Renewable Energy in New Zealand

AUTHOR COPY. ACCEPTED BY JOURNAL OF ENERGY AND NATURAL RESOURCES LAW, 2005. 1

Renewable Energy in New Zealand

Barry Barton*

Abstract

This paper describes and appraises provisions in New Zealand law that promote

the use of renewable sources of energy. For some time the policy climate has been

hostile to interventions in the market place but since a change in government in

1999 laws have put more emphasis on renewables. Measures include statutory

strategies, a climate change programme, amendments to general environmental

and land use legislation, and amendments to electricity legislation. These

measures give only modest encouragement, but wind energy is growing rapidly

nonetheless.

Four years ago there was no specific provision at all in New Zealand law for renewable

energy. Some such provisions are to be found now, but they still do not constitute massive

interventions in an essentially market-driven energy sector. Nonetheless, New Zealand has a

high rate of renewable energy supply. Total renewable consumer energy in 2002 was 131.6

PJ, 26.7 per cent of the total consumer energy of 492.7 PJ.1 In 2002, the different sources of

renewable consumer energy were: renewable electricity generation 87.2 PJ, other renewables

(including direct use of biogas, industrial waste and wood) 31.1 PJ, and geothermal direct use

13.3 PJ. Most of the renewable electricity comes from hydro electricity generation; about 77

to 98 PJ or 60-70 per cent of total electricity generation, depending on the rainfall. In 2001, a

dry year, electricity from renewable sources was hydro 77 PJ, geothermal 10.1 PJ, biogas 0.37

PJ, wood 1.28 PJ, and wind 0.51 PJ, out of total generation of 137.7 PJ and total consumer

energy of 467.4 PJ. Total renewables decreased by 2.2 per cent from 1995 to 2002, and the

proportion of renewables to total consumer energy has dropped even more, because new

generation is mostly gas fired, and because use of transport fuels is increasing.2 The decline in

renewables is disappointing because New Zealand has excellent opportunities for the

harnessing of renewable energy sources. Wind energy is abundant and steady in many parts of

the country. Large forestry plantings are yielding quantities of waste wood. On the other hand,

large hydro projects face environmental hurdles and competition from other water users.

* Professor of Law, University of Waikato, Hamilton, New Zealand. He may be contacted at

[email protected]. 1 All figures in this paragraph are from Ministry of Economic Development, Energy Data File January 2004,

available <www.med.govt.nz>, and Energy Data File July 2002. In 2001, New Zealand’s percentage of

renewables as part of total consumer energy (29%) compared with 6% for Australia and the United States and

25% for Sweden: Energy Efficiency and Conservation Authority, National Energy Efficiency and Conservation

Strategy (Wellington: the Authority, September 2001) p. 5. 2 Performance in the related field of energy efficiency has not been good either, compared either with other

OECD countries, or with levels 20 years ago: New Zealand Energy Outlook to 2020 (Wellington: Ministry for

Economic Development, 2000) p. vi, and Key World Energy Statistics (Paris: International Energy Agency,

2003) p. 55. But it must be seen in the light of the large role of processing of primary produce from mines,

farms, and forests, and of development and then retrenchment of a petrochemical industry.


New Zealand is seeing rapid growth in wind energy generation capacity.3 It is helped by the

rising price of natural gas now that the low prices under the Maui gas field contract no longer

govern the market; and by Kyoto credits, available on a project basis as described below.

Several wind developments, up to 90 MW in size, are under way; some are sponsored by

specialist wind entrepreneurs, but most of them are being built by the incumbent generator

companies, keen to diversify and keen to find realistic ways of meeting energy demand.

