There is opportunity in a crisis

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There is opportunity in a crisis

22 Sep 2020 | Business Desk

Tina Schirr: There is opportunity in a crisis

Dear minister,

As energy leaders and policymakers grapple with the current covid crisis, New Zealand and the global energy community are reviewing its implications for the speed and direction of energy transition.

New Zealand’s incoming policymakers have important roles to play in shaping our post-covid energy future.

Though the country is ranked in the top four developed countries in the world for the proportion of electricity produced from renewable sources, there are tough decisions to be made about the system’s future resilience.

New Zealand’s geography, economy and resources create a unique set of uncertainties and trade-offs.

Policymakers must be open-minded as we strive to sell our goods and services in a changing world.

Announcements from energy leaders across the globe suggest the pandemic will stall demand for oil and gas for a prolonged period and accelerate the global shift to cleaner power and fuels.

Our abundance of renewable energy provides an opportunity to diversify energy sources and increase energy independence.

Meanwhile, energy leaders also highlight the accelerating digitalisation opportunities in energy and the new challenge of resilience – for people and value chains, as well as cyber security.

To accelerate a clean, affordable, reliable energy transition, we need to think about demand-side disruption as part of the ‘new normal’, particularly in a post-covid era. Our current situation is a reminder of the importance and speed of the demand side in achieving changes in the sector.

We cannot overlook the very real opportunity this crisis provides. This is spelled out in the BusinessNZ Energy Council's 2020 election briefing.

A changing world and new opportunities

Last year the BusinessNZ Energy Council mapped the country’s energy future to 2060, providing two plausible scenarios for the country’s future energy mix.

In both scenarios, society and the economy will look considerably different from today with less reliance on primary produce and a greater emphasis on service industries.

The biggest opportunity to decarbonise is to leverage New Zealand’s significant renewable electricity resources and convert much of the transport fleet and industrial heat to electricity, but other opportunities also exist.

Careful investment in the resilience of our electricity system will be required to ensure the wider reach of electricity is not compromised by the very problem it is trying to fix. The conversation now needs to be about renewable energy resilience in addition to cost competitiveness.

The race for technology is finely balanced, and policymakers must be wary of 'betting the house' on a single technology. Government policy needs to be informed by a sound analysis of the various options available. Costs and benefits must be comprehensively analysed, and distributional impacts, if any, identified.

Robust trialling, piloting, and clear policy frameworks will level the playing field for technology development. Energy related projects often stimulate significant investment and can create jobs where there is a sound regulatory environment across the sector.

Unintended consequences

Over the next 40 years, hundreds of billions of dollars will be expended on capital, operating and fuel costs across the energy sector in both BEC’s scenarios.

However, today’s earnings are what enable us to invest in the future and we need to ensure New Zealand’s economy continues to operate effectively in the short term while the future is built.

In other words, we need to keep one eye on the future and the policy setting required to facilitate New Zealand’s transition, while we keep the other eye on our current policy settings to ensure that businesses continue to be efficient and competitive so they continue to provide jobs and support the standard of living New Zealanders aspire to.

The prospect of increasing complexity in energy markets suggests caution is needed while new business opportunities are emerging. Moreover, siloed thinking from policymakers risks unintended consequences and poorly allocated resources. Importantly, the incoming government needs to strike a balance between making long-term policy and investment decisions and decisions that are resilient and adaptive to the rapidly moving energy system.

An open-minded, balanced debate on the best investments to reduce greenhouse gases that carefully considers the energy trilemma’s three pillars (balancing energy security, equity and environmental sustainability), will position us well to transition to a low-carbon future.

The recently reformed emissions trading scheme is one mechanism for addressing climate change and sending market signals in favour of decarbonisation. But complementary mechanisms are still needed to accelerate the development of zero-carbon energy sources. These should provide the investment security required to encourage widespread decarbonisation.

However, government intervention to alter competitive market signals should be undertaken with caution. Any government intervention to alter competitive market signals should still ensure competitive outcomes.

As we strive to sell our goods and services to the rest of the world, increasingly low carbon energy will be an enabler of this new society, by driving innovation, economic recovery and creating a positive image for New Zealand.

BEC wishes to see more energy investment that helps reduce New Zealand’s greenhouse gases to future-proof our energy system, stabilise prices and enhance sustainability.

Finally, incoming policymakers must work closely with private partners, financial institutions and the whole energy sector.

Together, these players must create a policy environment that encourages investment and minimises risk in a market that is seeing increasing competition and complexity.

Tina Schirr is the executive director of the BusinessNZ Energy Council.

Contact: Tina Schirr