Executive summary Overview New Zealand has a diversified energy mix, with significant production of both hydropower and geothermal. As the country embarks on an ambitious energy transition, it has many natural advantages, including an enviable renewable resource base. The key challenge will be to decarbonise end-use sectors through clean power and support investments in new technologies to achieve deeper emissions cuts across all sectors in the most economically efficient way. New Zealand has set ambitious targets for reducing greenhouse gas (GHG) emissions, including achieving net zero emissions by 2050. New Zealand already has a low-emissions electricity system, with over 80% of electricity coming from renewable sources in 2021. And this share could easily reach over 90% based on existing policies. Elsewhere, the country has more work to do to decarbonise economic sectors beyond electricity. Notably, the transport sector accounts for the highest share of emissions and is almost entirely dependent on oil as a fuel source. Industry is also a major contributor to New Zealand’s GHG emissions and is heavily reliant on fossil fuels.

Total energy supply New Zealand’s total energy supply (TES) increased by 11%, from 747 PJ in 2011 to 829 PJ in 2021. In 2020, TES dropped to 824 PJ driven by the Covid-19 pandemic, but bounced back in 2021, though to a lower level than in 2019 (Figure 2.2). Fossil fuels accounted for 59% of New Zealand’s energy supply in 2021 (compared to an IEA average of 78%), a gradually declining share since the beginning of the 2010s. Oil covers the largest share of TES, and from 2011 to 2021, the share of oil in TES was constant at around 34% (with the exception of a drop in 2020 due to lower consumption in transport amid the pandemic). Over the same period, the share of coal fluctuated at around an average of 7%, while the share of gas decreased from 19% to 17%. From 2011 to 2021, the share of wind in TES slightly grew, from 0.9% to 1.1%, while the share of bioenergy and waste slightly fell from 5.8% to 4.9%. Solar remained nearly flat at 0.1%.

Total energy supply by source in New Zealand, 2005-2021

Energy demand Total final consumption (TFC) increased from 505 PJ in 2005 to 611 PJ in 2019 before falling to 561 PJ in 2020 amid the Covid-19 pandemic (Figure 2.3). In 2021, energy consumption did not rebound and remained at a similar level to 2020. New Zealand’s energy demand is heavily dependent on fossil fuels, with oil covering almost half (48% in 2021) of the country’s TFC, followed by natural gas (17%) and coal (4%). Electricity accounts for one-quarter of the country’s TFC.

In September 2021, Cabinet decided to phase out the Low Fixed Charge (LFC) regulations over a five-year period. This decision implemented a key recommendation of the EPR, which found the LFC regulations were poorly targeted and had a number of unintended consequences. The first step of the phase-out began on 1 April 2022. The LFC regulations were a well-recognised barrier to distribution pricing reform. By removing the regulations, the electricity industry will more easily be able to manage the increased load on the network through new distribution pricing structures, such as time-of-use pricing. This will allow the industry to avoid costly network upgrades that would otherwise see costs passed on to consumers. A phase-out period of five years has been introduced to help limit the impact on consumers’ electricity bills. The government has also secured the industry’s commitment to fund an NZD 5 million power credits scheme to support low-income, lowuse households that are struggling to pay their power bills through the phase-out, which was launched in June 2022.

Quarterly energy prices in New Zealand, June 2013 to March 2022

In addition, a new transmission pricing methodology (TPM) is due to take effect in April 2023 The TPM sets out how Transpower, as the transmission grid owner, must recover transmission costs from its customers. The updated TPM addresses three key problems with the previous TPM, which led to inefficient outcomes and created a barrier to transitioning away from non-renewable generation. The new TPM removes effective subsidies on non-renewable generation and taxes in South Island renewable generation. Together with nodal prices, it ensures that the right generation is built in the right location and at the right time. The EPR also found that while the market is working well overall, it is not delivering for everyone, and many people struggle with the cost of power. The EPR made eight recommendations to address energy hardship. In response to the EPR, the government agreed to a work programme that progresses the majority of the energy hardship recommendations. In August 2020, the government announced an NZD 17 million, four-year package for initiatives to reduce energy hardship and improve advocacy for residential and small business consumers. In September 2021, the Energy Hardship Expert Panel was created to recommend policy priorities and actions to alleviate energy hardship and provide impartial, evidence-based expert advice. The panel is required to report by 30 June 2023.

