1 Introduction

1.1 Overview and background

1.1.1 Electricity generation in New Zealand

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

The New Zealand energy system has largely been built around the transmission of electricity generated in the southern hydro-lakes to major load centres further north. This has given the country a relatively cheap and sustainable supply of renewable electricity, but limited storage capacity in the hydro-lakes can put security of supply at risk in dry years. Historically the New Zealand electricity system has relied on fossil fuel-based thermal-generation to back up hydro-generation when water is in short supply.

If New Zealand continues on its current path, electricity demand is projected to grow at around 1.3 per cent per annum.⁴ At this rate of growth, approximately 3,900 MW of new capacity will be required to meet demand growth between 2005 and 2030. It is worth noting that this projected rate of growth is significantly lower than recent historic levels of growth (around two per cent per annum). Improved energy efficiency throughout the economy will lower the rate of growth in demand, but a significant amount of new capacity is still expected to be needed.

In order to meet growth in demand until 2025, New Zealand will need to increase generation capacity by around 175 megawatts (MW) per annum. There are of course other measures the government can undertake to satisfy electricity demand, specifically by implementing measures to reduce consumption, or to increase efficiency of use. These measures are not specifically addressed by this NPS or section 32 assessment, but are the subject of a range of other government policies.

Generating electricity from fossil fuel sources released around 8.3 million tonnes of CO2-equivalent emissions into the atmosphere in 2006.⁵ While New Zealand’s total greenhouse gas (GHG) emissions account for only approximately 0.3 per cent of global emissions, New Zealand has the 12th highest per capita emissions rate in the world. In the absence of any price on emissions, projections suggest that approximately 2323 MW of additional 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.⁶ The government believes this would not only be environmentally irresponsible, but that it would also put 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. These effects would have significant economic implications for the country. In addition, New Zealand has signed and ratified the Kyoto Protocol and by 2012 is obliged to have either reduced GHG emissions to 1990 levels, or to purchase carbon credits to offset post-1990 increases. In making this point it is noted that New Zealand does not necessarily have to reduce emissions from all sectors, as long as the total emissions reduce to 1990 levels. Although that obligation relates to the economy as a whole and not solely to the electricity generation sector, the government believes there are obvious and low-cost GHG reduction opportunities in the form of renewable electricity generation.

The government has identified four main climate change challenges⁷ that the country will face in meeting growing demand for electricity. These are:

to control and reduce New Zealand’s greenhouse gas emissions
to support international initiatives for multilateral action on greenhouse gas emissions, principally through maintaining momentum on the implementation of the Kyoto Protocol and ensuring this momentum is carried through into whatever agreements emerge for the period after 2012
to prepare for, and adapt to, the impacts of changes in New Zealand’s physical environment by responding to the risks and taking advantage of the opportunities they present
to realise the objectives above at the lowest achievable long-term cost.

Modelling undertaken by the Ministry of Economic Development (MED) for the New Zealand Energy Strategy (NZES) indicates that the majority of opportunities to reduce greenhouse gas emissions in the electricity sector derive from “aggressively pursuing existing and new renewable-based electricity generation”.⁸ This analysis supports the government’s vision that, for the foreseeable future, New Zealand will maintain a secure electricity supply through an increased use of new renewable sources of electricity generation alongside existing renewable and fossil-fuel generation.

1.1.2 The status quo

In the period from 1991 to mid-2006, only 17 per cent of generation capacity consented under the RMA was renewable, and the proportion of fossil fuel-based thermal generation had grown substantially. Reasons for this trend include:

rising international demand for the services of manufacturers of renewable electricity generation components
New Zealand’s unique renewable energy resource characteristics (particularly wind) requiring tailored design and manufacturing solutions
New Zealand’s small market size reducing the ability of generators to achieve economies of scale, and affecting the financial viability of renewable electricity generation technologies
concern that renewable electricity generation projects faced particular hurdles under the RMA that reduced the comparative attractiveness of (already costly to develop) renewable electricity generation projects when compared with the alternative of thermal generation.

Notably, over half of all wind projects proposed during this period were subject to appeal to the Environment Court and only two new hydro projects of any significant scale gained appeal-free resource consents, with the output of these projects representing just 12 MW of new capacity.

