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Climate recommendations and the renewable energy market

Updated: Mar 11, 2021

Many thanks to the BusinessNZ network, and particularly the Sustainable Business Council, for the chance to attend a session with the Climate Change Commission recently to discuss its draft advice to the Government, and hear directly from Rod Carr and the team.

The draft advice, published on 31 January, proposes preliminary emissions budgets and direction of policy to achieve the targets agreed to under the Zero Carbon Act through to 2035.

If you’ve spent any time reading the advice, you’ll see that the Commission lays out a clear pathway to meeting our emissions goals. Amongst other things, the Commission’s advice makes a few points that we feel are particularly important.

  1. The Emissions Trading Scheme by itself is not enough to help reduce our emissions. In addition to the ETS, it recommends capturing and enabling voluntary action for the benefit of the climate.

  2. We will need to maximise the use of electricity as a replacement for other energy, in particular in transport and process heat, as well as maximise generation from our renewable resources.

  3. There will need to be an increased focus on biofuel and the bioeconomy. We also anticipate faster progress on hydrogen and solutions for natural gas.

So what will the draft advice mean for the state of renewable energy as well as process heat?

The focus proposed by the Commission on reducing or eliminating emissions at the source rather than relying on mitigation of emissions has implications for our use of carbon credits schemes both here and overseas. What I take from that is that energy use must move faster towards renewable and carbon free rather than allow continued offsetting.

I agree with the Commission that getting to 100% renewable electricity may not be the best way to effectively reduce our carbon emissions. Once we get to somewhere near 95%, there may be easier and more cost effective areas to focus on than eliminating the last five percent.

“Solar and wind technologies are expected to play a significant role in displacing fossil fuel generation.”

- Climate Change Commission, 2021 Draft Advice for Consultation, Chapter 4

Right now New Zealand generates over 80% of its electricity from renewable sources, but crucially only 65% is from carbon-free sources like hydroelectricity, wind and solar, with geothermal providing 17% of energy generated. (MBIE, Energy in New Zealand 2020, Part D)

So rather than having to build from 80% to 95%, we really need to achieve growth of nearly half of what we currently produce. That’s a much heftier target.

Enabling voluntary action

The market is already starting to respond to the importance of low-carbon energy, with both large and small generators bringing more facilities online. Ones I can think of immediately are Meridian building Harapaki, Genesis bringing on Waipipi, and Kea Energy building New Zealand’s largest solar farm at Wairau.

We will need even more new wind and solar facilities in the coming years, and committing to new projects is always daunting at the leading edge of a transition. How can we encourage developers to invest now for the coming demand?

The Commission says that “The amount of distributed generation in the system is expected to increase as the cost of solar PV and wind generation decreases and more households and communities look for energy sovereignty. [...] it can be challenging for owners or would-be investors in distributed generation to access the electricity market.

We see energy certificates as encouraging voluntary action by enabling consumers to send a clear signal about the type of electricity they want, as well as allowing generators to have more certainty about their projected revenue, and earn a premium from their generation.

Distributed generation, of different types, will provide us with more reliable supply, and spread the risk in case of drought - or lack of sun - in any part of the country.

Demand for electricity will increase sharply

Transpower’s electrification roadmap for New Zealand has identified electrification of light vehicles and light duty trucks, as well as low temperature process heat, as two of our biggest opportunities to reduce emissions in the next 10 years. Light transport represents 80% of transport emissions, and low temperature process heat 50% of process heat emissions.

As uptake grows, the Commission forecasts that total generation will need to grow by more than 10 TWh by 2035 (Figure 3.13, p. 23), and Transpower predicts at least an additional 20 TWh will be needed by 2050 (Figure 4, p. 3). So our need for new renewable electricity generation will increase even further, as well as the need to achieve the most generation possible from our existing resources.

Biofuels and the bioeconomy

New types of energy will be more important than ever, as replacements both long-term and during the transition to zero carbon.

Key parts of the transition will include scaling up biofuels, bringing hydrogen into the mainstream to replace oil for heavy transport and coal for process heat, and phasing out natural gas.

Part of the solution for process heat to transition away from coal will include biomass, which still produces carbon emissions, although at a much lower rate. Different sources of biomass have a lower overall carbon lifecycle, and so having clear and consistent consumer information about the impact of that biomass will be important.

We could also imagine the possibility of providing production certification for transport fuels such as biodiesel, given the global concerns about its production supplanting food grown on arable land. Keep in mind any attribute of energy can be certified - vegan biofuel anyone?

The rise of “green gas”

Hydrogen’s promise depends on reducing the emissions used in its production as much as possible. BOC has recently announced it will move to using certificates for the input electricity at Glenbrook, which shows the way for other organisations to improve the attributed emissions from their hydrogen production. Government policy is also moving in this direction, with MBIE starting work around a low-carbon hydrogen standard.

I anticipate there will be much debate about whether it is realistic to have no new gas connections to the grid 2025, and a range of other options may be needed. We will be launching a green gas certification standard soon, which will allow renewable gases such as bio-methane to be certified, giving recognition to steps that a producer may take to produce gas from renewable sources (often by diversion of what would otherwise be waste streams). This can help bridge the gap to eventually phasing out natural gas use.

Why certify?

Certificates are just part of the puzzle of reducing the attributed carbon emissions from energy generation, along with things like energy efficiency measures. Certificates increase the amount of information for business and individual consumers about the energy mix New Zealand is using, and allow them to choose what type of energy to support.

Users of the New Zealand Energy Certificate System can buy certificates matching their energy use against a number of different attributes: renewable energy, low-carbon, locally generated, or new-build. The latter is significant as it allows users to directly support new or expanded renewable or low carbon energy facilities coming on stream. The revenue from the certificates gives providers an indicator of customer demand for increasing renewable energy and can give them the confidence to expand their facilities.

While we reduce emissions onshore, we are still part of a global supply chain, and must not shift the problem elsewhere. Our global customers will be looking for evidence that companies are taking constructive action rather than dodging the issue.

We all know we need to reduce emissions and there will be some hard decisions ahead. We can harness the power of consumer choice to help low-carbon energy move faster, getting New Zealand further down the path of climate action.

Tim Middlehurst, CEO, Certified Energy

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