New Zealand

New Zealand

Political enthusiasm a breath of fresh air

Will wind power have a fair chance at becoming a successful new entrant on the competitive electricity market in New Zealand? At the latest New Zealand Wind Energy Conference, hopes were high that it would, thanks to well informed and clearly enthusiastic presentations by top politicians. Legislative action could be on the way, turning around the doldrums of the past five years in this market. "There is a mood of optimism that hasn't been here before," said one New Zealand wind stalwart.

Well informed and clearly enthusiastic presentations by top politicians at the New Zealand wind energy conference this year are giving cause for sceptical hope that legislative action could be on the way to give wind power a fair chance at becoming a successful new entrant on the competitive electricity market

The wind was new and definitely gusting at the New Zealand Wind Energy Conference where over a hundred delegates were treated to some optimistic fresh air courtesy of political and industrial representatives. The bulk of the breezy discussions in late May came from three top ranking politicians -- energy minister Pete Hodgson, environment minister Marian Hobbs, both of the governing Labour Party, and Jeanette Fitzsimons, co-leader of the Greens Party. The mere fact that the conference was able to attract such high ranking politicians was cause for comment, and their presentations were keen and enthusiastic, demonstrating "the politics of exuberance," as the effect of November's change in government has been described.

It was a far cry from the doldrums of the past five years, which saw the southern hemisphere's largest wind farm built and operational and then sold off as part of the restructuring of New Zealand's electricity market. It was also a considerable change from the often highly technical presentations of the past which concentrated on the nitty-gritty of engineering and testing procedures, with the New Zealand Wind Energy Association (NZWEA) taking a step back to look at the broader picture. "There is a mood of optimism that hasn't been here before," said wind stalwart NZWEA President Paul van Lieshout.

Last year, with the sale of Tararua, wind enthusiasts were almost bracing themselves for the possibility that it would be the first and last large-scale project in New Zealand. Fitzsimons noted that the previous energy minister's separation of distribution and generation companies saw about 500 MW of wind development stop dead in its tracks. Now both see the potential for better days ahead.

"It is not the technology we have to discuss; that is proven in New Zealand as well as around the world," said van Lieshout. "It is not the resource that needs to be discussed. We have the world's best wind sites... It is not the confidence level in the technology... No, it's the price of electricity. Wind power cannot compete in the wholesale market." The reasons for this are varied, but NZWEA is calling for a level playing field which acknowledges the effective subsidisation of the fossil fuel industry and provides an incentive for the development of wind.

Twelve point plan

The association has produced a draft strategy paper listing 12 points which they believe are crucial to the development of wind energy. Already NZWEA has had talks with government ministers and officials regarding the draft. The main points are: establishment of a national target for non-traditional renewable energy; the introduction of a low-level carbon charge with a feedback mechanism into renewables; an alternative pricing mechanism with transmission priority; accelerated depreciation of hardware.

The lack of a clear cut strategic policy for renewables was bitterly commented upon. "New Zealand is actually running backwards," says Van Lieshout. "Our renewable energy component is decreasing by about 30%." The Energy Efficiency and Conservation Authority (EECA), however, will be part of a new drive to set targets for renewables and develop a strategic look at the country's energy requirements and options. The EECA is a strong supporter of wind and the NZWEA. Political developments have also strengthened EECA's role. Its new status as a stand-alone Crown entity is seen as giving the organisation the chance to focus on its core business, rather than undergoing what Hodgson referred to as a series of "tedious" reviews. "It has a mandate to pursue renewables which cannot be ignored," noted Fitzsimons.

New energy act

That mandate has come about through the Energy Efficiency and Conservation Act, passed just before the conference and seen as a major step for renewables. The act was largely the work of Fitzsimons, who chairs the powerful Transport and Environment Select Committee. It gives the energy minister a statutory duty to promote renewables and to report on them. It relates to the National Energy Efficiency and Conservation Strategy, due for completion by April 2001, with targets for renewables and identification of the means to achieve them.

Energy minister Hodgson heartened some delegates by averring that he didn't think it unreasonable to suggest that wind power could be supplying 20% of New Zealand's electricity by 2020. However, he was not about to announce any tangible political decisions, pointing out that there are a number of stages to get through before anything concrete can be set into place. "We will be passing legislation, if it is needed, this calendar year," he noted, "So we are intending to make progress."

One sticking point has been the effective subsidisation of fossil fuels by those industries who can ignore the external costs of their operations. "One response to this is to begin to implement the polluter pays principle," noted Fitzsimons. "The need for environmental pricing, such as the introduction of a carbon tax will be considered within the taxation review." This is under way, but the carbon charge debate is likely to be left as an issue for the 2002 election, according to Hodgson. But as one delegate noted sotto voce: "They can slap a tax on cigarettes within a month of gaining office, so why not a carbon tax?"

Fitzsimons said much the same, pledging her party's intention of arguing for a carbon charge. Fitzsimons is determined to make use of the time to the 2002 election point which Hodgson targeted. "Another two and a half years before we get there can be used to very good effect," she said, discussing the importance of gaining public understanding of and support for carbon charges. "It's important to express it as a tax shift, not just a new tax."

Asked what sort of incentives could be provided for wind, Hodgson saw three possibilities: tax those who have not taken externalities into account, such as fossil fuel investors who have been effectively subsidised by not having to pay for the pollution costs of their industry; subsidise developing areas, such as renewables; develop a link between an external costs tax and renewables subsidies.