As part of the 2004 amendment to the RMA, the government inserted two new matters into section 7 requiring decision-makers to have particular regard to the effects of climate change [section 7(i)] and the benefits to be derived from the use and development of renewable energy [section 7(j)]. In 2005, the RMA was also amended to provide for direct referral of applications to the Environment Court and to broaden the scope of the Minister for the Environment’s powers to call-in matters that are, or are part of, proposals of national significance.

Following this, in late 2007, the government took two significant steps in accordance with its vision of increasing the use of new renewable sources of electricity generation:

in October 2007, the government released the New Zealand Energy Strategy (NZES) which adopted a target for renewable electricity generation of 90 per cent by 2025 (based on delivered electricity in an average hydrological year)
on 4 December 2007, the Climate Change (Emissions Trading and Renewable Preference) Bill was tabled in Parliament. The Bill has two parts:
- Part 1 amends the Climate Change Response Act 2002 to introduce a greenhouse gas emissions trading scheme covering all sectors and all gases
- Part 2 amends the Electricity Act 1992 to create a preference for renewable electricity generation by implementing a 10-year restriction on new base load fossil-fuelled thermal-electricity generation, except to the extent required to ensure the security of New Zealand’s electricity supply.

In the period since the 2004 amendments to the RMA, the decisions of the Environment Court on the benefits to be derived from the use and development of renewable energy have led to the emergence of case law that is particularly relevant to renewable electricity generation projects. With the status quo now reflecting the NZES, the imminent greenhouse gas trading scheme, the government’s preference for renewable electricity generation and, in light of case law established since 2004, the number of applications for renewable electricity generation projects and the number of consents granted for these projects has grown rapidly in recent times.

It is possible that the recent evolution of the status quo will contribute to the development of more renewable electricity generation projects, and that this will lead to an increase in the availability of electricity in New Zealand generated from renewable energy sources, as well as to an improvement in the overall security of electricity supply. This outcome is, however, by no means guaranteed. Renewable electricity generation activities are often accompanied by significant actual or potential adverse environmental effects and, particularly as new generation technologies become available, the nature and degree of these effects can sometime be uncertain. As the population of New Zealand increases, decision-makers will be required to consider the effects of an increasingly complex and competing set of demands made by New Zealanders for access to and use of the country’s natural and physical resources. In this context, government will need to clearly articulate its position on the benefits associated with the development of renewable electricity generation activities in order to support the consistent interpretation of sections 7(i) and 7(j) and to promote achievement of its target for renewable electricity generation of 90 per cent by 2025.

A lack of clarity as to the position of the government on the benefits of renewable electricity generation activities could contribute to regulatory uncertainty and could undermine the emerging pattern of case law relevant to decisions on the benefits of renewable electricity generation activities. Regulatory uncertainty could threaten the ability of generators to develop the additional generation capacity necessary to meet the government’s target for renewable electricity generation of 90 per cent by 2025. Given the government’s proposal to amend the Electricity Act as stated above, a failure to consent sufficient renewable generation capacity would 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 with implications for greenhouse gas emissions. The risk to security of supply and/or the potential for that risk to be addressed by thermal generation could have significant social and economic consequences for New Zealand, which in turn could be expected to have a negative impact on the wellbeing of New Zealanders.

1.1.3 Previous consideration of electricity generation under the RMA

In 2005, the government convened a Governmental Reference Group to investigate the merits and potential scope of national guidance on the management of electricity generation under the RMA. In its May 2006 draft report, the Reference Group concluded that a national policy statement relating specifically to renewable electricity generation would add little value and could introduce unacceptable risks, including:

non-renewable projects could be disadvantaged in the RMA process and given the (then perceived) inevitable need for non-renewable generation into the foreseeable future, that risk was considered to present a significant potential cost
if renewable electricity generation received preferential treatment through the RMA this might contribute to an imbalance in New Zealand’s generation mix which might in turn place the security of electricity supply at risk
giving preference to renewable electricity generation might increase the risk of adverse environmental effects considering that renewable electricity generation can have a wide range of effects, some of which are irreversible.

The report of the Reference Group noted there was a difference of opinion within the group as to the likelihood or seriousness of these risks.

