New Zealand: Renewable energy in the Asia Pacific: a legal overview (3rd edition) - New Zealand

Carbon Markets and Renewable Energy Update (Australia)
Last Updated: 11 September 2013
Article by Stephen Webb

NEW ZEALAND

OVERVIEW

JURISDICTION LANGUAGE
Common law English, Maori and Sign Language


BUSINESS ENVIRONMENT

  • Ease of Doing Business Report 2013: 3 out of 185 (no change)
  • Global Competitiveness Index 2013: 23 out of 144 (up 2 rankings)
  • Index of Economic Freedom 2013: 4 out of 177 (no change)
  • Corruption Perceptions Index 2012: 1 out of 176 (no change)
POPULATION INCOME GNI PER CAPITA (PPP TERMS)
4.4 million High $29,420

PROFILE

New Zealand was colonised by the British in the 19th century. In 1840, the Maori Indigenous chiefs agreed to the Treaty of Waitangi, which ceded sovereignty to the British Crown whilst also retaining territorial rights for the Indigenous population. Sixty-seven years later, in 1907, New Zealand became an independent dominion, however the country fought for the British empire in both world wars. In the 1980s, government policies transformed the economy into an open and free market, which contributed significantly to the high standard of living New Zealanders enjoy today. The 1980s also saw a shift in foreign policy with the Government effectively leaving an Australia/New Zealand/US defence alliance and has ever-since taken a more independent foreign policy from regional and global allies. The tourism and agriculture industries are two of the key sectors in the economy today.

ELECTRICITY INDUSTRY OVERVIEW

  • In 2011, 43,138GWh of electricity was generated in New Zealand. Unlike most Asia Pacific countries, New Zealand does not rely heavily on fossil fuels to meet electricity requirements. In 2011, electricity generation comprised of:
    • 57.6% from hydropower;
    • 18.4% from gas;
    • 13.4% from geothermal;
    • 4.7% from coal;
    • 4.5% from wind;
    • 1.3% from bioenergy; and
    • 0.1% from other thermal sources.
  • Electricity demand is expected to grow at 1% per annum until 2030.
  • Like many sectors in the economy, the energy sector underwent major reforms during the 1980s and 1990s. The reforms deregulated the market and limited the reach of state monopolies. Presently however, and despite further recent reforms, only the generation and retail stages of the energy sector are open to competition.

Generation, distribution and transmission

  • Three state-owned enterprises (Genesis Energy, Meridian Energy and Mighty River Power), as well as two public companies (Contact Energy and TrustPower), generate 92% of New Zealand's electricity
  • In 2011, Mighty River Power produced 17% of New Zealand's electricity, Genesis Power produced 15%, Meridian Energy produced 32%, Contact Energy generated 22%, TrustPower generated 6% while other independents and on-site generators produced 8% of New Zealand's total electricity.
  • New Zealand's grid system is near capacity and has resulted in transmission and distribution losses that are quite high for a developed nation.
  • The national grid is wholly owned and operated by a state-owned company, Transpower. The grid is nearly 12,000km long with an inter-island system connecting the north and south islands via a 40km undersea cable in the Cook Strait.
  • As at April 2012, there were 29 local and regional distribution entities.
  • All five of the generators of electricity are also retail companies who sell electricity through an energy-only market exchange.

Energy strategies

  • In 2011, the Government released a revised New Zealand Energy Strategy 2011 – 2021 (NZES). The report recognises that New Zealand's "significant and diverse energy potential is a source of competitive advantage for the country, particularly in a world where environmental constraints will continue to increase".
  • The NZES identifies four policy priorities, being:
    • diverse resource development;
    • environmental responsibility;
    • efficient use of energy; and
    • secure and affordable energy.
  • The NZES also set two important targets, being the 90% target for renewables-sourced electricity by 2025 and to also achieve a 50% reduction in carbon emissions from 1990 levels by 2050.
  • The New Zealand Energy Efficiency and Conservation Strategy 2011 – 2016 (NZEECS) was released concurrently with the NZES and includes interim targets for energy efficiency and renewable energy

Government

  • The Electricity Authority (EA) was established in 2010 to replace the Electricity Commission. The EA is an independent Crown authority powered with promoting competition and supply in the electricity industry under the Electricity Industry Act 2010.
  • The Ministry of Business, Innovation and Employment advises the Government on energy efficiency and renewable energy matters (the Ministry assumed the role of the now-abolished Ministry of Economi Development).
  • The Minister of Energy and Resources is responsible for the NZEECS.
  • The National Energy Research Institute conducts energy research within New Zealand.

