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The New Zealand energy transition is gathering pace, with the Government recently committing to its Emissions Reduction Plan and a range of support to accelerate the transition to a low carbon economy. Energy companies are also more actively pursuing sustainability strategies and investments to support decarbonisation and the transformation of the energy system.
Shareholders and communities'' growing awareness of reaching net-zero is also putting the electricity sector under increasing pressure to show how it can both achieve decarbonisation and meet the growth goals needed to support wider electrification. In addition, recent supply challenges have made energy security and affordability increasingly important.
We see three key imperatives for the energy system to balance; decarbonisation, resilient supply and affordability.
Use of energy contributes about 69% of New Zealand''s net domestic carbon footprint (Source: Climate Change Commission 2021). Electrification of our energy systems, energy efficiency initiatives and adoption of green fuels will therefore be the primary path to decarbonise our economy.
One primary source of decarbonisation for New Zealand is the expected electrification of carbon emitting components of the energy system, eg transport and process heat, and increasing the proportion of renewable electricity generation. In New Zealand, local and international interest in renewable electricity generation projects to help fuel this transition increased significantly in the past few years. Overseas investors especially are seeing value in New Zealand wind and solar, while domestic energy companies are also cementing their plans. Around 400 MW of renewable generation is currently being developed, with at least a further 1 GW of solar and 2 GW of wind under investigation.
Despite the recent work, significant investment is still needed to achieve our climate commitments. Transpower projects up to 8 GW of new generation is needed by 2050 to meet demand growth (source: Transpower NZGP1 projections December 2021). The construction cost of these generation projects could be as high as $15 billion (real 2021 dollars), excluding costs associated with grid connections and network capacity.
While this activity is starting to support the electricity supply side, the demand side has yet to respond at the same pace. Subsidies to drive Electric Vehicle (EV) uptake through Road User Charge (RUC) exemptions, the Clean Car Rebate and the scrap and replacement scheme will hopefully improve uptake over the coming years. However, New Zealand is still far behind the rest of the world. EVs and plug-in hybrids made up only 5.7% of new vehicle registrations since the introduction of the clean car rebate in July 2021 (Source: NZTA). Globally, EV and Plug-in Hybrid cars represented 8.6% of sales in 2021, but in China, Europe, and UK sales exceeded 15%.
Source: IEA, 2022 Global EV outlook
Outside of electricity New Zealand also needs to consider the role of green gasses and fuels in the future energy system. Not all carbon intensive energy uses will make economic sense to transition to electricity, having both a green electricity and molecule based system will be key to our low carbon energy future.
Maintaining security and supply will be crucial for New Zealand''s renewable transition. With electricity at the heart of the transition, developing a secure and resilient electricity system will be critical alongside maintaining diverse energy supply options, including green fuels and means of energy storage.
As New Zealand transitions to higher levels of renewable generation we will increasingly rely on hydro, wind and solar generation to decarbonise our economy. However, these sources can be intermittent or subject to weather patterns. Over 5,000 GWh of firm electricity generation is required to get us through winter in dry years, this is currently met through coal and gas-fired generation.
To create a resilient supply in a highly renewable system, there are two options being considered:
Overbuild renewables -The Electricity Authority''s Market Development Advisory Group (MDAG) research indicates that between 400 to 500 MW of new renewable generation and demand response is required each year to 2050 to underpin an overbuild strategy.
Build large renewable energy storage capacity -The Government''s NZ Battery project is investigating renewable generation storage technologies. This includes pumped hydro schemes like the Lake Onslow project, green storage fuels such as hydrogen and biofuels, compressed air, flexible geothermal generation, and flow batteries. These are relatively untested solutions and may take some time to develop. For example, Onslow would not be expected to be operational until 2037 (Source: Infrastructure Commission).
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