Executive Summary

A secure and reliable system of electricity generation and transmission is a crucial component of a modern, prosperous society.

Demand for electricity in New Zealand is increasing with population growth, rising incomes, and the widespread adoption of new technologies powered by electricity. In order to meet growth in demand until 2025, New Zealand will need to increase generation capacity by around 175 megawatts (MW) per annum.

Historically, the New Zealand electricity system has relied on fossil fuel-based thermal-generation to meet demand in excess of what can be supplied by hydro-generation. Generating electricity from fossil fuel sources released around 8.3 million tonnes of CO2-equivalent emissions into the atmosphere in 2006.¹ In the absence of any price on emissions, projections suggest that approximately 2325 MW of additional electricity generation capacity needed by 2030 would use fossil fuels. As a result, electricity-related greenhouse gas emissions would increase by approximately 50 per cent by 2030 if we do not change our course.² The government believes this would not only be environmentally irresponsible, but that it would also place New Zealand exports at a disadvantage, increase the country’s exposure to the cost of imported fossil fuels, and threaten New Zealand’s reputation as a clean, green tourist destination.

The Ministry for Economic Development has undertaken modelling for the New Zealand Energy Strategy (NZES), which indicates the majority of opportunities to reduce greenhouse gas emissions in the electricity sector derive from “aggressively pursuing existing and new renewable-based electricity generation”.³ In support of its sustainable energy goals, the government has adopted a target for renewable electricity generation of 90 per cent by 2025 (based on delivered electricity in an average hydrological year). Experience with the Resource Management Act 1991 (RMA), however, has raised concerns that renewable projects face particular hurdles under the current regulatory framework that could threaten the ability of generators to develop the additional generation capacity necessary to meet this target by 2025. The government’s proposal to amend the Electricity Act to create a preference for renewable electricity generation (by implementing a 10-year restriction on new base load, fossil-fuelled thermal electricity generation) will work with this national policy statement to promote achievement of its sustainable energy goals. Because amending the Electricity Act in this way would restrict the use of coal and gas-based electricity generation, a failure to consent sufficient renewable generation capacity could place national security of supply at risk. This would in turn oblige the government to consider revising its position on thermal generation and therefore, its renewable generation target. This would have implications for greenhouse gas (GHG) emissions. Any risk to security of supply and/or the potential for that risk to be addressed by thermal generation could have significant economic consequences for New Zealand.

The proposed National Policy Statement for Renewable Electricity Generation (the NPS) seeks to assist decision-makers when considering whether proposals to use and develop New Zealand’s renewable energy sources will promote the sustainable management of natural and physical resources. It does this specifically by:

recognising the national significance of the benefits of renewable electricity generation activities
promoting the development, upgrading, maintenance and operation of renewable electricity generation activities, such that 90 per cent of New Zealand’s electricity will be generated from renewable sources by 2025
requiring decision-makers to consider the practical constraints that may limit the ability of developers to avoid, remedy or mitigate the adverse environmental effects of renewable electricity generation activities
requiring decision-makers to have regard to the relative degree of reversibility of the adverse environmental effects associated with particular generation technologies
requiring regional policy statements and regional and district plans to be amended to enable:
- the reasonable operation and maintenance requirements of existing renewable electricity generation activities
- the identification of renewable electricity generation possibilities
- small and community-scale development of renewable electricity generation.

The present report provides an evaluation of the proposed NPS and, in accordance with the requirements of section 32 of the RMA, addresses the following four key questions:

To what extent is the Objective the most appropriate way to achieve the purpose of the RMA?
Are the policies proposed the most appropriate for achieving the Objective?
What are the benefits and costs of the proposed policies?
What are the risks of acting or not acting if there is uncertain or insufficient information about the subject matter of the proposed policies?

1. To what extent is the Objective the most appropriate way to achieve the purpose of the RMA?

The purpose of the RMA is set out in section 5 as being:

... to promote the sustainable management of natural and physical resources.
In this Act, sustainable management means managing the use, development, and protection of natural and physical resources in a way, or at a rate, which enables people and communities to provide for their social, economic, and cultural wellbeing and for their health and safety while –
1. Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations; and
2. Safeguarding the life-supporting capacity of air, water, soil, and ecosystems; and
3. Avoiding, remedying, or mitigating any adverse effects of activities on the environment.