The Reference Group released its report in a very different context to that of today. As discussed above, since mid-2006, the government has signalled that it is not prepared to rely solely on a pricing mechanism (the New Zealand Emissions Trading Scheme) to deliver a change in the electricity sector. The government has also expressed a clear preference for renewable generation and has established a renewable electricity target with associated commitment to tilt the regulatory playing field in addition to influencing electricity production costs. Importantly, the release of the New Zealand Energy Strategy and the introduction of the Climate Change (Emissions Trading and Renewable Preference) Bill has shifted the focus of the New Zealand electricity market towards the use and development of renewable energy sources.

It was in this changed context that the Minister for the Environment in August 2007 decided it was desirable to prepare a national policy statement for renewable energy. The Minister then consulted a number of relevant interested parties and iwi authorities under section 46 of the RMA. As a result of comments received, the Minister decided in March 2008 that the scope of the national policy statement should be narrowed to renewable electricity generation.

The proposed NPS seeks specifically to assist decision-makers when considering whether proposals to use and develop New Zealand’s renewable energy sources, promote the sustainable management of natural and physical resources.

1.2 National policy statements

The purpose of a NPS prepared under Section 45 of the RMA is to:

“State objectives and policies for matters of national significance that are relevant to achieving the purpose of this Act”. The purpose of the RMA is “to promote the sustainable management of natural and physical resources”.

With the exception of the New Zealand Coastal Policy Statement, national policy statements (NPSs) are not mandatory, but may be prepared at the discretion of the Minister for the Environment where it is considered that policy guidance on a matter of national significance would be beneficial. To date, only two NPSs have been prepared: the mandatory New Zealand Coastal Policy Statement and the National Policy Statement on Electricity Transmission (2008).

The process for developing an NPS is outlined in sections 46 and 46A of the RMA. Broadly the process involves the Minister for the Environment (and Cabinet) determining whether an NPS is desirable, then:

seeking comments from relevant interested parties, including specifically iwi authorities
preparing a proposed NPS
establishing the process for the NPS to be considered, which can be either:
- the process set out in sections 47–52 of the RMA, which allows for the Minister to establish a Board of Inquiry with specific terms of reference, public notification, submissions, and a hearing process, and finally a recommendation from the Board of Inquiry to the Minister or
- an alternative process to be determined at the discretion of the Minister, but which must give the public time to consider the proposed NPS, to make submissions, and to be heard. A recommendation will still be made to the Minister.
the Governor General may, on the recommendation of the Minister, approve the NPS.

In accordance with this process, an independent Board of Inquiry will publicly notify the proposed NPS, call for submissions and hold a public hearing. Once the inquiry is complete, the Board will prepare a report that may include recommendations to the Minister for the Environment to make changes to the proposed NPS.

1.3 Section 32 evaluation

The purpose of the present document is to report the findings of an evaluation of the proposed NPS undertaken in accordance with the requirements of section 32 of the RMA. Such a ‘section 32 evaluation’ is required for policies and plans prepared under the RMA; it requires that the benefits and costs of a proposed plan or policy be assessed against the purpose of the RMA.

Specifically, section 32 states that:

An evaluation must examine –
1. the extent to which each objective is the most appropriate way to achieve the purpose of this Act; and
2. whether, having regard to their efficiency and effectiveness, the policies, rules, or other methods are the most appropriate for achieving the objectives.
For the purposes of the examinations referred to in subsections (3) and (3A), an evaluation must take into account –
1. the benefits and costs of policies, rules, or other methods; and
2. the risk of acting or not acting if there is uncertain or insufficient information about the subject matter of the policies, rules, or other methods.

Taken collectively, section 32 requires the benefits, costs and potential risks of the proposed NPS to be evaluated. In this context the terms benefits and costs include environment, social, cultural and economic considerations.

Section 32 of the RMA does not explicitly require an evaluation of whether the proposed NPS is ‘desirable’. This assessment is required separately under section 45 of the RMA. However, when completing an evaluation in accordance with section 32, there is an implicit requirement to assess alternative approaches to the proposed NPS. Alternatives are, in this case, considered to include both alternatives to the proposed NPS and alternative objectives and policies.

The section 32 evaluation is a critical aspect of the NPS development process. Section 32A allows challenges to be made in a submission on an objective, policy, rule or other method on the grounds that Section 32 has not been adequately complied with. For this reason, it is essential that a systematic and robust evaluation process is used. The process used for the section 32 evaluation is explained in detail in section 4 of this report.

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

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

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

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

8 Ibid, p36.

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