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Changes To NZ’s Energy Sector – Expert Reaction
The Government is moving forward with new and previously announced changes to New Zealand’s energy sector.
The previously signalled intention to remove the ban on oil and gas exploration beyond onshore Taranaki is now expected to be passed by the end of 2024. The new proposals include consenting new facilities so that liquified natural gas can be imported, allowing lines companies to build new power generation, and giving hydro generators permission to draw down on their lakes.
The Government will also move forward with changes to regulations around renewable energy projects, as well as electricity distribution and transmission, announced here.
The SMC asked experts to comment.
Ralph E. H. Sims, Professor Emeritus, Sustainable Energy and Climate Mitigation, Massey University, comments:
“This Government announcement lists what they will be considering for energy supply in the medium- to long-term given the current recent high prices for wholesale electricity. No decisions have been made.
“Reversing the off-shore oil and gas exploration ban is reinforcing that they simply do not understand the enormity and urgency for reducing climate change emissions. The likelihood of finding more gas is slim given recent exploration activities to date – including since 2018. Unlikely for any gas to reach shore for some years.
“Importing LNG will not be cheap. Around 40 countries currently import mainly from Qatar, Australia and Malaysia. LNG is produced by cleaning natural gas then lowering the temperature to below minus 130 degrees Celsius before shipping. At the receiving port (New Plymouth maybe because of the gas distribution network), a regasification system, cold storage and distribution connection will have to be designed and built – maybe $1 billion?
“Reviewing the electricity market regulations is long overdue. But given the Government is the main shareholder in three of the four main gentailers, little may happen.
“The option with the most potential is to encourage the 27 electricity line companies to own and operate more generation – at present limited to 50MW. This could be used to encourage smart grids (a Smart Grid Forum was established when Simon Bridges was Minister of Energy with information gleaned on-line at MBIE), promote distributed energy systems, and stimulate greater and rapid uptake of rooftop solar photovoltaic (domestic and businesses) – as well as development of solar farms, small hydro, small wind etc. with electrons (and dollars) flowing in both directions along the power lines to meet local demand. In addition as has been the case for decades in Sweden, Finland, Austria etc, small bioenergy plants (10-100MW) could be encouraged in locations near to production forests. When logs are extracted, the slash is then chipped, transported and stored as a co-product fuel ready for power generation by the lines company as needed.
“The press release did not mention encouraging and supporting energy efficiency measures by businesses and home-holders to reduce their heat and power demands by avoiding wasteful use and therefore saving money. Nor did it cover the opportunity to ban connection of gas to any new house or business. But then the gas lobby is too powerful for this Government to have such a vision to reduce greenhouse gas emissions.”
No conflicts of interest.
Professor Barry Barton, Faculty of Law, University of Waikato, comments:
“It will be interesting to see who wants to stump with the capital for an LNG regasification project when it is likely that gas use will decline in the coming years. It’s unlikely that imported LNG would be cheap enough to justify the production of methanol and urea in New Zealand, and if they go that’s 40% of our gas consumption gone.
“The reason why electricity lines companies are restricted in getting into electricity generation is to prevent them from using their monopoly business, i.e., the powerlines, to subsidise competitive projects in generating and selling electricity. The rules already allow them a fair bit of latitude, and there’s no shortage of companies actively advancing new generation projects, so this proposal seems unwarranted; it’s unlikely to produce positive results.
“Improving wholesale electricity market regulation is very desirable, but it is complex. It is widely recognised that there is too little competition in the market. The big incumbents can readily match their generation and retail operations so they are safe no matter what the price is. Smaller companies and people with innovative business models find it hard to compete. In addition, there not been enough incentive for companies to build additional generation and storage. Further, the market needs to be much better attuned to distributed generation and demand flexibility. The Electricity Authority is working in this direction but a full review would be better.”
Commentary on the recent announcement regarding regulations around renewable energy projects:
“RMA consenting is actually not an obstacle to renewable energy projects. At any point in time over the last ten years there have been a number of power generation projects fully consented and ready to go as soon as the company chooses. For instance, the NZ Wind Energy Association website shows 1551 MW of capacity ‘consented or likely to be consented.’ (Although the LET Securities project at Waiuku was recently declined.) Solar is more recent but solar projects are being consented without difficulty all over New Zealand. By and large good companies with good projects get consents without much difficulty. The government should not rely on questionable horror-story anecdotes for another round of RMA-bashing.”
Conflict of interest statement: Professor Barton is a director of the Environmental Defence Society but is not speaking in this role.
Jannik Haas, Senior Lecturer on Sustainable Energy Systems, Department of Civil and Natural Resources Engineering, University of Canterbury, comments:
“LNG terminals enable new import routes, as LNG can be transported by ship. Europe, for example, imports LNG from the US using these terminals, which can either be Floating Storage and Regasification Units (FSRUs) or fixed onshore facilities.
“Fast installation is possible: Germany, after opposing LNG installations for decades, fast-tracked terminal construction in response to the energy crisis triggered by the war, completing it within a year.
“As with any large energy project, there are environmental concerns, but these can be managed. LNG terminals are built to last for decades, and LNG itself is a carbon-based fuel, raising concerns about stranded assets and continued fossil fuel dependence. Although LNG terminals are not automatically future-proof, they can be designed to accommodate sustainable fuels. Given the uncertainty over which fuel will dominate in the future, terminals should be adaptable to alternative energy sources like e-ammonia and e-methanol (derived from electricity). Fraunhofer published a great report on this topic: ‘Conversion of LNG Terminals for Liquid Hydrogen or Ammonia‘.
“Bivalent fixed onshore terminals—capable of handling different energy carriers simultaneously—are not feasible without modifications. Some terminals plan to use the same chemical compound, LNG, but sourced from sustainable methods such as e-LNG (from electricity) or bio-LNG (from biomass). To ensure future readiness, the focus should be on the storage tanks, which represent most of the capital expenditure and have a long lifespan (Fraunhofer, 2022). Other components, such as heat exchangers and pumps, are smaller investments and will likely be replaced before conversion. For example, if ammonia is factored into the tank’s design, approximately 70% of the terminal’s CAPEX could be reused (Fraunhofer, 2022).
“Future-proofing Floating Storage and Regasification Units (FSRUs) is less relevant, as these are usually chartered ships returned to their owners after the rental period. In Germany, this rental period is currently around 10-15 years, with a possible reduction to 5-10 years.
“The Fraunhofer report on the ‘Conversion of LNG Terminals for Liquid Hydrogen or Ammonia’ highlights further two key points:
- New terminals should be integrated into a broader infrastructure network that supports the imported energy carrier, including demand centers from industry parks, and low-carbon energy sources to power the terminal and distribution systems.
- Terminals must be made technically adaptable during the design phase to support future fuels like e-methanol or e-ammonia. Only then can they be considered truly future-proof.
“For New Zealand, future LNG terminals could either involve renting an FSRU, as Germany has done, noting the option to return it earlier, or constructing an onshore terminal that can handle not only LNG but also sustainable fuels—a sustainable fuels terminal!”
Conflict of interest statement: Jannik Haas receives science funding from public institutions like MBIE to work on topics related to energy systems and holds clean energy stocks.
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