Economic growth is heavily dependent on a secure and cost-effective supply of electricity. The supply and price of electricity support the continuation of current economic activity but also promote long-term certainty and encourage, along with other key infrastructure, an environment conducive to investment and growth. In other words, electricity contributes significantly to the economic, social and cultural wellbeing of people and communities. Promoting an increase in generation capacity through renewable sources will also result in diversification of the range of generation types and locations of generation. The benefit of a diverse generation sector is that security of supply increases as reliance on any one generation type and location is reduced.

The government believes there are obvious and low-cost greenhouse gas reduction opportunities in the energy sector in the form of renewable electricity generation when compared with other sectors. Increasing the proportion of electricity generated from renewable sources to 90 per cent will reduce dependence on fossil-fuel generation and help control GHG emissions. Achieving the government’s 90 per cent renewable target will, therefore, minimise the country’s exposure to fluctuations in resource price and limit the extent of its economic liabilities on the international carbon market.

Taken together, increased security of supply and the comparatively reduced long-term cost of a generation system based heavily on renewable sources will provide significant economic, social and cultural benefits to the country. There are, however, some potential costs associated with a move to promote and increase the proportion of electricity generated in New Zealand from renewable energy sources. These costs include:

the potential to increase pressure on the transmission network, leading to a need for more investment in transmission infrastructure
the need to provide more installed capacity than would be the case if New Zealand opted for thermal generation
the potential for adverse environmental effects associated with the use and development of natural and physical resources.

The benefits and costs of promoting an increase in the proportion of electricity generated in New Zealand from renewable sources were analysed during the development of the NZES. On balance, it was concluded that the benefits to be derived from increasing the proportion of renewable electricity generation to 90 per cent outweighed the associated costs.

The conclusion of this evaluation is that the proposed Objective is the most appropriate way to achieve the purpose of the RMA.

2. Are the policies proposed the most appropriate for achieving the Objective?

Policies 1, 2 and 3 are intended to provide guidance to decision-makers when considering applications for resource consent to undertake renewable electricity generation activities. This focus is considered appropriate as it is targeted at addressing the lack of regulatory certainty (lack of certainty being the principal problem identified with the status quo).

Policies 4 and 5 complement this focus by requiring local authorities to remove unnecessary regulatory barriers to enable the identification of renewable electricity generation possibilities and, by similarly enabling the development of small and community-scale renewable electricity generation. The effect of these policies will be felt in the medium term and will encourage the development of a robust and resilient electricity generation system in New Zealand.

Taken together it is considered that the proposed policies provide a robust package that is effective and efficient, and the most appropriate way to achieve the Objective of the proposed NPS.

3. What are the benefits and costs of the proposed policies?

The proposed NPS will promote an increase in the proportion of electricity generated in New Zealand from renewable sources. This will support the development of a diverse and resilient electricity generation sector, which will in turn increase security of electricity supply. A reduced dependence on fossil-fuel generation will minimise New Zealand’s exposure to international fluctuations in resource (oil and gas) prices. The proposed NPS will support other government initiatives seeking to reduce greenhouse gas emissions and to address climate change. Importantly, the proposed NPS will limit the extent of New Zealand’s potential economic liabilities on the international carbon market deriving from its climate change obligations under the Kyoto Protocol. It is difficult to quantify these economic benefits, but they are expected to be significant.

Clear statutory recognition of the national benefits of renewable electricity generation will provide generators with a degree of certainty that decision-makers will give appropriate consideration to these benefits when considering plan provisions and applications.

The total present value cost of the proposed NPS is estimated to be $23.5 million. Tables detailing estimated costs and the assumptions behind these estimates are included in Appendix A. A discussion of specific costs associated with the project is set out below:

Government costs

The government will incur costs associated with the preparation of non-statutory guidance and explanatory workshops to support consistent interpretation and implementation of the proposed NPS: $260,000 undiscounted cost in the first year following approval. Further costs could result if Crown submissions are required in relation to specific applications and/or plan changes.

Local government (territorial, unitary and regional councils) costs

A majority of costs associated with the proposed NPS will fall on local government, which will be responsible for notifying and processing plan changes. Estimates ignore the potential for synergy with other related plan changes and are based on the assumption that there will be one plan change process per regional council, unitary authority and territorial authority. It is thus estimated that staff training / upskilling, and the process of plan change notification and hearings required to give effect to the proposed NPS will result in a cost to local government of $19.9 million (undiscounted cost spread over year’s two to five following approval). An additional $3.1 million (undiscounted cost spread over 20 years following approval) has been estimated to allow regional councils, unitary authorities and territorial authorities to implement public education and advocacy in support of innovation in the field of renewable electricity generation.

