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Minister of Energy and Resources Dr Megan Woods yesterday fronted a speaking event arranged by the Business NZ Energy Council in what has in recent years become somewhat of a Speech from the Throne where the Minister lays out the Government’s energy portfolio thinking and priorities for the year ahead. This note records our takeaways from the event. Compared to recent years we thought the Minister’s language this year was less prescriptive and more balanced. We expect this is likely a reflection of the reality of the current environment where global political instability, very high local energy prices and equally high local carbon prices are currently setting the energy agenda. Our take on major themes from the Minister’s messaging:

• NZ Energy Strategy as a discussion, not an instruction – The Minister committed to developing a ‘national energy strategy’ via a process that will commence shortly after the Government tables its Emissions Reduction Plan, which is due by the end of May. Dr Woods signalled that the strategy will be developed in collaboration with industry and that she intends from the outset to call on input from across the sector.
• Renewable. Full stop. – The Minister again emphasised renewability as the Government’s central assessment criteria. We continue to think of this positioning as overly binary and of applying the wrong test to the wrong end of the supply chain – instead of ‘renewable electricity supply at any cost’ the test should in our view be ‘energy emissions demand reduction at least cost’. Through this lens any viable decarbonisation pathway should be enabled, not just those that are renewable. In other words, public policy should be, within reason, agnostic to how decarbonisation is achieved, only that it is achieved. Particularly disappointing was the continuing absence of any acknowledgement of the need for a specific regulatory regime to enable carbon, capture and storage (CCS). The reality is that >$70/t carbon is serving to make CCS increasingly attractive, not just for wellhead producers of hydrocarbons but also for standalone industrial operations that could look to sequester carbon themselves if there were options available to permanently store it.
• Those other two Trilemma legs – With recent events it was unsurprising that energy security and affordability each got more airtime. We view this as a rebalancing from past years when sustainability has been the Government’s primary focus.
• First principles still contestable – The Minister continued to promote a scenario pitching for the accelerated terminal decline of the “fossil gas” sector in NZ, which for what distil principally to carbon leakage and technology issues we continue to contest. For example if Methanex succeeded in deploying technology (including CCS) that would enable low/no emission methanol manufacture from gas then it is conceivable that the gas sector could have a much larger and longer-term future while also delivering sizeable local and global emission reductions. This point was reinforced with the Minister highlighting the Leeds H21 project in the UK which is working towards replacing the existing natural gas supply network in Leeds with hydrogen. A fundamental aspect of the project however is that the hydrogen being produced to enable that project is “blue” and relies on the continued supply of natural gas supported by CCS.

From the Energy Throne

Minister of Energy and Resources Dr Megan Woods yesterday fronted a speaking event arranged by the Business NZ Energy Council in what has in recent years become somewhat of a Speech from the Throne where the Minister lays out the Government’s energy portfolio thinking and priorities for the year ahead. This note records our takeaways from the event.

In opening remarks, the Minister reiterated that climate change was a key priority for her administration and that “fundamental shifts” were needed to meet the net zero target.

Noting recent events in Europe, the Minister highlighted that the transition also serves as a way to insulate the country’s energy supply from geopolitical shocks and to achieve other societal objectives, enabling a post-COVID recovery that is more resilient and fairer to all Kiwis.

Dr Woods structured the detail of her address to four key areas:

1. Energy efficiency
2. Making the electricity system “Future Ready”
3. Reducing the reliance on fossil fuels
4. Reducing emissions in industry

1. Energy efficiency

• The Minister named the ‘Warmer Kiwi Homes’ initiative as an example of a programme that was delivering benefits beyond those of energy alone.
• By installing improved ceiling and underfloor insulation as well as heat pumps and wood and pellet burners the program is addressing the problem of cold, damp homes that can improve the health of tenants.
• The Maori and Public Housing Renewable Energy Fund was also named for delivering $2.6m to support the roll out of clean and cheap electricity to households.

2. “Future Ready” electricity system

• Repeating the Government’s “aspirational” target of 100% renewable electricity generation, the Minister identified three shifts that she considers as required to deliver reliable and affordable electricity:
  • Accelerating the roll out of renewable energy
  • Changing the electricity system to enable more renewable generation
  • Support for more efficient transmission and distribution
• On accelerating the renewables rollout, the Minister said she was working on tools that can better enable renewable projects including offshore wind, green hydrogen, pumped hydro and electricity storage.
• Offshore wind was singled out as important for stimulating regional economic activity.
• On changes to the electricity system, the Minister cited a number of initiatives, all aligned towards the 100% renewable generation target. These include:
  • the NZ Battery project and this year’s technical and commercial viability investigations
  • Genesis Energy’s pending biomass trial at Huntly
  • Meridian and Contact’s plans for green hydrogen production in Southland
  • the Electricity Authority’s investigation into the wholesale market operating under 100% renewable generation and real-time wholesale pricing.
• On support for more efficient transmission and distribution, demand-side response was a focus with initiatives being progressed by Transpower and the Electricity Authority (EA), some of which have more local or regional elements. These include:
  • Changes to the TPM to reduce first-mover connection disadvantages
  • Changes to the electricity code to allow small scale generators to operate from distribution networks
  • The Regional Energy Transition Accelerator pilot in Southland, targeting process heat
  • The Renewable Energy Zone pilot in Northland, where generators and users co-locate and share infrastructure.

3. Reducing reliance on fossil fuels

• While the Minister did acknowledge the role of fossil fuels towards providing dry year and peak demand cover, she referenced the Climate Change Commission’s recommendation for reducing the role of ‘fossil gas’. The Gas Industry Company’s gas market settings inquiry and the Gas Infrastructure Future working group report were both also cited as supporting this direction.
• The Minister acknowledged this presents short and long term challenges, including to the industry work force, but highlighted that she wanted to work with industry to ensure gas was going to be available to industry during the transition
• The Minister noted the potential role that biogas and green hydrogen could play across the transition and named Ecogas’s Reporoa biogas project as one such example. That project will be NZ’s first large-scale food waste-to-bioenergy facility to comprise a anaerobic digestion facility owned by a joint venture between Pioneer Energy and Ecostock Supplies on land owned by T&G Fresh.
• The Minister was accepting that extensions to the life of natural gas assets, particularly for supplying commercial kitchens and high temperature heat, could offset investments in the electricity grid that would otherwise be required. She also recognised the energy diversity this provided.
• Green hydrogen was also being looked to and the Minister highlighted that the government was looking at gas market standards setting changes that would be needed to support hydrogen roll out.

4. Reducing emissions and energy use in industry

• The Minister’s focus here was process heat suggesting that investments via schemes such as the GIDI fund would reduce business’ exposure to ETS costs.
• So far the fund has approved 39 projects to save 6.6m tonnes of emissions, with recipients of the latest round of funding to be announced shortly.
• The Minister also cited the government’s intention to support businesses to be early adopters of new low-carbon technologies. Closing remarks
• In closing remarks, the Minister said that she was cognisant of the need to make change without compromising security of supply, energy affordability, and energy accessibility. These were described as non-negotiables.
• Recognising there is demand for greater clarity of direction on these matters, the Minister committed to developing an energy strategy following the release of the Emissions Reduction Plan.
• An energy strategy was also cited as a way to reaffirm the importance of equity and inclusion of Iwi Maori.
• The Minister also highlighted changes to the Crown Minerals Act to strengthen decommissioning requirements and the creation of a critical minerals list to ensure sufficient supply of raw materials essential to the energy transition. A consultation on the latter document is expected in the second half of the year.