Towards an energy strategy for New Zealand

As shown in the diagram below, the Energy Strategy will set the direction for how we transition to net-zero emissions by 2050 – while ensuring:

• energy affordability and energy equity for consumers
• secure, resilient, and reliable energy supply, including as we adapt to the effects of climate change and in the face of global shocks
• an energy system that supports economic development and productivity growth aligned with the transition.

Central to the transition, and the Energy Strategy, is the way our ‘energy mix’ needs to change. We need to increase the role of renewables significantly, while managing the phase out of fossil fuels.

To reduce emissions, renewables need to increase as a share of our energy use from 28% to 50% by 2035, and to an even higher proportion by 2050. One role of the Energy Strategy is to set a 2050 target for renewable energy and ensure that steps taken now will enable us to get to that target.

We have a range of actions underway to achieve a successful energy transition, and the four discussion documents explore further actions. But we need to understand what further steps government, industrial users, households and communities, and the energy sector itself might need to take to reduce energy emissions. Reducing emissions includes both changing the way we generate energy, but also the volume of energy we consume.

The Energy Strategy will provide this long-term holistic plan for a highly renewable and low-emissions energy sector.

The energy strategy will address key challenges and opportunities

New Zealand’s energy system has served us very well. Compared to many other countries, New Zealand’s energy sources are highly reliable, renewable, and affordable. Our energy system is among the greenest in the world. The challenge is to increase the share of energy used that is renewable, and increase the supply of energy, while maintaining and improving affordability and reliability.

New Zealand has the tenth highest share of renewable energy amongst International Energy Agency (IEA) member countries.

New Zealand 2023: Energy Policy Review(external link) — International Energy Agency

There are key pathways for New Zealand to transition to the energy system we need.

Direct electrification, such as swapping fossil fuel vehicles for electric ones, will play the major part. While New Zealand already has a high proportion of renewable electricity to enable this electrification process to occur, we need to build substantially more generation and transmission by 2050 to enable the transition. At the same time, we also need to ensure that the electricity system reduces its reliance on burning fossil gas or coal to manage those times when there isn’t enough renewable electricity available due to peak demand, or intermittency (such as when the wind is not blowing, or the sun is not shining).

There will also be important roles for other green forms of energy like green hydrogen or biomass to replace fossil energy where direct electrification is not possible or economic (such as in heavy transport or industrial processes). For this wider energy use, New Zealand still has a long way to go in reducing emissions. While there are new technology options either ready for commercial deployment or near to market, producing these green forms of energy also requires some electricity, and as such, will add even more to New Zealand’s future renewable electricity needs. The price of these technologies is also still uncompetitive with fossil options, but is falling over time.

Changing the way New Zealand uses energy can also have multiple benefits. By consuming less or shifting the time of use away from peak times – for example through efficiency measures, or using smart charging devices for electric vehicles – we reduce the volume of new generation, transmission, and distribution infrastructure that is required. This will reduce costs, and reduce the environmental impacts that even renewable energy generation projects can cause.

A successful transition will both achieve our emissions reduction goals and lead to cheaper and more reliable energy that supports economic growth and productivity. There are choices and challenges in managing the energy transition, and much to gain. Examples from the fossil gas industry, transport, and the potential use of hydrogen illustrate the context for our energy transition.

• We currently use fossil gas to make electricity at peak times. This ensures that electricity users have power when they need it most, which is usually in winter mornings and evenings. If fossil gas is phased down in an unmanaged way – before suitable renewable alternatives exist – there is a risk that it will simply be replaced by coal at peak times. Coal produces more emissions, could be more expensive for consumers, and could increase our exposure to global shocks. At the same time, fossil gas operators want investment certainty about the nature and timing of the phase down so that they can continue to build and maintain fossil gas plants and fields. Without this certainty, they may not make fossil gas available.

• To take another example, one of the best opportunities for reducing fossil fuel use is the electrification of transport through technologies such as electric vehicles. Broad uptake of electric vehicles will reduce emissions, and reduce energy costs for households. While electric vehicles now make up around 1% of New Zealand’s national fleet, uptake is increasing rapidly due to the Government’s Clean Car Discount and increased supply and diversity of vehicles available. We need to ensure we can build enough renewable electricity fast enough to keep up with new demand, while continuing to address the relatively high upfront costs of electric vehicles.

• The role of hydrogen provides a further example of the need to manage the transition carefully. While hydrogen can support decarbonisation, hydrogen production is itself energy intensive. The more we rely on hydrogen, the more important it is to build dedicated renewable electricity generation. This effect would be especially significant if New Zealand sought to produce sufficient hydrogen for export.

While there are challenges to face, there are also significant opportunities due to New Zealand’s abundant renewable energy resources. Already, innovative New Zealand companies are taking this transition forward at pace through the development of new technology, while providing new high value jobs for New Zealanders and increasing our productivity. 

The transition provides an opportunity for more of these businesses and new renewable sectors to emerge within the economy. There is increasing involvement of iwi and Māori in new renewables projects, both as investors and within the workforce, and opportunities for this to grow over time.  And as we reach 2050, we have the chance to reduce the costs of energy for all New Zealanders and within the economy, which will boost wellbeing and economic growth.

The Energy Strategy, will take a whole of system view of the energy transition out to 2050.

This whole of system view will complement and build on a range of related area of work, including:

• The New Zealand emissions trading scheme
• Demand-side policies in transport, industrial process heat and waste.
• The next Emissions Reduction Plan
• Policy for skills and workforce development
• Infrastructure development policy
• Resource management policy
• Te Mana o Te Taiao, Aotearoa Biodiversity Strategy.

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