Energy investment not addressed

At strategic direction for energy at last, says Stephen Selwood, chief executive of the Council for Infrastructure Development. But can it deliver?

You may have serious reservations about the costs of the ambitious 90 percent renewables target, the impact on exploration for gas, the level of government intervention in the management of SOEs, the ripple affect of pioneering the emissions trading regime, or the lack of focus on economic growth contained in the strategy, but at least we have a clear steer on fuel choice and some policy direction. That will improve investment certainty, in renewables at least. The key challenge will be turning aspiration into application, at reasonable cost.

Driven by carbon emission reduction goals, the Strategy assumes relatively modest energy demand growth (1.3 percent per annum as opposed to the two percent trend over the last decade) and makes almost no mention of the need to contribute to strong economic growth. 

In fact gross domestic product is mentioned only once in the entire Strategy document - the glossary - and economic growth gets just two mentions. The expected reduction in demand growth is considerable. One can only hope that EECA can deliver on their energy efficiency goals in the face of increasing demand for electricity to power our electric vehicle fleet of the future.

We must have concern for NZ’s carbon emissions, but from an ‘NZ INC’ point of view, security and reliability of supply to power economic growth is the number one issue. On this measure, whether we like or not, we’ve been sailing far too close to the wind. As a result, the country’s international standing for the quality of energy infrastructure is lack lustre, at best.

The latest World Economic Forum Global Competitiveness Report released in October 2007 showed New Zealand dropping a further notch down the ladder from 23rd to 24th out of the 131 nations surveyed. Inadequate supply of infrastructure was considered the most problematic factor for doing business. Our ranking for electricity supply was a lowly 46 out of the 131 countries assessed.

Likewise, the latest 2006 IMD Executive Opinion survey of nations with GDP per capita greater than US$10,000 ranked the adequacy of New Zealand’s energy infrastructure  35th out of the 36 nations and scored us just 4.1 on a scale of one to 10.

Concerns over security of electricity supply drive these perceptions. Greater certainty about investment in both transmission and generation is a must.  “Just in time” might work for stock delivery, knowing that you’ve got a major warehouse to back you up at an instant, but the electricity sector doesn’t work like that.

It takes years to gain approval for projects in New Zealand. With increasing pressures on land and water rights,  a complex regulatory environment managed by a multiplicity of agencies, an uncertain transition path from thermal to renewable energy, together with uncertainties about gas discovery, gas prices and carbon pricing – its not surprising that uncertainties about the investment horizon persist. All of these issues have significant risk profiles and all must be resolved. But the Strategy is vague, at best, on addressing these challenges.

Top of the list of issues to be sorted are the tortuous planning, approval and consents process and the regulatory steeple chase associated with it. Delivery agencies must walk the tightrope between the Commerce Commission’s CPI-x pricing regime and the EC’s grid investment test, driven by cost minimalism while community expectations, the RMA and other legislative cost drivers apply strong upwards pressure on costs.  

Existing processes can be made to work, but the time and cost is unacceptably high. It’s taken three years from inception for Transpower to gain approval for the Auckland transmission upgrade through the Electricity Commission process. Now the RMA hurdle has yet be jumped. It took six years after its initial application for Contact Energy to gain new resource consents for its existing geothermal plants near Taupo. We have to do better than that.

Our view is that New Zealand should provide proponents of projects of national importance the option of direct referral to a national planning board or to the Environment Court. Many jurisdictions have or are moving to national consents processes for infrastructure projects of national importance. New South Wales have such provisions in their Environmental Planning Act and Ireland passed similar legislation in 2006. New Zealand should do the same.

Government’s commitment to “call in” the Auckland transmission line upgrade is a good first start.  Recent RMA consents have gone in favour of the various renewable energy projects, primarily wind, and this is encouraging. Using the RMA to provide greater leadership and guidance on consenting “renewable” electricity generation will lend further help – although we’d prefer this to read “low emission” electricity generation – allowing efficient gas plants in the investment portfolio as well. Regulation to limit new baseload fossil fuel generation over the next ten years is a step too far. Far better to set the price, streamline the bureaucratic process and let the market respond.

To the extent the Strategy provides clear direction on the future of New Zealand’s energy system we are making progress. But the extreme focus on emissions at the expense of economic growth and the capacity of the bureaucratic and regulatory regime to deliver security of supply in a timely way remain key issues of concern.