Energy-related greenhouse gas emissions and main drivers in New Zealand, 2005-2021

Emissions targets and policies Under the Paris Agreement, New Zealand set an NDC of reducing net emissions by 50% below gross 2005 levels by 2030. The target is expressed as an emissions budget for the period 2021-2030. The Climate Change Response Act 2002 provides a legal framework for New Zealand to meet its international obligations under the United Nations Framework Convention on Climate Change (UNFCCC), including the Kyoto Protocol and the Paris Agreement. The Climate Change Response (Zero Carbon) Amendment Act 2019 updates the framework and includes domestic emissions reduction targets to 2050 such that: net GHG emissions, with the exception of biogenic methane, will reach zero by 2050 biogenic methane emissions will be 10% lower than 2017 emissions by 2030 and 24-47% lower than 2017 levels by 2050.

Overview New Zealand has the tenth-highest share of renewable energy in TFEC1 among IEA countries. In 2021, 29% of TFEC came from renewables, while the IEA average in 2020 was 13%. The main renewable energy source in New Zealand is hydropower, which covers 55% of electricity generation, the fifth-highest share among IEA member countries.

Renewable energy in total final energy consumption in New Zealand, 2005-2021

In 2021, New Zealand had the largest share of geothermal (25%) in total energy supply and electricity generation (19%) among IEA countries. In 2021, renewables provided 60% of energy demand (TFEC) in buildings, 36% in industry and 0.2% in transport. Renewable electricity covered 55% of buildings TFEC, 26% of industry and 0.14% of transport. Solid biomass provided 5% of energy in buildings and 9% in industry, and liquid biofuels had a share of 0.06% of transport energy demand.

Renewable energy by sector in New Zealand, 2021

Renewable electricity generation Out of 45 TWh of total electricity generation in New Zealand in 2021, 36 TWh (81%) came from renewable energy sources. Hydro accounted for 54% of total generation, while geothermal accounted for 19%. The share of renewables in electricity generation has been increasing since 2005.

Renewable energy in electricity generation in New Zealand, 2005-2021

Renewable energy policies Renewables in electricity New Zealand already has a high proportion of renewable electricity. But due to the electricity system’s heavy reliance on hydropower (over 50%), its key challenge is coping with a “dry year” when hydro inflows are low. New Zealand’s mostly run-of-river hydro projects together have around three months of storage capacity (Science Media Centre, 2020). Currently, backup is provided by fossil fuel generation. Given the high proportion of renewables in New Zealand’s electricity mix, electrification represents an overarching strategy to increase the penetration of renewables and reduce GHG emissions across all sectors of the economy.

Electricity generation New Zealand’s annual electricity production stood at 445 TWh in 2021. Hydropower has historically been the main source of electricity generation, accounting on average for 55% of generation over the last 15 years (and 54%, or 24 TWh, in 2021). The share of natural gas in power generation has fallen by 46% since 2005. Coal had also been declining until 2016, but its share has increased over the past five years. Geothermal reached 8.4 TWh in 2021, compared to 2.9 TWh in 2005, gradually replacing natural gas. Electricity generation from wind has also increased, reaching 2.6 TWh in 2021, and bioenergy slightly increased from 2020 to 0.8 TWh in 2021.

Electricity generation by source in New Zealand, 2005-2021

Electricity generation capacity In 2022, the total installed capacity of New Zealand’s power system, excluding distributed generation, was 9.8 GW (Transpower, 2022a). Hydropower accounted for 55% (5.4 GW) and geothermal for 10% (1.03 GW) of installed capacity. Natural gas made up 13% of the total (1.28 GW), while wind contributed 11%, at 1.04 MW. Installed coal capacity has decreased since 2005, from 1 GW to 750 MW, accounting for 8% of total installed capacity in 2022.

