A national energy strategy - a must do, not a nice to have

Low-cost and reliable energy supplies are critical to a modern economy’s success. As we embark on de-carbonisation, Aotearoa would reap significant benefits from a 30-year national energy strategy that is well thought through and leverages the advantages of our highly renewable electricity system.

If we get it right, we can mobilise investment and markets to accelerate our transition and deliver a dependable, low cost and low emissions energy system that will transform our society and economy into a thriving and sustainable future. Get it wrong, and we will have high electricity prices and a higher carbon energy system overall.

Genesis supports a low-carbon energy strategy that takes into account the interconnectedness of the system and enables the right sequencing and prioritisation of actions and, when we say energy, we don’t just mean electricity! Too often, these two words beginning with ‘E’ are conflated and confused by commentators. Genesis’ business spans many technologies and energy markets which puts us in a unique vantage point from which to contribute to the discussion. We believe generating an effective energy strategy will require engaging with, and drawing on, the knowledge and insights of people and businesses across the energy sector and beyond.

Our thinking and insights on the need for this strategy was one of the four principles that framed our response to the Climate Change Commission's (CCC) recommendations. We believe a low-carbon energy strategy should:

1. Carefully consider the linkages and connectedness between different parts of the energy system.
2. Map out the lowest cost and productive pathway to a low carbon future.
3. Understand the role renewable electricity can play. Where technology and capabilities don’t exist today there may be a role for other forms of energy (e.g. biofuels or hydrogen).
4. Ensure reliable, dependable and affordable energy through the transition.
5. Determine how New Zealand maximises today’s renewable electricity advantage to create tomorrow’s competitive advantages.

Beware of unintended consequences

As a country, we need to focus on the broad use of energy, not just electricity. There are many different sources of energy – wind, solar, geothermal, hydro, gas, coal, and petroleum. There are multiple interdependencies in the products those sources enable, from generating electricity, empowering transportation, creating steam to dry milk, smelting aluminium, manufacturing steel, to producing methanol and agricultural fertilisers. Energy is the lifeblood of society and critical to the way we live and work as businesses and individuals. It is too important not to understand its interconnectedness.

Pull on one strand without understanding can lead to unintended consequences that could prove highly problematic and costly to the country as it tries to transition to a low carbon future.

The opportunity cost of 100% renewable electricity

So, as we look at a pathway to 2050, we must and will decarbonise electricity further. The technology exists to relatively easily and economically move from where we are today, at 84% renewable electricity, to somewhere between 90-95% renewable. Investing heavily into reducing the last few percent of electricity emissions is not an efficient use of capital when there are bigger opportunities to go after. There are also a couple of other important considerations. New Zealand is a couple of islands in the Pacific and as such, is not connected to other electricity markets for back-up. As well, our land mass runs north to south meaning we can’t benefit from moving electricity geographically to match different demand at different times of the day. In addition, our renewable system is dominated by hydro that suffers from periods of low rainfall.

The consequences of prioritising 100% renewable electricity are that it may hinder the decarbonisation of other high emitting sectors such as transport and industrial processes (see graph below), which risks driving up the cost of electricity and creating a potentially less reliable electricity system.

The CCC understands this and spelt it out well ‘(the) 100% renewable electricity target should be treated as aspirational and considered in the broader context of the energy system that includes electricity, process and building heat and transport.’

Lastly, when we think about the future and the world transitioning to a low carbon future, we should be thinking about the global opportunity for New Zealand to develop expertise and IP around how we decarbonise large energy consuming sectors beyond electricity. Renewable electricity is a well-trodden path now, everyone’s doing it, and others will catch up with us. The question on my mind is how can we create future advantage from the head start we have today?

Denmark is an interesting case study. Over the last 30-40 years, through R&D, innovation and investment, it has become the world leader in wind technology. It connected the world’s first onshore wind turbine to the grid in 1976 and the world’s first offshore wind farm in 1991. In Denmark's electricity sector wind power produced the equivalent of 47% of the country’s total electricity consumption in 2019. Denmark now has a strong export industry in wind turbines.

With the right mindset, incentives and public-private models, we could develop an export earner for the future by learning how to electrify industry ahead of everyone else. While the world focuses on decarbonising electricity we should be working on the next industrial advantage for New Zealand, the electrification of industry.

Originally published by Marc England (Chief Executive at Genesis Energy) on Linkedin