Energy Policy

Since the mid-1980s, the legal and policy climate of New Zealand has been one of reliance on

market forces to deliver social objectives as well as economic growth. Energy saw a

substantial shift towards market liberalization with a corresponding decrease of the role of the

state.4 For a period from 1992 the energy industry had no government regulators, and no

effective oversight. Market competition, along with the elimination of barriers to entry into

business, was considered sufficient to foster desirable developments such as lower prices,

reliability, and energy sustainability – that is, efficiency, conservation and renewables. State

regulation was only ‘light-handed’ and industry self-regulation (such as in electricity) was not

focused on sustainability. The Energy Efficiency and Conservation Authority (EECA) had

been established for information and advisory purposes but had a small budget and no

statutory footing. Large amounts of effective analysis and policy work by EECA and others

was being left unimplemented, due to an ideological position that constrained government

willingness to sign off on policy initiatives.5

Reliance on the market began to change around 1998 and 1999, as it became clearer that key

goals would not be reached in sectors where there was neither regulatory pressure nor

competitive pressure. But it was not until a Labour-led government took power in late 1999

that energy sustainability began to receive specific attention as a matter that was not

adequately advanced by the market. Other aspects of energy policy have been affected by this

change in the policy climate; in particular, energy security concerns, arising out of reduced

hydroelectric production in recurring dry winters and the decline of the prolific Maui gas field

without any similar-sized replacement in sight, have led to detailed government regulation of

electricity in lieu of industry self-regulation.6

Even with the change in policy climate, New Zealand has not tilted the playing field much

towards renewables. The grant in September 2003 of a two-year exemption from excise duty

for ethanol for blending into gasoline was an unusual use of the tax system to encourage a

particular activity.7 There are no overt subsidies for renewables, and for every covert subsidy

that one might argue to favour them, a contrary one can probably be found, such as in recent

3 ‘Wind Energy Shifts up a Gear’ Energywise Nov 03/Jan 2004, available <www.eeca.govt.nz>. 4 B J Barton, ‘From Public Service to Market Commodity: Electricity and Gas Law in New Zealand’ (1998) 16

JERL 351. 5 Parliamentary Commissioner for the Environment, Getting More for Less: A Review of Progress on Energy

Efficiency and Renewable Energy Initiatives in New Zealand (Wellington, 2000). It was an update of

Parliamentary Commissioner for the Environment, Sustainable Energy Management in New Zealand:

Improvements Required in Government Policy (Wellington, 1992). 6 B J Barton, ‘Reaching the Limits of what the Market will Provide: Energy Security in New Zealand’ in B

Barton, C Redgwell, A Rønne, and D Zillman (eds), Energy Security: Managing Risk in a Dynamic Legal and

Regulatory Environment, (Oxford: Oxford Univ. Press, 2004) pp 373-389. 7 EECA Media release, 8 Sept 2003. The Environmental Risk Management Authority approval of use of the

substance is HSR 000073, 26 Aug 2003.


incentives to boost exploration for natural gas.8 There is no fund to accelerate commercial

deployment of renewables, no requirement that energy retailers buy a minimum proportion

from renewable sources, and no tradeable renewable energy certificate programme.

Nonetheless we can consider in turn the various measures that are now in place.

Energy Policy Framework

The government issued an Energy Policy Framework on 3 October 2000.9 Under it, specific

policy documents have been settled in particular areas: the National Energy Efficiency and

Conservation Strategy, climate change strategy, and government policy statements for

electricity and gas. In the Framework, the New Zealand government has adopted an

overarching goal ‘to ensure the delivery of energy services to all classes of consumer in an

efficient, fair, reliable and sustainable manner.’ It sought an outcome of ‘a progressive

transition to renewable sources of energy.’

Energy Efficiency and Conservation Act 2000

This enactment of this statute owes much to work done first by the Parliamentary

Commissioner for the Environment, and then by the Green Party. It established EECA as a

separate statutory agency with its own mandate, and provided for it to carry out formal

national policymaking. But even with the legislation in place, EECA does not exercise

regulatory jurisdiction; it has general functions to encourage, promote, and support energy

efficiency, energy conservation, and the use of renewable sources of energy. It does its work

through policy development, education, information sharing, and the like.10 Nor does it

dispense any substantial sums in support of projects.

