The Changing Face of Electricity Supply Worldwide: Can NZ Compete?

Posted 1 September 2015 by Richard Gardiner

Article extract from the September issue of Business Plus Magazine published by the EMA.

 

The Changing Face of Electricity Supply Worldwide: Can NZ Compete? 
By Richard Gardiner and Hans Buwalda

New Zealand is advanced on a global scale in generating most of its electricity from renewable sources rather than the less clean, non-renewables such as coal and other fossil fuels.

But in committing to do better, there is an economic price to pay.

New Zealand is a small, advanced but geographically remote First World economy. Renewable electricity generation based on the use of hydro-electricity, geothermal energy and wind power, etc, typically accounts for about 85 per cent of New Zealand’s total electricity generation.

Current Generation

The proportion of renewable sources has been growing steadily in recent years, with the commissioning of new geothermal and wind power stations and the progressive retirement of aging coal and gas-based generation. This trend now includes the planned closure of Contact Energy’s gas-fuelled Otahuhu B Power Station.

With such a high existing renewables component, it is much harder for us to achieve significant reductions in our electricity-related CO2 emissions/kWh than it is for larger, less remote trading partners overseas.

World catching up

Governments are committed to creating a new international climate agreement at the United Nations in Paris this coming December. In preparation, governments have agreed to publicly outline what climate actions they intend to take post-2020. These are their Intended Nationally Determined Contributions (INDCs), which will largely determine whether the world achieves an ambitious 2015 agreement and is put on a path towards a low-carbon, climate-resilient future.

In its INDC, New Zealand has committed to reduce GHG emissions to 30 per cent below 2005 levels, in the next 15 years by 2030. The likely cost to the New Zealand economy of meeting the 2030 target in terms of GDP is greater than that implied by other governments’ targets. This is due to a number of factors, such as already achieving a high (+/- 85 per cent) level of renewable electricity generation, plus the fact that almost half of New Zealand’s emissions originate from agriculture.

The emission reduction pathways on which other countries’ targets are based differ from the pathways possible for New Zealand.

A significant part of both the US and the EU commitments is based on opportunities for reducing the carbon-intensity of electricity generation. The current proportion of electricity generated from renewable sources in the US is 13 per cent, and in the EU is 25 per cent. Clearly there is significant scope for CO2 emission reductions in both those major economies through further increases in renewable electricity generation, particularly as much of that will substitute for electricity currently generated from coal.

Already, the mix of renewables and non-renewables used in electricity generation is changing globally.

Back in May, BloombergBusiness in the US reported that, “The race for renewable generation has just passed a turning point. The world is now adding more capacity for renewable power each year than coal, natural gas and oil combined”.

It also advised that, “solar power makes up less than 1 per cent of the electricity market today but could be the world’s biggest energy source by 2050 according to the International Energy Agency. The question is not if the world will transition to cleaner energy, but how long it will take.”

The New Zealand emissions trading scheme (ETS) is due to be reviewed this year. Achievement of our INDC highlights the need to address our domestic policies. It is clear the current ETS will not, on its own, ensure New Zealand’s progression to a sustainable, low-carbon economy.

Supporting sector-specific policies and measures are also required. It may be that some sectors should be included in a different way in the ETS.

Tips for NZ businesses

New Zealand business customers of electricity and gas need to focus on:
• Price minimisation – by checking the market systematically via a professional procurement process and bulk purchasing power.
• Usage optimisation – by monitoring usage in detail, highlighting potential kWh reductions and then taking effective action utilising energy specialists.
• Wider environmental considerations (for large organisations at least).

Large organisations, whether public or privately-owned, need to consider their environmental impact on the wider community, and especially their contribution to lowering greenhouse gas emissions (GHG), particularly CO2.

Richard Gardiner is managing director of Total Utilities Management Group Ltd, email
Hans Buwalda is managing director of Environment Health & Safety Consult, email

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