport and raise the energy productivity of the country's economy.

A second report, to be released next year, will use the scenarios to assess the carbon outcomes from any targets which may be set.

The key metrics considered in the 'deep dive' report into energy targets - energy productivity, the proportion of primary energy supply that is renewable, and the proportion of electricity consumption that is renewable - will have "profound implications" for future growth and consumption, energy supply and New Zealand's climate change contribution, the BEC says.

"The levels we aspire to will potentially have profound implications for our future and how we perform as a nation on the international stage."

The kayak scenario assumes that free trade and higher global economic growth drive expansion of exports in primary sectors, services and high-tech manufacturing. International commitments on reducing emissions remain uncertain, despite an agreed global deal on climate change.

Kayak assumes New Zealand as able to leverage its "clean and green" image to reap economic opportunities, resulting in a vibrant domestic economy and higher net immigration. But cities face capacity constraints due to greater pressure on water resources and weather risks.

The waka scenario has a binding global climate change agreement based on strong emissions reduction commitments. Trading partners have restructured their economies to meet climate targets, negatively impacting New Zealand's export earnings. Higher global carbon prices add to freight costs, making New Zealand's exports less attractive, BEC says.

"This, combined with increased and as yet uneven carbon prices, places pressure on New Zealand's energy intensive industrial sector."

Divergent outcomes

The BEC work suggests that energy targets under a kayak scenario would see an increase in annual renewable electricity generation to 12.2 terawatt-hours by 2030, and 13.4 TWh under its waka scenario. The number of electric vehicles on the roads would be lower under the first set of assumptions at 33,000 versus 475,000.

Industrial heat consumption, a key potential focus of any government targets, would likely reduce 9 per cent by 203 under kayak, and fall 28 per cent under waka, BEC says.

BEC says a market-driven approach sees New Zealand's GDP grow by $81 billion in 2010 dollar terms, compared with $57 billion under the waka scenario in the period to 2030.

The lower GDP growth in waka is partly due to the potential for higher carbon prices to force the exit of some businesses. That, in combination with government actively promoting energy efficiency, would see energy productivity increase 1.95 per cent per annum.

It says energy efficiency improvements would achieve an increase in energy productivity of 1.8 per cent per annum under market-driven targets.

Today's energy productivity is 37 cents per megajoule of energy used. Under a kayak-type scenario, that increases to 45 cents per MJ and rises to 47 cents per MJ in waka.

The kayak assumptions also predict one million more people will be living in New Zealand by that date, as opposed to 800,000 under waka due to government taking a controlled approach to immigration to limit the impact on resources.

The different population and economic variables has a 0.4 per cent net effect on national energy demand, BEC says.

Starting conversations

The council suggests more work is needed to understand the future role of bioenergy in transport and industrial heat, what technology might support this, and what physical and commercial challenges there are to uptake.

It also suggests more work is needed to find the best policy balance to change the economy's energy intensity and productivity, particularly in structural changes needed to support less energy and carbon intensive sectors.

John Carnegie, BusinessNZ Energy Council manager, says the report is part of the group's "outreach programme" which aims to stimulate conversations between government and business.

He says the scenarios are based on "transparent" assumptions. They are not intended as prescriptions or pathways, but as "plausible stories" to form the basis of conversations about possible "trade-offs and choices" around policy and economic decisions.

"We would like to think it would give officials pause for thought."

Carnegie says it is important groups like BEC engage with government to ensure a more informed and diverse conversation about what path the country should take. Wider viewpoints offer a better chance of remaining responsive and resilient to changes which lie ahead.

The more people involved in that conversation the better, because a narrow view of the path ahead "will be wrong", he says.

Contact: Felicity Wolfe, Energy News

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