Section 5 states that ‘The purpose of this Act is to promote, in New Zealand, energy

efficiency, energy conservation, and the use of renewable sources of energy.’ (Renewable is

not defined.) Section 5 goes on to state subordinate principles that EECA and others

exercising power under the Act must taken into account: ‘(a) the health and safety of people

and communities, and their social, economic, and cultural well-being; and (b) the need to

maintain and enhance the quality of the environment; and (c) the reasonably foreseeable needs

of future generations; and (d) the principles of the Treaty of Waitangi.’ These principles echo

the Resource Management Act 1991. The Act gives the responsible Minister general duties to

develop government policy on its subject matter, and to promote public awareness,

information and education: section 7.

The heart of the Act is the process for making a National Energy Efficiency and Conservation

Strategy: sections 8 to 19. The purpose of the Strategy according to section 10 is ‘to give

effect to the Government’s policy on the promotion in New Zealand of energy efficiency,

energy conservation, and the use of renewable sources of energy.’ It is to state government

policies, objectives, targets, and means by which they are to be achieved. The targets must be

measurable, reasonable, and practicable. The Strategy is to be made under a procedure of

8 Media release, H Duynhoven, ‘Govt boost for gas exploration’ 14 June 2004. 9 Available <www.med.govt.nz>. It has apparently not been superseded. Sustainable Development for New

Zealand: Programme of Action (Wellington: Dept of Prime Minister & Cabinet, Jan 2003), Energy, 3.2, p 16,

refers to it and reiterates its overarching goal. 10 Under s 36 the Act confers regulation-making powers on the Governor-General in Council, rather than on

EECA; and it is only s 36(1)(f) that touches on renewables, for regulations requiring specified persons to supply

information for statistical purposes.


public notification of a draft for submissions, on which EECA makes a report and

recommendations. After considering them, the Minister finalizes the Strategy. Once made, the

Strategy functions as formal government policy and a focus for further policy and promotion

efforts. It does not require any person (except EECA) to act in accordance with it; it is largely

hortatory. The Strategy must be reviewed every five years.

National Energy Efficiency and Conservation Strategy

The National Energy Efficiency and Conservation Strategy (NEECS) that was made under the

Energy Efficiency and Conservation Act 2000 appeared in 2001.11 It sets an overall target to

increase renewable energy supply to provide a further 25-55 PJ of consumer energy by 2012.

(As for energy efficiency, it sets a target of an improvement of at least 20 per cent by the

same date, chosen for being the end of the first commitment period under the Kyoto Protocol.)

In order to firm up the renewables target, the government later decided that the target would

be to increase the renewable energy supply by 30 PJ of consumer energy by 2012.12 This

would reverse the current decline in the share of total energy from renewable sources. It

would lift the renewable contribution to 31 per cent of the total energy use in 2012. It is a

non-mandatory, ‘best endeavours’ target with no sanctions, and with limited financial

commitments. It is towards the lower end of the range identified in NEECS the year before.

10-20 PJ of this was predicted to be produced under the business-as-usual scenario.

The main policy measures in NEECS to pursue these targets are information, education and

training, research, standards, moderate financial assistance, partnership commitments, and

improved integration of sustainable energy outcomes into district and regional plans under the

Resource Management Act 1991 (the RMA). No pricing mechanisms are included; the only

legal pressure being brought to bear on individual action is under the RMA; and (as we

discuss shortly) it seems to be a very slight pressure. NEECS therefore only seeks to shape the

way that that regulatory pressure is used, and does not establish a new regulatory jurisdiction

itself.

One of the five programmes under NEECS is Energy Supply. It seeks to develop the

renewables industry, to assess mechanisms for pursuing renewables regionally, and to

investigate means of increasing the viability of biomass. In the electricity sector, it seeks to

improve whole-system efficiency, such by investigating how distribution network pricing can

provide incentives aligned with sustainability outcomes, and how net metering can be more

possible to facilitate on-site generation.

