e Sustainable Electricity Association of New Zealand’s (SEANew Zealand) annual conference made one thing very clear – the past New Zealand Federal Government policy toward renewable electricity generation was incomplete and poorly considered. It has so far failed to curb the key problems facing our energy future, having left businesses on the sidelines of one the world’s fastest growing industries.
Despite inheriting a relatively high quality and clean energy portfolio, there is currently no clear vision for the future of renewable electricity generation in New Zealand. It is clearly time for change.
New Zealand is not missing out because of a lack of talented professionals. The design and installation industry for distributed generation (DG) systems is stocked with firms whose products and services are consistent with worldwide quality standards. The work being done by New Zealand firms both locally and worldwide is, in fact, very impressive when you consider that overseas competitors have received substantial direct support from their respective governments.
Overseas firms are in markets that are exploding as a result of a combination of both government and market-based incentives, such as feed-in tariffs (FITs), capital rebates, carbon trading, and tax incentives. This is providing overseas firms – the competition for both local and international projects – a platform for growth that leads to better capitalised businesses, the ability to attract and retain highly skilled staff, and the commercial relationships necessary for competing in larger and more lucrative projects. While this is happening at a rapid pace throughout many nations, New Zealand consumers and companies receive effectively zero support.
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What New Zealand is missing out on is gigantic. The world market in 2007 just for solar photovoltaics (PV) was approximately $US20.3 billion ($31.8 billion). By 2017 it is forecast to more than triple, and then multiply a further 155 times by 2050. Few markets today can compare with the scale of the opportunity these technologies present.
The Australian example
Consider New Zealand’s closest neighbour Australia, home to firms that are all but dominating the Australasian small energy market. Total Australian installed capacity of solar systems is approximately 85 megawatts (MW), almost $1 billion, and growing quickly. In 2007–08 the Australian Federal Government directly funded the bulk of 26 MW of industry work (approximately $260 million), and has recently announced another $200 million in funding for renewable DG systems for schools. Several state governments already have implemented, or are working towards implementing FITs for residential and commercial renewable DG systems. Australian domestic programs fund renewable energy systems in the outback, Asia, and the South Pacific Islands. Furthermore, Australia has constructed an excellent market-based scheme for providing cash rebates to system owners for the carbon offsets that result from their DG investments. Despite all this, they are still relatively small by international standards.
New Zealand can currently claim no comparable programs and when the country’s leaders are questioned on this disparity they consistently point out that Australia is supporting renewable DG systems to replace an energy portfolio dominated by coal-fired power stations. They insist that New Zealand does not have this problem and can easily achieve its 90 per cent renewable goal by 2025 more cheaply by sticking to plans to build large power plants. These statements are flawed and miss the point.
Firstly, it is simply not valid to compare the financial qualities of large scale power plants directly to small scale DG systems. Power plants that rely on rising wholesale electricity prices to pay investors directly cannot be compared to systems that save the owner retail electricity expenses on site.
Secondly, from both the public and government perspective, the simple fact that New Zealand is already largely renewable should reinforce, not reduce, its commitment to supporting small scale renewable energy generation. These technologies are perfectly suited to the country’s current electricity generation portfolio and make material gains on all the key issues identified in the New Zealand Energy Efficiency and Conservation Strategy.
Thirdly, the worldwide industry for small energy systems is growing exponentially. By not supporting these technologies in New Zealand, the government is severely curtailing the industry’s ability to compete not just in New Zealand’s emerging market, but in neighbouring markets as well.
Review and change – towards a FIT
The current New Zealand renewable energy policy for DG systems is in need of wholesale review and change. International experience provides a proven mechanism that supports the DG industry for the benefit of consumers, businesses, and government. FITs specifically geared towards renewable DG technologies like solar PV are currently legislated in several countries and being considered in many others.
A FIT is the one internationally proven mechanism that can address the key failures of past government policy and progress this industry for the economic benefit of New Zealand as a whole.
The first of these failures is the complete lack of a reliable platform for metering and billing a DG system that both supplies electricity to a property and feeds it back into the national grid.
It is also important to address the financial hurdles present with DG investments. Most DG technologies have a relatively high capital cost and little or no future operating cost. Traditionally, the financial value of a DG investment has been measured in terms of ‘payback’, however this is a blunt instrument that has not helped investors understand the financial value of investing in DG systems. Gross FITs worldwide have helped correct this failure and spur financial expertise and products to this industry.
It remains to be seen if the new government can put New Zealand in the international solar playing field. What is needed first is a fundamental shift from presenting these technologies as simply ‘green’ solutions, to focusing on their individual, national, and regional economic value.
DG systems are clearly no longer niche applications only for the green minded, but they will remain that way in New Zealand unless the new government can change the commercial and legislative structures that support and enable them.
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