This shift in an industry traditionally driven by subsidies to one which now stands on its own merits, is a subtle one. It has passed largely unnoticed on the world stage. It is worthy of note, however, for a number of reasons, not least of them being that it represents a new era for the wind industry. What is now the exception in New Zealand will become the global rule as the true costs of thermal generation become increasingly apparent and as the wind industry continues to innovate and to drive its costs down.
The major and sustained improvement in the relative economics of wind energy brings with it various policy, operational and financial implications. Possibly, the single most significant change in policy relates to public opinion because, as every wind power developer knows, without a strong and supportive public, life can become very difficult very quickly. Experience with wind energy and its level of public acceptance around the world indicates quite clearly that opposition is not engendered by wind turbines themselves, but is more about two specific influences: the way in which subsidies for wind energy are distributed and the strategic clarity that is given by government and industry to the need for wind energy.
That wind is now more than competitive with every other form of electricity generation in New Zealand is important, since it fundamentally affects these two key drivers. Consequently, it further improves public opinion. Subsidies are no longer available for new projects. In fact, a purist would argue that there have never been subsidies, that the "carbon credits" available under the government's innovative "Projects to Reduce Emissions" mechanism simply represented a means of putting a price on the effects of the release of carbon dioxide by thermal power stations. Leaving aside the economic theory, the important point is that with no subsidies currently available, or requested, the cry of "subsidy chaser" ceases to be one that opposition groups can use against the wind industry as they do in some other countries.
The second, and arguably more important, point affecting support for wind energy, is that of strategic clarity. For too long now energy and infrastructure projects the world over have been the poor relations to other political imperatives: social security, health, farm subsidies, defence and other high-profile resource drainers. The result has been an almost complete lack of strategic clarity from governments over the construction of new generating and transmission capacity. This lack of strategic clarity has been particularly apparent in the renewable energy policies of a number of countries.
Since the vast bulk of new renewable energy technologies remain highly dependent on government support, uncertainty about the depth and longevity of political will translates into increased political risk for investors, which itself gives rise to a lack of the capital that is required to pay for new capacity. Experience also shows that wind farm opposition groups are adept at using policy uncertainty as a way of casting doubt on the need for renewable projects and hence of getting those projects stopped.
The results of strategic clarity
The reason for highlighting the point about strategic clarity is that if something is economic, good for the environment and incredibly popular with the general public, it tends to provide a blindingly clear strategic imperative: provide a vital public service (electricity), get popular support for doing so and make money. In fact, when these three conditions are met, as they are for the wind industry in New Zealand, government strategic intent, while remaining important, ceases to be vital. Indeed it is something of a virtuous circle -- as the economics improve, governments become more inclined to accept the industry, this further improves strategic clarity and hence encourages increased uptake and improved economics.
Wind energy in New Zealand is now economic. And it is broadly accepted by government, key decision makers, industry and the general public that wind energy can meet 20 per cent of this country's electricity needs. These are two very powerful messages. They signal clearly to the public that wind energy can deliver the electricity the population requires, they signal clearly to regional planners that wind energy is something to which they must give serious consideration and they signal a very clear message to project developers and their financiers, that wind turbines represent a very good investment.
There is still much that the wind industry must do in order to realise its full potential in New Zealand. But the biggest barrier to the long term, sustainable and significant development of the domestic wind industry -- its economic competitiveness -- has now been removed. Wind can now compete with all the other generation options and in doing so can also contribute to increased security of supply, an improved balance of payments, a more efficient use of our extensive hydro assets and a better environment for this and future generations.
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