Climate Change

There is important overlap between renewables policy and climate change. The government

settled its confirmed policy package on climate change in October 2002, and ratified the

Kyoto Protocol on 19 December 2002.13 The package includes existing policies (such as

NEECS) and new ones more specifically aimed at emissions. New Zealand decided not to

introduce an emissions trading system until the character of international trading becomes

11 Wellington: EECA, Sept 2001. 12 Renewable Energy Targets and Mechanisms, CAB Min (02) 26/20, 7 Oct 2002, available

<www.eeca.govt.nz>. 13 Generally, see <www.climatechange.govt.nz>.


clear, and decided to impose an emissions charge from 2007 on fossil fuels and industrial

process emissions. The size of the charge has not been determined but will be set to

approximate the price of emissions in international trade, capped at NZ$25 a tonne of carbon

dioxide equivalent. The pending charge puts price pressure on fossil fuels, making renewables

more attractive in comparison. Firms can be exempted from the charge by concluding a

‘negotiated greenhouse agreement’ with the government, but they must be able to show that

the charge could put a firm’s international competitiveness at risk, allowing production to

move to countries that do not have climate change restrictions, causing ‘leakage’ of

emissions. Electricity generators seem unlikely to be eligible. Under the Projects to Reduce

Emissions programme, the government awards Kyoto Protocol emission credits for projects

that reduce emissions in the first commitment period (2008-2012 inclusive) beyond the

reductions that would have occurred without the project, and that are not viable without the

emission credits. Credits are awarded in tender rounds and can be sold on the international

carbon market. (The Climate Change Response Act 2003 empowers the Minister of Finance

to issue and trade in Kyoto Protocol units, and establishes a registry for units.) In the first

tender round, the successful projects included wind farms, small hydro, landfill gas, and bio-

energy projects.14 The programme therefore offers significant assistance for renewable energy

development, even though the uncertain future value of carbon credits leaves a speculative

element for developers to deal with.

Resource Management Act 1991

The Resource Management 1991 (the RMA) is the central environmental and land use

planning law of New Zealand, with important implications for energy law. It empowers

district councils to regulate land use and subdivision, and regional councils to regulate the use

of water resources (including geothermal fluid), and the discharge of pollutants to land, air,

and water. Virtually every energy project involves RMA considerations. A hydro or

geothermal project depends entirely on RMA decisions for the allocation of rights to its

energy source. In section 5, the Act requires decision-makers to pursue the purpose of

promotion of sustainable management of natural and physical resources – something that is

carefully defined. Section 6 also directs decision-makers to make provision for certain

concerns (such as the protection of outstanding landscapes); section 7 directs them to have

particular regard to another set of concerns, and section 8 directs them to take into account the

principles of the Treaty of Waitangi, which established the relationship between Maori and

the Crown. The RMA provides for a highly integrated management of resources; the same

general purpose and principles apply to all natural resources, and the process for granting

resource consents (permits) for a project is also integrated. It is also highly devolved; central

government has only a small role. The decisions of regional and district councils are subject

to appeal to the Environment Court, not the Minister for the Environment.

Allocation of Rights to Water and Geothermal Fluid for Renewable Energy Generation

The way that the RMA is designed, with a particular focus on effects on the environment

rather than economic planning or regional development, gives a reasonably flat playing field

that does not disadvantage renewables against other more established energy sources. Equally,

the Act gives equal treatment to applications from the public and private sector; government

agencies and incumbent monopolies get no preference for business models that may not

include renewables innovation.

14 Media release P Hodgson, ‘15 climate-friendly projects win Kyoto carbon credits’ 7 Dec 2003.


The regional plans made by regional councils provide for the use hydro resources and

geothermal resources. Often they will provide some clarity by identifying resources that are

not available for development. In the case of rivers, some are protected by water conservation

orders. In the case of geothermal, Environment Waikato, which manages the largest

resources, has classified its geothermal systems as either ‘protected’ or ‘development,’15 and

in the latter a large extraction of geothermal ground water and energy is a discretionary

activity, meaning that there is no presumption for or against the granting of a resource

consent. Hydro dams under many regional plans are also discretionary activities.

