What is the right energy mix for New Zealand to reach net zero?

Beca recently held a thought leadership breakfast panel discussion in Wellington to explore and understand the pros and cons of renewable and sustainable energy sources in New Zealand. We delved into the crucial question: What’s the right energy mix to achieve net zero in New Zealand?   

To set the scene, we are seeing an increase in renewable energy generation with a strong pipeline of wind, solar and geothermal. We are on the right track. However, if we consider total energy use in New Zealand, including the transport fleet and process heat, we are only about a third renewable. There is a long way to go.

For New Zealand to reach our 2050 net zero targets, we need to build approximately 500 MW of renewable generation every year for the next 30 years. To put this in context, New Zealand’s largest wind farm, Turitea, has a 221 MW installed capacity so we would need to be building two Turitea Wind Farms every year to meet this goal.

Here were the key outcomes of the discussion on how we can solve New Zealand’s big energy challenges.

There is no clear-cut energy mix

The panel discussion started with Andrew Knight (Chief Executive of Gas Industry Co.) who was unequivocal: "100% renewable was the wrong target". He agreed with the previous Government that this goal was 'aspirational'.

Knight continued, "To be able to hit our net zero targets, several things need to be happening at the same time. For example, carbon capture and storage has been woefully underestimated. This could help to achieve almost all the Climate Change Commission targets for reducing emissions from natural gas". 

The gas industry is trying to achieve the energy trilemma objectives and see carbon capture as a crucial part of the energy mix because it allows gas to provide security and reduce the problems of renewable intermittency while also sequestering emissions.

Another challenge is how biogas can come in to play for residential consumers. Knight believes we need to utilise the existing infrastructure and use the renewable gas and biomethane to get closer to the 2050 targets. "Electricity infrastructure needs to be built to meet peak demand, but gas can meet peaks through flex in the pipeline, so gas can help by reducing that pressure eon building new networks. We can electrify faster and cheaper if if we can use biogas in residential supply". 

The discussion then shifted to Matthew Cleland (Head of Wind and Solar, Contact Energy) to discuss the role of renewables and addressing intermittency. “Contact is looking at a bit of everything,” Cleland said.

"We firmly believe in the market and how it operates, and we are optimistic that we have the building blocks to feed in to the 2050 goals. However, Contact is only one part of the market and the problem we are facing is too complex for one company to fix."

The panelists ultimately agreed that traditionally the energy mix has been diverse, and it will continue to be.

Policy certainty and strategy clarity

The panelists all expressed concern around the ability of the regulated sectors to move fast enough. There is a lot of development and investment required over the coming years to enable us to reach our goals, and the regulatory and financial barriers are slowing us down. 

How is that solved? A clear energy strategy aligned to policy allows investment into the right fuels and healthy market movement.

"The markets work in the context of policy settings; we need to know where MBIE’s [Ministry of Business, Industry and Employment] energy strategy is going to go. Who is informing the Government to get this investment? The Government will need to step up," said John Clarke (Executive General Manager - Grid Development, Transpower).

"We need to change the definition of the regulatory tests. Policy framework needs the right settings to deliver outcomes and decarbonise in an affordable and least-cost way. Are we prepared to pay more today to allow for these builds to be done earlier?" 

"The Government needs to look at where there are barriers to entry and investment. We will need growth and flexibility in the system as intermittency increases," weighs in Cleland.

"Gas will be in the works. The '100% renewable goal' has been really damaging to future planning. There is more that can be extracted from our existing energy system," said Cleland.

The need to innovate to stay competitive  

Peter Spencer (Country Manager for Parkwind) pointed out that in New Zealand, we are very dependent on marine shipping and air travel.

"Most of our goods and products travel by air. What does this mean for New Zealand’s marketability going into a carbon zero future? We need to think about our value proposition to remain connected to the rest of the world through these future changes," said Spencer.

"We often focus on the fuels we use in New Zealand. We need to invest in how that fuel comes to the market", Knight added in. Although New Zealand produces a low carbon transport fuel, regulatory settings have meant that the investment has gone elsewhere.

Knight continues, "We are seeing decisions made in New Zealand that lock in a high carbon solution. For example, the recent ferry upgrades use diesel. Why didn’t we use this opportunity to look at either methanol or electricity?"

The future of Geothermal was raised as an option worth exploring further. There is approximately 7TWh of existing geothermal energy around the Taupo region, a further 2TWh under construction and additional geothermal resource that "is untapped and will continue to play a role," said Cleland.

What about carbon capture? "Carbon reinjection technology is mature and has been used in New Zealand for thirty or forty years, although in the past it was used to enhance oil flows," said Knight. "The IEA says Carbon Capture has to be part of the transition but currently in New Zealand it’s getting little investment and we are behind the rest of the world."

There are good regulatory regimes overseas for putting carbon back in the ground and to make sure it stays in place. If it is buried in the right reservoir, it solidifies and won’t escape. "Although for one site in New Zealand it is $30 per tonne, there hasn’t been enough investment certainty and regulatory certainty to invest in this," adds Knight.

In comparison, offshore wind can be more expensive. Spencer acknowledged that while generally, offshore wind is more expensive than onshore renewables, it brings wider social benefits. "Offshore typically can be built at scale close to load centres, which means we are less reliant on long transmission corridors."

Summary

To enable us to achieve security of supply, the panelists agreed that the energy mix needs to be balanced. The harder question is what does this balance look like? We are shooting for a ‘silver bullet’ when we mention solutions such as "electrify everything"; the reality of implementation is much more complicated once you factor in regulation and funding.

What is Beca’s position? New Zealand’s energy strategy has the potential to bring the sector together to accelerate our much-needed energy transition.

For a successful transition to net zero in the energy sector, there needs to be greater collaboration across all levels of Government, renewable developers, transmission, energy consumers and associations. Clear regulatory and market frameworks, created collectively by the sector and for the sector, will enable an integrated transition plan to be implemented.

This panel discussion perfectly captured the challenge of energy transition: The key is not to focus on the 'what' of energy and fuel types, but the ‘how’ of implementing such major economic and industrial change.

Renewable and sustainable energy sources have their pros and cons, and collaboration and investment is the only ‘silver bullet’ when it comes to charting the energy path to 2030 and beyond.

Thank you to our panelists for joining us, and to Eleanor Grant, Principal – Industrial Sustainability at Beca for facilitating the discussion.