Electricity laws

  • The Electricity Act 1992 sets out the overall regulatory framework for the electricity industry.
  • The Electricity Industry Participation Code 2010 govern the operation of the electricity market.
  • The Electricity Industry Act 2010 was a result of a ministerial review of the electricity sector. The Act has sought to improve competition within the electricity market, enhance security of supply (particularly during hydropower generation shortages) and it also abolished the Electricity Commission and replaced it with the EA.

RENEWABLES INDUSTRY OVERVIEW

  • New Zealand has the second highest renewable energy contributions of any OECD country. In 2011, New Zealand generated about 77% of its electricity needs from renewable energy. There is no doubt that New Zealand is a global leader in renewable energy generation, particularly for geothermal energy.
  • In the NZES, the Government set a renewable energy target of 90% by 2025. This is significantly higher than any other country in the region and reflects the advanced state of renewable energy in the country
  • The Energy Efficiency and Conservation Authority (EECA) is the chief government body for the promotion of renewable energy. It reports to the Minister of Energy and Resources. The Ministry for the Environment also plays an active role in the renewable energy industry, particularly insofar as it effects New Zealand's climate change program.
  • New Zealand has had an emission trading scheme (ETS) since 2008, however its success to date has been limited due to subsequent amendments lessening the impact of the ETS and the slow international pickup with such schemes.
  • Historically, geothermal energy and hydropower have contributed the largest proportion of New Zealand's renewable energy growth. Future growth is expected to come from wind energy, given the country's attractive wind speeds, and also from further geothermal projects. New Zealand's hydropower potential has largely been fulfilled.

Hydropower

  • Hydropower contributes about 55% of the country's total electricity use.
  • Most of the country's hydropower capacity and potential is located in the South Island.
  • New Zealand's two largest river systems, the Waikato in the North Island and the Clutha in the South Island, hold many of the country's largest hydropower stations.
  • Many of the country's most lucrative hydropower sites have already been developed. Proposals for the development of further sites have been met with stiff environmental opposition.
  • Due to New Zealand's reliance on hydropower, drier months have resulted in electricity shortages in the past.
  • New Zealand has a long history of hydropower facilities. The Waipori scheme (commissioned in 1903) and the Coleridge plant (commissioned in 1914), were the earliest hydropower stations in the country. By the 1950s, New Zealand had over 1GW of installed hydropower and in 1965 a high voltage transmission line from Benmore in the South Island to Haywards in the North Island was constructed. This line resulted in more hydropower stations in the South Island (such as the 540MW Benmore station, the 700MW Manapouri station and the 432MW Clyde dam) and hydropower generation reached 5GW by the 1990s. New Zealand's hydropower capacity has remained steady since then.

Wind energy

  • Wind-sourced electricity accounts for nearly 5% of New Zealand's total electricity needs (roughly 614MW).
  • Natural conditions throughout New Zealand are highly conducive to developing wind projects, both onshore in mountainous areas and along the coast, as well as offshore.
  • In a recent review published by the EECA, 13 areas were earmarked for wind development.
  • There are both national and local standards for maximum noise levels that can be emitted from wind turbines.
  • Wind power capacity increased 19% from 2010 to 2011. The average annual increase in wind capacity has been 30% over the last decade.
  • The first large-scale wind turbine was not built until 1993 (see below). Accordingly, the wind industry is less developed than the hydropower or geothermal industries, however estimated potential from wind sources in New Zealand is nearly 15GW.

Solar energy

  • Solar hot water heaters are widely used throughout the country.
  • Solar thermal is regarded as a more viable solar option than solar PV.
  • The solar industry generally is far less developed than other sources of renewable energy

Geothermal energy

  • All of New Zealand's geothermal generation is in the North Island, mostly around the Taupo Volcanic Zone.
  • Geothermal-sourced electricity makes up 13.4% of the country's electricity needs.
  • Geothermal capacity is approaching 1GW, which is largely due to two older, large-scale geothermal plants and several more recent, smaller-scale geothermal plants (see below).
  • Geothermal energy is used for direct heating in some parts of New Zealand.
  • As a world-leader in geothermal generation and research, New Zealand has signed agreements with other countries who are seeking to boost their own geothermal capacity.

Biomass energy

  • The biomass industry is also well-established in New Zealand.
  • Wood-processing facilities produce a lot of the country's biomass energy.