Whether the RMA provides a realistic framework for development and for environmental

protection is much debated. The process is criticized for its length and the criteria for their

opacity. Regional and district councils are criticized for their implementation. Some

developers find the Maori dimension hard to handle. Certainly the Act does emphasize public

participation, although at the end of the day technical evidence on effects on the environment

(or the lack or manageability of effects) will generally prevail over public opinion. And

certainly the purpose and principles it states are general, but plans that are reasonably well

made give them particularity in addressing specific environmental issues. The track record

does show that substantial projects of different kinds can make their way successfully through

the RMA system. Since 1991 large dams, geothermal developments, and wind farms have

been approved. Some developers cope with the Maori dimension very well, giving hope that

resource management in New Zealand can give real but practical recognition to the ancestral

connection of Maori with lands and resources. One geothermal development has been carried

out by the Tuaropaki Trust, a Maori entity, on its own land. Some high-profile energy

developments have encountered difficulties. Early in 2004, Project Aqua, a large hydro

proposal for the lower Waitaki River, was cancelled, stimulating much argument about the

RMA – although Meridian Energy, its sponsor, actually identified a number of other reasons,

and although the project’s farming and fishing opponents maintained that the project could

never have withstood regulatory scrutiny. A month or two later, Genesis Power failed to get

the length of term it sought for resource consents to renewal its rights to divert water from the

Whanganui and Whangaehu Rivers. A term of 10 years instead of 35 years was decided on to

allow some accommodation to be made by way of mitigation to address the effects on Maori

and their culture and traditions.16

The RMA is weak in providing for the allocation of rights. The Act’s main concern is with

effects on the environment of a taking of water or of geothermal fluid, and it says very little

about who is entitled to those rights, with the result that it has been interpreted to allocate the

resources on the basis of ‘first in, first served.’17 In addition there is no tendering or purchase

price for the rights, and no resource rental. This encourages unnecessary allocation.

The National Energy Efficiency and Conservation Strategy and the RMA

Sections 61, 66 and 74 require district councils and regional councils to have regard to

‘strategies prepared under other Acts’ in the course of their work making regional policy

15 Environment Waikato (formally named Waikato Regional Council), Proposed Waikato Regional Plan,

Proposed Variation No. 2: Geothermal Module, 23 August 2003. 16 Ngati Rangi Trust v Manawatu-Wanganui Regional Council, unreported, Environment Court A67/04, 18 May

2004. 17 Fleetwing Farms Ltd v Marlborough District Council [1997] 3 NZLR 257 (CA).


statements, regional plans, or district plans to regulate land use planning, subdivision, and

water resources. It would appear that NEECS is such a strategy, and in theory, therefore,

councils must take it into account. An indication of the legislature’s awareness of the

relationship between the two Acts is found in section 11 of the Energy Efficiency and

Conservation Act 2000 which requires NEECS to be consistent with any national policy

statement under the RMA. (In fact no national policy statement has been issued except the

New Zealand Coastal Policy Statement.) NEECS could have a real impact on policy on city

form, settlement patterns, transport, and renewable energy development; but there is no sign

that it is having much impact on RMA decisions. Although it may be having an effect on

district and council decisions, it does not feature at all in Environment Court decisions. The

policy signal it sends seems to be too weak.

The Energy and Climate Change Amendment of 2004

The Resource Management (Energy and Climate Change) Amendment Act 2004, in force on

2 March 2004, promotes renewable energy. It was part of the climate change and energy

policy package of 2002 described earlier. Section 7 of the RMA is amended to direct

decision-makers like councils to have particular regard to ‘(j) the benefits to be derived from

the use and development of renewable energy.’ In the RMA, it is unusual for a type of activity

to be singled out quite so specifically for priority. Renewable energy is defined in section 2:

‘energy produced from solar, wind, hydro, geothermal, biomass, tidal, wave, and ocean

current sources’.18 Section 7 now also directs decision-makers to have particular regard to

‘(ba) the efficiency of the end use of energy’. There is no evidence yet of resort to these new

provisions in the Environment Court. But it is well established that although a direction under

section 7 to have particular regard to something is not a requirement or standard that must be

fully met, it does require that the matter be recognized as important and that it be carefully

weighed.19

The same amending Act also takes greenhouse gas emissions out of the hands of regional

councils, because central government has taken control of them, under the policies discussed

above. More precisely, when a regional council is making a rule to control the discharge into

air of greenhouse gases, it must not have regard to the effects on climate change. The same is

the case when a regional council is deciding on an application for a discharge permit for such

gases: sections 70A and 104E of the principal Act. Such discharges can therefore still be

controlled for local effects, and councils (district as well as regional) must continue to work

for adaptation to the effects of climate change. Happily for renewables, a proviso to each

section makes it lawful for the council to take into account the extent to which the use and

development of renewable energy enables a reduction in the discharge of greenhouse gases,

either in absolute terms or relative to the use and development of non-renewable energy.

