Moving Faster: the case for crashing the price of electricity

In this ‘moving faster’ blog, thinkstep-anz Technical Director Jeff Vickers argues for a major push in renewable energy in New Zealand. This could make the country a low-carbon leader and help solve the climate crisis. Are we ready for the electric future?

• Moving Faster – on the road to decarbonised transport
• Moving Faster – reducing embodied carbon

‘Green electricity’ is the lifeblood of a low-carbon economy. By powering our economy with renewable electricity, we can decarbonise transport, industry and buildings. Here I suggest how flooding the market with cheap renewable energy can lead to improvements across the economy and society. By making this electricity irresistible to industry, we’ll move quickly on our climate change goals – and become an international leader in responsible products.

New Zealand's electricity is 80-85% renewable, depending on the year and our hydro lake levels. This is great by international standards, but it could be even better. Back in the 1950s our electricity was close to 100% hydroelectric, though with much lower demand. Making low-carbon renewables available is our ticket to avoiding the worst effects of climate change. We need to go back to the future: the days of near 100% renewables, but with dramatically increased supply.

Read about potential industries and applications in Table 1.

Low-cost renewable electricity powers a low-carbon economy

For renewable electricity to be adopted quickly, it must be affordable. Crucially, the operating cost of powering something on renewable electricity must be less than with fossil fuels. My experience working with large manufacturers is that it is always operating costs and not capital costs that determine whether electrification is possible. And almost all large-scale decisions in the past five years where I have been involved have chosen fossil fuels, despite a strong preference for change from the businesses we work with. Businesses are open to making large investments, but not if they will never pay themselves back and may jeopardise the company's competitiveness.

A business cannot justify a financial decision to move to new technology that is more expensive both upfront and on an ongoing basis. But what if we gave them no option – renewable energy at an irresistible price?

Affordable renewable electricity will make changes in these areas possible:

How do you sink the price?

Flood the market with renewables. Ideas include:

• Building the Lake Onslow power station (a proposal to use pumped hydro power as a giant battery) and all consented renewable projects that haven't been built.
• Paying ‘good’ spot prices for on-site solar and removing limits on solar power being fed into the national grid.
• Soaking up excess capacity by producing ‘green hydrogen’; using it in electricity-intensive industries and homes, charging electric vehicle batteries and heating hot water cylinders.

This would require changes to the current market structure which inherently favours artificial supply constraints that keep the price of electricity high. The market disruptions to achieve this should be considered against the uncertainty of economic impacts from climate change. And as we move ever-closer to a 1.5°C rise in global mean temperature, there is a strong case for moving much faster.

Won't building more renewables have considerable local environmental trade-offs?

Yes, it will. In addition to economic effects, moving to a low-carbon future will affect local environments. The building of the Manapōuri hydro power station helped to kick-start the environmental movement in New Zealand. Lake Onslow may be another significant moment. There are similar issues with wind turbines disrupting the flight patterns of birds, geothermal power stations impacting groundwater, and tidal power stations affecting the movement of marine life.

Inaction also has a cost. What could happen to these same ecosystems – and many others around the world – if we don't act on climate change? With a warming climate, few ecosystems will be unaffected. And it's possible that the same ecosystems that we are trying to protect will become unrecognisable. This isn't a reason not to protect them, but it is an argument for more renewables while, at the same time, mitigating their negative effect on local ecosystems.

 Every action has an environmental impact. At the same time, the world is desperately in need of success stories – and fast. The Climate Action tracker shows that we are on course for 2.4°C warming by 2100 based on 2030 commitments (to November 2021) – and this assumes that these commitments are met. A recent report on sustainable aviation found that only 1 in 50 targets was met.

 We have a short window to act. The world needs more leadership. With our low population density and abundance of renewables, New Zealand is well placed to step up as one of the leaders and act as an important case study. We can move decisively to a low-carbon future, or stumble along as we have since the Industrial Revolution, toward climate catastrophe. 

Won't making electricity cheap have trade-offs?

Yes, it will. But they won't all be bad. Cheap electricity could help end energy poverty. Approximately 20% of all New Zealanders have experienced energy poverty in their life. Cheap electricity would allow more people to affordably heat their houses in winter, and to cool them in increasingly hot summers.

In addition to an improved standard of living, we could have greater energy independence. With renewables, we rely only on what we can ourselves produce. While New Zealand's electricity is around 80% renewable, our total energy is only 40% renewable (due to transport and industrial fuels) and most of these fossil fuels are imported. By producing these ourselves, we reduce our dependency on volatile global energy markets.

With low-carbon, renewable energy-powered industries, we will also set ourselves up as a major exporter of ‘green’ stuff – be that ‘green ammonia’ for low-carbon shipping, low-carbon building materials for the world's building markets, or low-carbon metals.

Think bigger

So it’s time to move faster and think bigger. To limit the worst effects of climate change, we need to change our industries and systems. There may be significant disruptions, but a renewable energy-powered New Zealand could be a global leader for the low-carbon future. Awash with cheap and clean energy, the country could produce and export low-carbon fuels and materials, and improve the lives of its citizens.

Are we ready to move?