BusinessNZ Energy Council


NZ should resist hasty change to energy markets – visiting expert

Mar 14, 2014 | News

By Gavin Evans, Energy News

New Zealand should be cautious in how it chooses to amend its energy market structures, World Energy Council secretary-general Christoph Frei says.

Ranked globally, the country appears to have developed markets that have delivered a high exposure to renewables, good access to reliable energy supplies, and reasonable environmental outcomes, Frei told delegates at the Downstream conference in Auckland yesterday.

Given that, he says New Zealand should be careful about making hasty changes to what appears to be a “well-oiled machine.” If energy poverty or something else is an issue, policymakers should address them specifically.

He noted that he wasn’t in a position to comment on the market changes being proposed by the Labour and Green parties. Generally, he says, evolution of markets is always better then revolution.

Markets that have taken a long time to develop can be undone very quickly, he noted.

“Don’t rush into quick solutions,” he says. “When you have a system that does deliver, don’t get confused by high uncertainty and don’t try and re-think it all at once,” Frei said in an interview.

“It’s very important to see what actually does work – and there seems to be a lot of things working here – and then move on from there.”

Frei has been visiting New Zealand as a guest of the BusinessNZ Energy Council, the WEC member body in New Zealand.

Future challenges

He told conference delegates that New Zealand appears fortunate in that it has plenty of time to respond to the longer-term energy issues before it.

Globally, other nations are less fortunate. Rapidly rising demand, falling solar panel prices, the price impacts of shale oil and gas development in the US, a wary approach to nuclear power after the Fukushima earthquakes, and doubts about carbon prices, means all countries are operating in the greatest energy industry uncertainty ever.

Shale, in the space of eight years, now accounts for 32 per cent of US gas production. Solar prices have fallen from USD $4.70/kWp to 60 cents in five years, he says.

“There is no more slow energy,” Frei says. “That defines uncertainty. There has not been in the energy industry so much uncertainty as we see today.”

The WEC is forecasting global energy demand to increase by between 27 per cent and 61 per cent by 2050. The organisation’s alternative `symphony’ and `jazz’ scenarios, based on a more government-led approach or a more market-led approaches respectively, would see total primary energy demand reach 696 exajoules, or 879 exajoules, respectively by 2050.

Firmer government direction is assumed to result in more renewable development, higher carbon costs, and greater use of carbon capture and storage; the more market-based approach may see more coal and oil consumed, although fossil fuel use remains high in either scenario.

Fossil fuels

FREI says WEC’s work shows demand will generally be higher than people think. Fossil fuel use will continue to grow, aided by unconventional technologies, as will greenhouse gas emissions.

But he emphasised that much of the touted global shale resource may not be able to be developed because of insufficient skills, infrastructure, and population density in some regions.

Growth of solar energy will be massive – with global capacity increasing 200- to 300-fold – but that will still not be enough to meet the demand growth, he says.

Energy efficiency gains will be critical under any scenario, but Frei says it is going to be very difficult to achieve.

Efficiency gains are already slowing and it will be hard to meet the WEC’s assumptions, let alone the more optimistic assumptions of organisations like the UN and Greenpeace, without there also being break-throughs in technology, Frei says.

During the past decade, energy efficiency, measured as energy intensity per unit of GDP, had improved by 1.3 per cent annually.

But he says pre-2000 that rate was at 1.6 per cent. Since the global financial crisis it has dropped to 0.6 per cent.

“It’s extremely difficult,” he says. “The reality is that globally the low-hanging fruit seems to have been harvested.”

Speaking at a BusinessNZ Energy Council seminar in Wellington today, he said government intervention will be needed to drive efficiency gains.

Smart metering will improve network loads but is unlikely to drive future energy efficiency, he says. It would be better for New Zealanders to upgrade their vehicles to more fuel efficient models and he recommends the government sets objectives and imposes standards on imported vehicles which would achieve this.


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