Chapter 6: Economics of the regime
Approximately 20 submitters commented on the economics of the regime.
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The discussion document outlined the various economic models associated with offshore renewable energy and the key trade-offs of revenue support and revenue gathering mechanisms. The discussion document sought feedback on the nature of any interdependencies, how any mechanisms could be structured and the potential risks of offering revenue support for offshore renewables without offering the equivalent to onshore renewables. MBIE did not put forward a preferred approach.
Submitters almost unanimously agreed that the case for revenue support mechanisms and any decision to gather revenue from the regime are interdependent. Some submitters also highlighted that this is something that typically transitions over time, with revenue support being needed for early projects and revenue gathering becoming more of an opportunity as markets mature.
Submitters were divided on the issue of revenue support. Most submitters, largely from the energy industry, made the case for a form of revenue support and/or stabilisation. Some submitters focused on the types of barriers a revenue stabilisation mechanism could address, for example emphasising the difficulties a typical offshore wind project might experience trying to obtain multiple large, creditworthy offtake agreements. Other submitters focused on the benefits that such a scheme could drive, including lowering costs to consumers; stimulating developer interest to meet renewable energy targets; and enabling government to leverage positive outcomes (such as local supply chains).
On the other hand, many submitters (including incumbent gentailers and energy advocacy groups) said revenue support or stabilisation mechanisms were not necessary to enable offshore renewable energy developments. The most common arguments questioned the necessity of having offshore renewables to meet New Zealand’s climate goals. Another common argument was the risk of a distortionary impact on wholesale markets or the deployment of other types of renewables. A couple of submitters also suggested that the main benefit of support mechanisms in other countries, such as supply chain development, are less relevant in a New Zealand context.
On specific support options, most submitters were in favour of a contract for difference scheme such as that used in the UK and Europe. Several developers highlighted that this would provide stabilisation rather than subsidy support. However, proponents of revenue support mechanisms were divided on whether these mechanisms should apply to offshore developments specifically or be made available across the market based on other criteria, such as project size.
Submitters were also divided on whether this is something that government should resolve. While some submitters suggested a decision should be taken as soon as possible, most argued that developers do not need a decision on revenue support to apply for feasibility permits and that a decision on this could be taken once the feasibility process has been launched.
Most submitters argued against any revenue flow back to government. Their view was that these additional costs would largely flow back to consumers and that such a mechanism may deter investment in an emerging market. Some submitters suggested that if a revenue flow was to be introduced this should be small, directed at local communities or invested back into the sector. A few submitters stated a fee equivalent to land access fees could be appropriate to achieve parity with onshore renewables.
Meanwhile, several submitters (including iwi and some ORE developers) suggested that while there should not be material revenue flow to government, an exception could be made to facilitate a flow back to iwi. Submissions from iwi reflected that the Crown has a responsibility to uphold Te Tīriti and its principles of partnership and active protection of Māori rights which includes enabling active participation throughout the life of these developments.
Recovering the costs of the regime
The discussion document sought feedback on the government’s proposal to recover the cost of the regime through fees.
Submitters almost unanimously supported full cost recovery for government administration of the regime, so long as it is proportionate and moderate. A couple of submitters noted that there should be no costs involved as part of Government support for development of offshore renewables.