While this may be no more than a reorganization of jurisdiction over climate change, the

upside of renewables for climate change has been allowed to stay in the decision-making

process.

These amendments are too new to have been considered by the Environment Court or higher

courts, so one can only speculate about their efficacy. As for renewable energy, there were

18 In Parliament there were reservations expressed about including geothermal, because many geothermal

systems have long replenishment periods and cannot provide truly renewable energy on a substantial scale. 19 Donnithorne v Christchurch City Council [1994] NZRMA 97 (PT); Marlborough District Council v Southern

Ocean Seafoods Ltd [1995] NZRMA 220 & 336 (PT).


instances of opposition to wind power developments in reliance on section 7’s direction to

have regard to amenity values. Now, that argument can be balanced by the new direction to

have regard to the benefits of renewables. Similarly, and indeed even more significantly in the

long term, councils will probably be under a greater obligation to make particular (and

favourable) provision for renewables in their plans. A district council, for example, can make

wind turbine installations a permitted activity in the rural zone (so as to need no resource

consent to be applied for), provided that they meet standards about size, closeness to the

boundary, noise, and so forth. If we turn to the removal of climate change emissions from

RMA jurisdiction, we note that neither regional councils nor the Environment Court had

shown much enthusiasm for using their now-lost jurisdiction to restrict greenhouse gas

emissions or to require offset planting of trees as sinks. For a single combined-cycle

electricity generation project in 1995, the Minister (using ‘call-in’ powers) imposed

mitigation conditions, but the conditions were later removed on the basis that circumstances

had changed. The amendment of 2004 is therefore unlikely to favour fossil fuels at the

expense of renewable energy sources.

Competitive Market: Electricity Restructuring

Elsewhere I have argued that market liberalization can contribute more significantly to energy

sustainability than many accept.20 While the record is mixed, a market approach in electricity

can make a contribution to energy sustainability. It prevents many of the perversities that

seem to be inevitable in the traditional system, such as monopoly, centralization, propensity

for capital development, resistance to new players and new technology, failure to connect

costs with prices, and failure to signal explicitly the value of energy resources. Certainly these

were features of the New Zealand electricity system when it was run by a government

department. The introduction of markets is generally accompanied by the removal of non-

sustainable subsidies. A market system’s pressure for financial efficiency can often further

energy sustainability. It can provide for accurate pricing of energy and investments; prices are

more likely to reflect the value of electricity, and the value of the inputs required to make it

and transport it. There is more scope for including the cost of environmental inputs,

externalities that are usually imposed on the public. The system is more open and

decentralized. Governments have less direct influence on investment decisions, which reduces

the possibility of political pressure to build a project in the face of serious environmental and

economic risk, such as happened in the case of the Clyde Dam in the 1980s.21 But it is

possible for governments to intervene in specific ways for public policy purposes such as

promotion of renewables, efficiency, and conservation. However market systems are

complex, and they can include hurdles to renewables. (In New Zealand, the adverse effects of

the market competition model on energy efficiency drew attention in the reform proposals of

October 2000.22) Price volatility is particularly a problem for small wind generator

companies, because in calm periods they may need to purchase electricity on the spot market

to meet their commitments. While prices in a market system do go up and down – that is the

whole point, after all – how far and how fast is influenced by the market rules such as those

that govern bidding. More attention is now being paid to such matters in New Zealand and

20 B J Barton, ‘Does Electricity Market Liberalization Contribute to Energy Sustainability?’ pp. 217-231 in A. J.

Bradbrook and R. L. Ottinger (eds), Energy Law and Sustainable Development (Cambridge: IUCN Publications,

2003). 21 Barton, supra note 3 at 353. 22 Inquiry into the Electricity Industry: Report to the Minister of Energy (David Caygill, chairperson, Susan

Wakefield and Stephen Kelly. Wellington: Ministry of Economic Development, 2000).


elsewhere than in the heady early days when it was assumed that competition was easy to

unleash and would on its own solve all kinds of problem.