CURRENT ISSUES IN THE RENEWABLES INDUSTRY

  • New Zealand will need to invest significantly in grid infrastructure in order to meet its renewable energy target of 90% renewables-sourced electricity by 2025.
  • There has been some community concern about the visual impact of wind turbines on mountainous landscapes, however some tourism operators advertise sites like the Tararua wind turbines as a tourist attraction.
  • In the NZEECS, the Government committed to removing unnecessary barriers to investment in large-scale renewable electricity generation and also to fostering new sources of renewable energy, including ocean energy.
  • The price of carbon in New Zealand's emissions trading scheme has plummeted in 2013, much like in the European market.

RENEWABLES LAWS

  • The Energy Efficiency and Conservation Act 2000 was the first legislative effort to promote renewable energy in New Zealand. The Act established the Energy Efficiency and Conservation Authority (EECA) which produces regular reports on New Zealand's energy use and energy targets. The Act largely sets out the ambit of the EECA's reporting requirements.
  • The National Policy Statement for Renewable Electricity Generation 2011 is the main government policy paper on coordinating the renewable energy drive throughout New Zealand. The paper's main objective is to "recognise the national significance of renewable electricity generation activities by providing for the development, operation, maintenance and upgrading of new and existing renewable electricity generation activities".

GOVERNMENT INCENTIVE PROGRAMS

  • New Zealand does not have a feed-in tariff scheme for renewable energy generators.
  • Local initiatives are in place to encourage renewable energy generation at a residential level with incentives for the installation of solar power systems on individual properties.
  • The Government formed the Green Growth Advisory Group to identify further opportunities for renewable energy innovation. The Group issued a report in December 2011.
  • The ETS as well as the electricity market reforms are perhaps the greatest government incentives for renewable energy in New Zealand.

MAJOR PROJECTS/COMPANIES

  • The two largest wind farms in the Southern Hemisphere are located on the Tararua Ranges in the North Island. The average wind speed in the ranges is over 10m/s. The Tararua wind farm has 103 turbines, each with a capacity of 660kW.
  • The Te Apiti wind farm, which was completed in 2004, has 55 wind turbines, each with a capacity of 1.65MW.
  • In 2011, 36MW of TrustPower's Mahinerangi wind farm in Otago and 64MW of Meridian Energy's Te Uku wind farm in Waikato came online.
  • The Wairakei power station, which commenced operation in 1958, remains the world's oldest geothermal power station still in operation and is also New Zealand's largest geothermal producer with a capacity of nearly 180MW. The Wairakei power station will be gradually replaced by the Te Mihi plant, which has an estimated capacity of 220MW.
  • In addition to Wairakei, Ohaaki was the second pioneering large-scale geothermal facility in New Zealand. It was built in 1989 and has a capacity of 104MW.
  • Other recent, but smaller geothermal plants, include Poihipi Road (55MW), Rotokawa (35MW), Ngawha (25MW), Mokai (112MW), Kawerau (100MW), Nga Awu Purua (138MW) and Tauhara (24MW).
  • New Zealand's first large-scale wind turbine was built in Wellington (aptly known as the 'Windy City') in 1993. The facility has a capacity of 225kW. Four years later, Genesis Energy's Hau Nui wind farm, with a capacity of 8.65MW, was commissioned.
  • The largest wind farm in the country is TrustPower's Tararua wind farm, with a capacity of 161MW.
  • Meridian Energy commissioned the first wind farm on the South Island in 2007. In 2009, the company built a 143MW West Wind project on the North Island.
  • Other notable wind projects include Meridian Energy's 64MW Te Uku project and TrustPower's 36MW Mahinerangi project.

FOREIGN INVESTMENT/OWNERSHIP

  • The Overseas Investment Act 2005 is the main legislative instrument governing foreign investment in New Zealand. It established the Overseas InvestmentOffice (OIO), which coordinates foreign investment in New Zealand. Under the Act, a non-resident only requires OIO approval in three circumstances if:
    • investing more than NZ$100 million (approx. US$79.8 million) to establish a business;
    • planning to purchase an equity share of greater than 25% in a New Zealand company worth more than NZ$10 million (approx. US$7.98 million); or
    • investing in land or an interest in land that is "sensitive land". Sensitive land includes land that is the foreshore or seabed, the bed of a lake, land on islands (other than the North Island, South Island) and non-urban land that exceeds 5 hectares.
  • The OIO coordinates foreign direct investment into New Zealand.

RELEVANT INTERNATIONAL TREATIES

  • New Zealand ratified the United Nations Framework Convention on Climate Change in 1993 and the Kyoto Protocol in 2002.
  • The Government has announced that it will not sign up to a renewal of the Kyoto Protocol, preferring to address greenhouse gas emission levels through the United Nations Framework Convention on Climate Change which does not incur binding targets.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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