Generator costs

It is expected that generators will monitor plan changes made in response to the NPS. It is likely that generators will lodge submissions on plan changes in areas where they have a commercial interest; a cost of $7.3 million (undiscounted cost spread over years two to five following approval) has been estimated to account for generator advocacy (one full-time equivalent (FTE) per major generator plus $50,000 per plan).

Local community stakeholders and non-government organisations (NGO) costs

It is likely that the NPS will stimulate an increased level of community involvement in plan advocacy. A cost of $3.4 million (undiscounted cost spread over year’s two to five following approval) has been estimated to account for public submissions.

4. What are the risks of acting or not acting if there is uncertain or insufficient information about the subject matter of the proposed policies?

There has been a past trend for decision-makers to address the benefits of renewable electricity generation in an inconsistent way. The Environment Court is, however, increasingly required to make decisions that balance local and national, costs and benefits in relation to renewable electricity generation proposals; case law is emerging in this area as a result. In addition, the status quo has possibly become more favourable towards renewable electricity generation since the release of the NZES. It is expected that the imminent introduction of the New Zealand Emissions Trading Scheme (NZETS) will also have a significant effect on the weight given to the benefits of these projects in RMA decisions. Nevertheless, the RMA does not clearly establish the significance of the benefits of renewable electricity generation projects, which by their nature can compete with other environmental values and are often felt at the national level. This complicates the RMA decision-making process and has led to increasing uncertainty in the marketplace, and has the potential to frustrate development opportunities into the future. It is, therefore, not possible to conclude that sufficient renewable electricity generation projects will be developed under the status quo to meet the government’s renewable electricity target of 90 per cent by 2025. Given the potentially significant consequences of failing to meet this target, it is considered that the introduction of an NPS is an appropriate risk-management intervention.

The risks of not acting to address this issue are:

insufficient renewable electricity generation capacity will be consented and developed to meet the government’s renewable electricity target of 90 per cent by 2025
as a result, New Zealand will either face security of electricity supply problems with significant associated economic implications, and/or the government will need to amend its target and allow the development of more thermal-base load generation
if the government is forced to amend its renewable electricity generation target, it is very likely that New Zealand will face higher economic costs to meet its Kyoto obligations. Increasing the country’s reliance on thermal electricity generation would therefore have direct financial implications for the nation. Such a move would also have indirect economic costs, as it is likely that New Zealand’s international image would suffer in the markets of its increasingly ‘climate change aware’ trading partners
continuing uncertainty for local authorities, the Environment Court, the development community and the general public, should government fail to articulate the benefits of renewable electricity generation in a statutory RMA instrument.

The potential risks of acting are considered to be:

lack of local and/or regional action: although only a handful of plans and policy statements specifically address renewable electricity generation, some councils may argue that their plans already meet the requirements of the proposed NPS, and therefore no further change is necessary. This may lead to potential confrontation, and possibly litigation between the Ministry, generators and local government as to how to best implement the proposed NPS
uncertainty about how best to give effect to the proposed NPS could lead to delays and increased litigation costs
underestimation of the costs and time it will take to put required changes in place
a requirement that councils to undertake additional investigative, monitoring and policy development work, which will attract significant costs
a potential lack of ‘professional’ resources at regional and district councils requiring councils to engage consultant advice. This would increase costs and, should additional resources not be available due to labour supply, some tasks may not be completed within the timeframes stipulated
resources of regional and district councils being diverted away from the processing of consents for renewable electricity generation projects towards policy development, or away from other high-priority programmes. This could create tension between the Objective and the policies of the proposed NPS
a requirement that decision-makers to have regard to the relative ‘reversibility’ of effects of different technology types. This could lead to a perceived regulatory bias against investment in relatively ‘non-reversible’ renewable generation technologies such as large-scale hydro generation
promoting development at the cost of the local environment in some areas – costs that may not have occurred under the status quo.

1 New Zealand’s Greenhouse Gas Inventory 1990–2006, Ministry for the Environment, April 2008.

2 The New Zealand Energy Strategy to 2050, Ministry of Economic Development, October 2007.

3 Ibid, p36.

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