Electricity Act

Just as in many other places, the legal structure of the New Zealand electricity industry has

seen some dramatic changes. The wholesale electricity market was established by the

industry, and it ran under multilateral agreements that provided industry self-regulation,

without any legislative underpinning, from 1 October 1996 until 1 March 2004, when self-

regulation was replaced by statutory control by the Electricity Commission under the

Electricity Act 1992, the Electricity Governance Regulations 2003, and the Rules also made

under the Act in 2003. There were two catalysts for the change, the first being dry winters in

2001 and 2003, which caused major scares about energy security, and the second the inability

of the industry in a referendum to agree on a new consolidated and expanded structure for

self-regulation in order to meet needs stated by the government.23 The Electricity Act is to be

amended by the Electricity and Gas Industries Bill that was introduced in 2003, in order to

improve the legal framework. The Bill is changing the name of the new agency from

‘Electricity Governance Board’ to ‘Electricity Commission’ – a name it is already using, and

which I shall use.

The Commission’s principal objective is ‘to ensure that electricity is generated, conveyed, and

supplied to all classes of consumers in an efficient, fair, reliable, and environmentally

sustainable manner.’24 This derives directly from the Energy Policy Framework of 2000. In

the Bill of 2003, it is proposed that the section be expanded as follows: (2) Consistent with this principal objective, the Commission must seek to achieve, in relation to

electricity, the following specific outcomes:

(a) energy and other resources are used efficiently:

(b) risks (including price risks) relating to security of supply are properly and efficiently managed: …

(g) the electricity sector contributes to achieving the Government’s climate change objectives by

minimising hydro spill, efficiently managing transmission and distribution losses and constraints,

promoting demand-side management and energy efficiency, and removing barriers to investment in new

generation technologies, renewables, and distributed generation. [Emphasis added.]

The industry regulator will therefore be under a duty to promote renewable energy. More

specific duties will be stated in government policy statements called ‘GPS objectives and

outcomes’ set by the Minister under section 172ZK (which is being revised by the Bill of

2003). The Commission is to agree performance standards annually with the Minister for the

GPS objectives and outcomes, and to report on them. The draft GPS that is presently under

discussion25 does not say much about renewables, in comparison to basic organizational

issues and security of supply, but it shows that the process will be used to give the

Commission very specific direction. More accountability is exacted by an assurance audit by

23 D Caygill, ‘Why Did Electricity Self-Regulation Fail?’ (2004) 7 Centre of New Zealand Jurisprudence

Yearbook 20. David Caygill was Chair of the Ministerial Inquiry the recommendations of which formed a large

part of the Electricity Amendment Act, and the drive to a new structure for self-regulation. 24 Section 172N. The Bill of 2003 had significant criticism from the industry and consumers before the

parliamentary Select Committee. Targets included this statement of objective, Commission accountability, and

lack of independence from the Minister. The Committee has recommended many changes. The main criticisms

are contained in G. Scott, ‘Submission to the Commerce Committee on the Electricity and Gas Industries Bill

2003’ (LECG Ltd, 30 Jan 2004) available <www.vector-network.co.nz>. References to the Bill in this article are

to its First Reading form. 25 Government Policy Statement on Energy Governance, Draft as at 14 September 2003, available

<www.med.govt.nz >.


the Auditor-General and another process of reporting by the Parliamentary Commissioner for

the Environment on ‘GPS objectives and outcomes concerning the environment.’26 The

Commissioner is akin to an ombudsman for the environment, under the Environment Act

1986. Collectively, these requirements will put considerable pressure on the Electricity

Commission to deliver on renewables, energy efficiency, and other stated goals.