"We need the playing field tilted back to level again," van Lieshout says. "The NZWEA is only interested in subsidies for wind power if it is used to balance the wrongs inherent in the existing, hidden subsidies for fossil fuels."

The economics of wind played a major role in the conference debate on what to do with embedded (distributed) generation and how its problems and benefits on a system should be accounted for. Hodgson noted the NZWEA's submissions to the government's Electricity Inquiry, acknowledging that fixed grid charges disadvantage embedded generation such as wind energy. "We could look at giving some credit for embedded renewables in the transmission pricing structure," said Fitzsimons. Hodgson agreed that the fixed charges are too high and that the thresholds are to low, with significant barriers for those looking to enter the market.

Nicki Crauford of the national transmisson company attempted to convince a fairly sceptical audience of Transpower's role in determining economic efficiency and encouraging efficient new investment. She maintained that Transpower does not charge embedded generators but, in fact, charges the line companies who then pass those charges on. "Perhaps the people who should be variabilizing costs should be the lines companies," she said. Crauford was challenged on her assertion that Transpower reduces charges if an embedded generator saves costs on a permanent basis and that this had been done often. At least some members of the audience were not convinced.

Fitzsimons would like to see changes in the structure of the country's electricity market, with lines companies permitted to build wind projects. "There is a need to remove the cap and let line companies own new generation to allow a sunrise industry to get above the horizon and recognise the value of embedded generation," she said.

Improving the depreciation regime would make wind much more attractive to investors, according to Wilson. He noted that projects in India are able to write-off hardware costs against tax all in one year. NZWEA was not optimistic that it could get anywhere near that but was arguing for a shorter term than the current ten years. "We didn't win the battle for seven, and got pushed back to ten," reported Wilson. He saw the decision on the write-off period as an arbitrary one made by an Inland Revenue Department consultant who did not appreciate the crucial importance of the decision to the nascent industry.

In general, Hodgson welcomed the NZWEA's strategy paper, encouraging the association to take an active part in the debate. But he was not completely convinced of all points. "[Looking for] a green electricity market in a country which has 70% of its electricity provided by hydro is kind of dumb," he pointed out. It wasn't a remark that sat well with Greenpeace delegates and others concerned about the environmental effects of hydro schemes and who see new green power as an important tool for gaining widespread public support for renewables.

Climate change politics

Economics gave way at one stage to the political and scientific debate revolving around climate change, seen as a driving factor in the push for wind development. A promise to ratify the Kyoto Climate Change Protocol in June 2002 would need to be preceded by policy and legislative developments if New Zealand is to reduce emissions of greenhouse gases to 1990 levels by 2012. Since 1990, the country's carbon dioxide output has grown by 30%, with 45% of that coming from transport.

Part of the problem is the perception that New Zealand is "clean and green," a phrase much beloved of the country's tourism industry. "New Zealand's environmental state is not good -- it's false advertising," said environment minister Hobbs. "Until we get public acceptance and understanding of that, many people will be gulled into thinking we are." She pointed out that as an island nation with a long coastline, New Zealand is vulnerable to climate change. While the country is not a major contributor to greenhouse gases (rather than from fossil fuel, a significant contribution comes from the nation's methane-belching sheep and cattle) Hobbs noted that the government was committed to reducing emissions.

"You have asked what changes will assist wind energy to contribute to New Zealand meetingits targets under the Kyoto protocol: a carbon charge? Policy of no more fossil fuel generation? Specific targets for wind energy generation? Grid payments for embedded generation?" asked Hobbs rhetorically. "In all probability a mixture of price and non-price measures will be required," the minister said. The concept of "carbon sinks" in the form of forests was not one that appealed totally to Hodgson. "We look ahead at a nation smothered in pinus radiata with oil refineries in the clearings." Van Lieshout argued that such an approach should not be seen as a carbon sink, but more a sponge, able to take in only so much before becoming saturated and useless.

Between the "double whammies" of climate change and oil depletion, demand for wind should get a major boost, noted Fitzsimons, with an increase in the price of wind's main competitor and an increase in the need for wind power itself. She was keen to see action sooner, rather than later.

"Waiting for those market signals to do it will involve huge disruption, economic, social and environmental, because by then there will be insufficient time for markets to respond," she argued. Fitzsimons sees the most appropriate responses being more energy efficiency and more renewables development.

Sites and restrictions

As environment minister, Hobbs was concerned with the problems that the Resource Management Act (RMA) is perceived to have caused for wind projects. Two major schemes, proposed for Barings Head and Makora, were abandoned due to public opposition. The RMA not only sets out a broad framework for sustainable management of natural resources, it also provides a strong forum for local decision making. Some in the wind industry would argue it is too strong.

"If you do anything large I would suggest you do make it publicly notifiable, otherwise you start behind the eight ball," advised Hobbs. "You cannot underestimate the importance of building public support for wind generation. You have a kaupapa, you have a mission, to get out and sell the environmental goodness of wind energy."

Sites for wind plants, however, may not be as plentiful in New Zealand as has commonly been assumed. Alistair Wilson, involved in the successful Tararua Wind Farm, asserted that one reason why public support is vital is the shortage of suitable wind sites. To be economically viable, wind power in New Zealand needs a site with wind speeds of more than 10 m/s with a long distribution curve that can support a 30 MW development relatively close to the load. A project is also bound by restrictions related to the RMA. All in all, these barriers severely limit the possibilities. "The list is quite small," claimed Wilson.

Van Lieshout, however, said he feels the list is closer to 60 good sites, given that the industry was allowed to compete in a fair market environment. "It's time to do something," he admonished.

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