Electricity infrastructure in New Zealand

A new transmission pricing methodology is due to take effect in April 2023. It sets out how Transpower, as the transmission grid owner, must recover transmission costs from its customers – grid-connected generation and load, as well as electricity distribution businesses. Charges for the high-voltage direct current link connecting the North Island and South Island alternating current grids were allocated solely to South Island generators under the previous TPM, creating a disadvantage for South Island generators. Under the new TPM, the grids are allocated according to benefit-based charges, meaning other customers who also benefit – in particular, North Island loads – pay a portion of the charge. Removing this effective tax on generation from the South Island (where there are abundant renewable fuel sources such as hydro and wind) will help ensure efficient South Island generation is built and may contribute toward the earlier decommissioning of large, nonrenewable thermal plants in the North Island.

Electricity retail prices and taxes New Zealand’s industry and household electricity prices follow the average trend of IEA countries. New Zealand’s industry price in 2021 was 119.0 USD/MWh (IEA average: 130.2 USD/MWh), with a 0% tax rate, as the good and services tax is refunded for purchases for commercial consumers (IEA average: 11%). Household electricity prices reached 212.2 USD/MWh (IEA average: 225.2 USD/MWh), with a tax rate of 13% (IEA average: 22%) (Figures 7.4 and 7.5). Electricity prices for industry in New Zealand are relatively low compared to other IEA countries but are around the average for households.

Electricity prices for industry and households in IEA countries, 2021

Coal supply and demand TES from coal reached a low in 2016 but has started to increase since, and was 3.2 Mt in 2021. From 2011 to 2021, total coal imports increased more than tenfold while total exports decreased by 43%. With production falling by 42%, coal in TES decreased by 7%. New Zealand was a net exporter of coal until 2020, when it became a net importer of 0.6 Mt. In 2020, net coal trade has been close to zero due to equal levels of exports and imports each year. Almost all (98%) coal imports in 2021 came from Indonesia, while coal exports are more diversified, even though data on coal exports by country have not been available since 2016. Coal production consists of different types of coal. In 2021, 46% of coal production was sub-bituminous coal, 44% coking coal and other bituminous coal, and 10% lignite. Since 2012, the number of coal mines operating in New Zealand has declined from 25 to 14 operating mines in 2022. In January 2016, Roa Mining announced the closure of New Zealand’s last operating underground coal mine due to the prolonged period of depressed premium hard coking coal prices. The largest part of coal demand in 2021 came from industry (61%), followed by electricity and heat generation (38%) (Figure 8.3). Buildings accounted for a very small share of coal demand (1%).

Coal supply by source in New Zealand, 2005-2021

Upstream gas production in New Zealand

Natural gas transmission infrastructure in New Zealand

New Zealand’s net imports of oil products by country, 2005-2021

Emergency oil reserves New Zealand held 93 days of stocks as of November 2022, of which 44 days consist of industry stocks and 50 days of public stocks held abroad (tickets). New Zealand was below the IEA 90-day stock level from September 2021 to September 2022, prior to the IEA’s collective actions launched after the Russian Federation’s (hereafter “Russia”) invasion on Ukraine. This was initially due to a faster-than-expected closure of the refinery and the associated decline in crude oil stocks, followed by a release of emergency stocks in the IEA collective actions following the invasion of Ukraine.

Emergency oil stocks by type in New Zealand, January 2018-November 2022

New Zealand 2023 Energy Policy Review The International Energy Agency (IEA) regularly conducts in-depth peer reviews of the energy policies of its member countries. This process supports energy policy development and encourages the exchange of international best practices and experiences. New Zealand has set ambitious targets for reducing greenhouse gas emissions, including achieving net zero emissions by 2050. The country enjoys many natural advantages for its energy transition, including an enviable renewable resource base.

Source:http://IEA