Distributed Generation and the Separation of Lines and Supply

Distributed generation is generation that is connected to a local distribution network rather

than the national high-voltage grid. It can be from large projects, but can also be from small

generation systems such as landfill gas, sewage treatment plant gas, and wind. Often therefore

distributed generation is innovative renewables. Companies, farms and individuals interested

in a degree of energy self-sufficiency can install wind or solar generation systems to cater to

their load, but remain connected to the distribution network, buying electricity when they

need it and selling when they have a surplus. In New Zealand, such people have found that

neither the local distribution companies nor the retailers have much wanted to do business

with them, or only on disadvantageous terms. Freedom of contract may be limited to improve

the environment of distributed generation. Section 172F(2)(f) of the Electricity Act 1992

(inserted in 2001) authorizes regulations to be made to prescribe reasonable terms on which

line owners must allow connection of distributed generation; and the Electricity and Gas

Industries Bill 200327 proposes a further regulation-making power to prescribe terms and

conditions for purchase by electricity retailers of surplus electricity generated by units owned

by consumers consuming less than 40,000 kWh per annum, subject to the retailer not

incurring financial losses as a result of those terms and conditions.

Extra encouragement has been given to distributed generation by relaxing the strict rules that

make an ownership separation between the lines companies (the owners of local distribution

networks) and companies engaged in the generating and retailing of electricity. Section

5(2)(e) of the Electricity Industry Reform Act 1998 (inserted in 2001) provides that a

company is not brought within the definition of an ‘electricity supply business’ by generating

and selling electricity from distributed generation that is up to 2 per cent of the network’s

maximum demand or 5 MW, whichever is greater.

Another relaxation of the ownership separation rules promotes renewables directly. Under

section 46A (inserted in 2001) of the Electricity Industry Reform Act 1998, the rules are

relaxed for generating and selling electricity from distributed generation without any limit as

to amount, so long as it uses a new renewable energy source (including where fossil fuels

provide no more than 20 per cent of the total energy input). But a business under section 46A

must still be carried out by a separate company subject to the Act’s arms length rules.28 The

Electricity and Gas Industries Bill 2003, if enacted, will give additional preference to

renewables by extending the section 46A exemption to any generation from a new renewable

energy source, whether it is distributed or not: clause 28(3). Wind, biomass, small hydro, and

26 Secs 172ZO-172ZQ. Again these sections are being revised by the Bill of 2003. ‘Outcomes concerning the

environment’ is not defined. 27 Clause 9, inserting a new s 172D(1)(23). 28 In s 46A ‘new renewable energy source’ was defined as ‘an energy source that occurs naturally and the use of

which will not permanently deplete New Zealand’s energy sources of that kind, because those sources are

generally expected to be replenished by natural processes within 50 years or less of being used’. And it excluded

hydro or geothermal sources at a plant of more than 5 MW.


small geothermal are likely to receive special attention from local distribution companies keen

to develop new business opportunities free of possible price controls.

Hydro Spill

Critics have suggested that generation companies have been ‘gaming the market’ by

withholding hydro generation in order to raise market prices, with the consequence that water

is passed over dams without being used for generation, and that more gas and coal is used to

meet electricity demand. Such conduct has not been proved, but in an effort to clarify the

situation the Electricity Act 1992 authorizes regulations to be made for hydro companies to

disclose information about hydro spill: section 172F(2)(g). The Bill of 2003 proposes to

reformulate this disclosure in section 172D(1)(2)(f) and extend it in para (d) to disclosure of

information on hydro lake levels and inflows (as well as thermal fuel stockpiles and related

information) for energy security purposes.

Conclusions

Even in a more pragmatic policy climate than has prevailed since 1998, and with the attention

being given to energy sustainability since 2000, the encouragement being given to renewable

energy is still only modest. Nonetheless, the legal measures that we have considered may well

be enough, in a country that is well endowed with renewable resources, to produce an increase

in the use of renewable energy.

Date post:	17-Nov-2023
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Renewable Energy in New Zealand

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