The main takeaway from the electricity report is that the Labour-Green goal of 100% renewable electricity by 2035 could push up power prices by 14 to 39%, increase the risk of blackouts, and have relatively little impact on reducing emissions. Instead, the report recommends that the Government focus on reducing emissions from transport.
Despite this well-researched advice, the Government intends to stick to its original target. This begs the question, why did it bother setting up an independent body if it won’t listen to its advice?
The Interim Climate Change Committee
As part of the Zero Carbon Bill, the Government will establish an independent Climate Change Commission to advise on how to achieve its emission reduction targets. It has taken a long time to put the Bill together and it is still going through Parliament (currently at select committee stage).
In the meantime, the Government set up the ICCC to provide some more short-term advice. The committee was asked to consider the goal of 100% renewable electricity by 2035 and how to reduce emissions from agriculture.
100% Renewable Electricity
The goal of 100% renewable electricity was part of the Labour-Green Confidence and Supply Agreement after the 2017 election. The ICCC was asked to work out how to do it.
The committee’s models found that it would be very expensive to achieve. Power bills would rise by between 14 to 39% and the risk of blackouts would also increase.
The report suggests that, without doing much differently to now, we will reach 93% renewable electricity by 2035 and electricity prices would actually be lower than they are now. However, beyond this threshold, higher levels of renewable electricity would get progressively more expensive – especially in the jump from 99 to 100%.
The main reason for this extra cost is that there are peaks in our electricity demand that renewable electricity struggles to deal with. If we use only renewables to meet all our electricity demand, we would have to build a lot more electricity generation or battery storage to deal with peaks. We also occasionally have a ‘dry year’ problem, when our hydro lakes run low and struggle to meet demand.
Of course, as we focus on this problem, someone clever might come up with new technology to make the transition easier. Better ways of storing power and more accurately matching electricity demand with supply are certainly possible solutions. But we don’t have them yet – or at least they aren’t cheap. And in the meantime, there are far more cost-effective ways to reduce our emissions, by focussing on transport and process heat.
Returns Are Higher Elsewhere
Instead of worrying about the 100% renewable target, the ICCC report found that we should instead focus on reducing emissions from transport and process heat. Policies such as the recently announced fee-bate and improved fuel efficiency are positive steps in this direction. (This is clearly why the ICCC report was delayed – so that the Government’s announcement on transport could take the sting out of the bad news about the renewable energy target.) Nonetheless, despite all this excellent advice, it looks like the Government is sticking to its goal of 100% renewable energy by 2035. Minister Woods has claimed that the Government can focus on both electricity and transport. This position may be intended to save political face, but is blind to the relative costs of each sector.
While the Government is making some progress on transport, the challenge with process heat is greater. We need to immediately stop building any new factories that use coal to generate heat, because these investments will last for 40 years. This will require making some changes to our electricity system, but also taking on companies like Fonterra – who are not in a financial position for more bad news.