On Friday 21 October 2022, the Ministry of Business, Innovation and Employment (MBIE) released the long-awaited Terms of Reference (ToR) for the Government’s New Zealand Energy Strategy (Energy Strategy). As part of the Government’s wider initiative to achieve net-zero emissions by 2050, the Energy Strategy will support Aotearoa New Zealand’s transition to a low-emissions economy. This is an important, and much anticipated process for the sector.
Given the energy sector’s contribution to New Zealand’s overall emissions, And the sector’s importance to the economy and energy security, the development of energy strategies will affect and interest a variety of organizations and individuals outside the sector.
The energy strategy will be developed in two phases:
- Targeted consultation for the first phase will begin in mid-2023, followed by public consultation on the results of the first phase and preliminary issues in the second phase in late 2023.
- Phase II final targeted consultation will be in early 2024 before the Energy Strategy is published in late 2024.
This consultation process provides a key opportunity for individuals and organizations to provide valuable input, which will help shape energy strategies going forward.
Background on energy strategy
The Climate Change Commission first recommended a New Zealand Energy Strategy in its 2021 Ināia tonu Nei: A low emissions future for Aotearoa report, and was committed to by May 2022 as part of the government’s emissions reduction plan. The purpose of the energy strategy is to “address the strategic challenges in the energy sector and signal the way away from fossil fuels”.
MBIE envisages that the Energy Strategy, which will cover all forms of energy across supply and demand, will provide a roadmap towards net-zero objectives while balancing competing demands and providing certainty for sectors, consumers and industry.
To this end, MBIE, as the lead agency, has established a cross-agency steering group to develop the energy strategy. The Council of Energy Regulators (consisting of Commerce Commission, Electricity Authority, Energy Efficiency and Conservation Authority, Gas Industry Companies and MBIE) will ensure alignment in this work.
Terms of reference
The TOR sets out the objectives, phases and scope of the energy strategy. It supports the improvement of the three limbs of the trilemma (equity, security and environmental sustainability), and aims to ensure:
energy affordability and energy equity for consumers;
transforming energy systems at the speed and scale needed to support a net-zero 2050;
Energy supplies are secure and reliable, as we adapt to climate change impacts and global shocks; And
Energy systems support productivity growth consistent with economic development and transition.
Developing a power strategy will occur in two phases: exploring what is possible (phase one) and charting the path (phase two).
Phase one aims to develop an understanding of New Zealand’s energy potential, constraints and opportunities. This phase will use modeling and research to analyze different pathways for the sector in the following areas:
using energy more efficiently and managing energy demand;
reducing emissions and energy use in industry;
Ensuring that the power system is ready to meet future demand; And
Reducing our dependence on fossil fuels and supporting the switch to low emission fuels.
The second phase will determine the direction of New Zealand’s energy system through the transition to net-zero. It will compare possible future scenarios to identify key decisions, including:
any fundamental choice or change of mindset that is required to enable possible future scenarios, particularly for New Zealand;
which is necessary to protect consumer welfare, particularly energy affordability and energy equity;
Effects of different pathways for energy release;
the potential of energy systems to contribute to the decarbonisation of the economy;
Implications of different pathways for affordability and international competitiveness of business and industry;
seize the economic opportunity presented by the transition;
what the different pathways mean for reliability, security of supply and New Zealand’s resilience and energy independence; And
What are the opportunities for improvement in the three parts of the transition force?
The Energy Strategy will then set out what government action is needed to achieve the strategy and provide direction to guide decisions by communities, businesses and the energy sector.
A framework will also be created to aid future decisions. It will address the role of government and when it should intervene; Any gaps and how these will be filled; And what further steps might be needed to meet New Zealand’s emissions budget.
The TOR provides a broad scope for addressing emissions in the energy sector, with nothing clearly outside the scope of consideration. This is consistent with the diversity of the sector and the variable contribution of its industries to Aotearoa New Zealand’s emissions.
TOR assumes that both public works programs (such as the New Zealand Battery Project, government investment in industry decarbonisation and resource management reform) and key sector initiatives (such as the Boston Consulting Group) The future is electric Report) will inform energy strategies.
However, given the myriad of other reform and review processes in recent years (including the ongoing work of the Electricity Authority) and the risk of “review fatigue”, active sector participation in the consultation will be important to ensure that the final energy strategy recognizes the importance of the sector. and diversity; Addresses key challenges and key issues facing the sector by the 2020s; and provides the best path towards net-zero.