Renewables as a Way Forward

1. Renewables as a Way Forward Bryan Gundersen Partner, Kensington Swan 3512736

2. Overview • The previous Government’s approach • The new Government’s changes • What’s happening in each area • Wind • Solar • Tidal • Geothermal • Hydro • Biogas • The ETS/Carbon capture and storage • Investment environment

3. Hypothesis • The Government remains committed to renewables, although their approach is more balanced than the previous Government • The renewable energy sector is still an important arena for deal making and there is significant room for future growth • Further development depends on several factors, but mainly the economic appetite for commercial risk and investment and removing barriers

4. Recent surge in renewable generation • In the quarter ending December 2008, generation from renewable sources was 74% (up from 56% during the previous quarter) • NZ needs around 175-200 MW of new generation capacity each year – currently growth is not at this level

5. Previous approach to renewables • 2007 NZ Energy Strategy: 90% renewable generation by 2025 • A focus on reducing demand rather than increasing generation • A 10 year moratorium on thermal generation enacted with the Emission Trading Scheme (‘ETS’)

6. New Government’s approach • Although renewables are important, they are balanced in an energy policy with 4 priorities: • Security of supply • Affordable and reliable electricity supply • Environmental responsibilities • Economic return • ‘Power crisis’ of 2008, during which renewable generation met only just over half electricity demand, prompted an focus on security of supply

7. New Government’s approach (cont…) • Security of supply has been emphasised - $20 million boost to seismic surveys for oil and gas exploration over 3 years • The Government has expressed a preference for a diversified power supply • Electricity (Renewable Preferences) Repeal Act repealed the thermal generation moratorium – gas as a ‘bridge’ to a future with more renewable generation

8. New Government’s approach (cont…) • The speech of the Energy and Resources Minister, Gerry Brownlee at the National Power Conference and the proposed amendments to Resource Management Act (‘RMA’) has bolstered confidence • As well as the RMA, the Emission Trading Scheme legislation and Energy Strategy are being reviewed. A new draft Government Policy Statement on Electricity Governance has also been released. The emphasis is on reducing bureaucracy and boosting investment

9. Growth by type of generation • Currently most renewable generation comes from hydro power • The most significant possibilities for growth in NZ are in wind and marine energy

10. Hydro • December 2008 quarter: 58.9% of generated electricity from hydro • Although there are fewer projects, the value of hydro investment remains high • A complement to more intermittent sources of generation (such as wind) • Over reliance leads to exposure during ‘dry’ winters

11. Hydro (cont…) • The main barrier to growth is the diverse use interests in water resources and difficulty in obtaining resource consents • Most new developments are: • To increase the capacity or efficiency of existing hydro schemes; or • Small in scale (10 MW or less) – EECA states there is considerable potential for more small scale developments – especially as they have less environmental impact

12. Solar • At the 2009 World Future Energy Summit solar power was predicted to be a major source of generation • In 2008 solar power deals surged in number and value in the USA • A fast growing area – energy can be converted from both heat and from sunlight • A ‘clean’ method of generation – no fuel required!

13. Solar (cont…) • Technology remains expensive and output is variable • Currently no large scale projects in NZ – but a growing number of domestic consumers • Viability varies based on geographic location, but NZ has roughly 2000 hours of sunshine a year, enough to generate 4kW per square metre every day • Government subsidies/incentives could prompt further growth

14. Geothermal • 11% use in December 2008 quarter – up from 9% due to Mighty River Power’s Kawerau plant coming on line • Mighty River Power’s Nga Awa plant is under construction, as well as Contact’s Te Mihi plant • NZ has an abundant resource and it is a fairly reliable source of generation

15. Geothermal (cont…) • The Electricity Commission’s Transmission to Enable Renewable Report estimated that an additional 1100 MW of capacity could be generated • Environmental regulatory constraints remain the biggest barrier to sector growth

16. Wind • Onshore wind now a relatively stable technology – internationally wind accounts for the majority of new deals • NZ has a ‘world class’ wind resource • New record for wind generation in December quarter – 304 gigawatt hours

17. Wind (cont…) • Constraints to development: • RMA remains a hold up – the final shape of the amendments to the RMA will be crucial to development – Contact has experienced recent defeats in the Environment Court • Ability to connect to the grid is another constraint • A reduction on costs is also needed to move to the industrial level • Despite the constraints, generators have been eager to acquire key sites

18. Marine energy • Due to our large coastline, waves and tides are a significant energy resource for NZ • Wave energy tends to peak in winter, when demand is highest • EECA administers a marine energy deployment fund

19. Marine energy (cont…) • In March 2008 the NZ Government accepted an invitation to join the International Energy Agency’s Ocean Energy Systems Implementing Agreement • Development is dependent on resource consents and technological developments

20. Bioenergy • December 2008 quarter 0.5% of generation came from bio-energy • Wood energy can be used for heat and electricity, as well as being converted to liquid fuels. EECA administers the Wood Energy Grant Scheme. It could be a valuable source of energy for commercial or industrial operations • Biogas can be produced from farms, effluent treatment plants and landfills

21. Biofuels • Produced from renewable materials, such as plants. Usually blended with a fossil fuel like petroleum • Crown Research Institute Scion has recently investigated bioenergy options for New Zealand. Its research shows that New Zealand could be self sufficient in transport fuels made from purpose grown forestry on marginal land • National has repealed the biofuel sales obligation, but is looking at a tax incentive

22. Carbon capture and storage • Given our large coal resource, the Government has expressed an ‘interest’ in carbon capture and storage (‘CCS’) • New Zealand government is becoming a founding member of the Global Carbon Capture and Storage Institute (GCCSI) • This Australian initiative aims to accelerate the commercial deployment of CCS technology internationally 

23. Growth in the renewable energy sector • Demand for new generation remains high • There is considerable flexibility as to how investment may be structured • There is no shortage of renewable resources • There is the possibility to increase the uptake of energy from distributed generation projects to reduce transmission costs – EECA administers a fund

24. Impacts on sector growth • Security of supply • Transmission costs • Energy diversification • Technological breakthroughs • Climate change regulation • Resource management • Climate for investment • Consumer preference for renewables

25. Factors inhibiting growth • Credit crisis • Lack of investment in the transmission grid • Falling energy and carbon prices • Regulatory uncertainty: • The RMA • The NZ ETS and post-Kyoto policy direction

26. Conclusion • These factors have combined to a ‘wait and see’ attitude to investment • There is significant potential for growth – the Government should continue to reassure investors by: • Providing regulatory clarity • Reducing barriers to investment • Supporting investment in the difficult financial climate

27. Key message from the 2nd World Future Energy Summit • Professor Herbert Girardet, World Future Council Director of Programmes captured the aspirations of the summit when he said: • ‘the common aim of worldwide energy policy has to be a complete switch to renewable’

28. Renewables are transforming the global energy profile • In 2008, for the first time, more renewable energy capacity was added in both the European Union and the USA than other forms of generation • At least 73 countries have renewable energy policy targets, up from 66 in 2007 • (REN21 Renewable Energy report, 4th edition)

29. In New Zealand • Fossil fuel energy generation will continue to have an important role in meeting energy demands, but as the WFES demonstrated, the opportunities for increased renewable energy generation already exist and can be further developed.