Meridian Energy : submission - Developing a Regulatory Framework for Offshore Renewable Energy - November 2023

2 November 2023

Energy and Resource Markets Branch

Ministry of Business, Innovation and Employment

By email: [e-mail]

Developing a Regulatory Framework for Offshore Renewable Energy

Meridian is New Zealand's largest generator of renewable energy and operates six large hydro stations and five large wind farms. We have a sixth wind farm and a grid scale battery currently under construction. Since we were established Meridian has:

• invested $5 billion in new renewable generation projects;
• created 5,200GWh of new renewable generation;
• produced enough new renewable electricity to:

1. enable the removal of the equivalent of 2.2 - 5.2 million tonnes of CO2 annually from the global atmosphere, compared to GHG emitting alternatives; or

1. enable removal of 1.2 - 2.8 million light fleet vehicles from the road; or o meet the energy needs of 715,000 households.

Meridian appreciates the opportunity to comment on the Government's second discussion document on the development of a regulatory framework for offshore renewable energy. Nothing in this submission is confidential.

Meridian has signed a memorandum of understanding with Parkwind for the exploration of offshore wind generation in New Zealand waters. Efforts will focus principally on the Taranaki coast and build on work already undertaken by Parkwind, including engagement with the iwi of Taranaki and key stakeholders. Depending on the outcome of the joint exploration, the two parties may decide to work towards a feasibility permit. Both parties are interested in long- term investments and relationships, following a build to own and operate business model.

Meridian Energy Limited	293-297 Durham St North	Phone [phone]
	P O Box 2128 Christchurch	www.meridianenergy.co.nz
	Christchurch	New Zealand

To date Meridian has been focused on onshore development given the lower levelized cost of energy. However, the economics of offshore developments may improve over time and as New Zealand's leading wind farm developer, we feel the time is right to learn more about the offshore potential and explore how this might add value to our portfolio.

Parkwind and its parent company Jera (one of the world's largest generation companies) have a strong track record in developing, financing, constructing and operating offshore wind farms. The companies operate seven offshore wind farms off the Belgian, German, UK and Taiwanese coasts, with one of Japan's first offshore wind farms (Ishikari Bay) currently under construction.

While it is unclear at this stage whether offshore development will be economic in New Zealand relative to onshore alternatives, Meridian supports the development of a regulatory regime to accommodate any future investment. Meridian considers the regime should take a developer-led approach to both feasibility and commercial activities.

Appended are Meridian's responses to the detailed design questions in the discussion document.

We would be happy to discuss the views in this submission with Ministers and officials.

Nāku noa, nā

Sam Fleming

Manager - Regulatory and Government Relations

2

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

Appendix A: Responses to consultation questions

		Question			Response
1.		Following an initial feasibility permit		Yes.
		application round, should there be
		both an open-door policy and the
		ability for government to run
		subsequent rounds? If not, why not?
2.		What size of offshore renewable		This is a commercial question to be
		energy projects do you think are		considered by any potential developer and
		appropriate for a New Zealand		may change over time as the electricity
		context?
			market evolves.
3.		Do you think the maximum size of a		Maximum project size should not be
		project should be put forward by		prescribed in legislation - guidance can be
		developers and set out in guidance		given and the criteria should be robust
		material, rather than prescribed in		enough to ensure projects are feasible. The
		legislation? If not, why not?		characteristics of a feasible project are likely
					to change over the lifetime of the legislation
					and any statement on project size could
					quickly become outdated and a barrier to
					development. Project viability would be
					affected if constraints during feasibility stage
					reduce area and therefore capacity.
4.		Should there be a mechanism for		Meridian supports a developer-led, non-
		government to be able to compare		comparative process at the commercial
		projects at the commercial stage in		stage. Comparisons should only be carried
		certain circumstances? If yes, would		out at the feasibility stage. Once a feasibility
		the approach outlined in Option 2 be		permit has been secured investors should
		appropriate or would there be other		have confidence in the pathway to
		ways to achieve this same effect?		commercialisation. Investor confidence will
					be significantly limited if there is a
					mechanism for competing projects to slow
					and disrupt progress to commercialisation.
					All potential developers in a wide geographic
					area (e.g. Taranaki) will be commercially
					interested in the extent and likelihood of
					other development as the volume of
					expected wind generation concentrated in
					an area will impact on forecast nodal price
					outcomes, price participation, and ultimately
					revenues for any project. The commercial
					risks associated with other nearby projects
				3

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

		should not give any developer grounds to
		slow or disrupt competing projects.
5.	Are the proposed criteria appropriate	The types of criteria contemplated in the
	and complete? If not, what are we	discussion document seem broadly
	missing?	appropriate. However, they are described
		as considerations for a decision-maker on a
		permit application, and not as criteria to be
		met by a developer.
		Developers would have increased certainty if
		is clear what they need to do or demonstrate
		in order to pass the assessment for each
		criteria, and how the overall assessment and
		permit decision will be made, for example is
		it a points-based assessment and/or are
		there elements that must be passed to the
		satisfaction of the decision-maker.
6.	Should there be mechanisms to	Such mechanisms would be appropriate
	ensure developers deliver on the	during the development of a project but once
	commitments of their application over	a generation site is powered it would be
	the life of the project? If yes, what	onerous to require ongoing reporting for the
	should these mechanisms be?	life of the asset.
7.	Is 40 years an appropriate maximum	Yes. In addition, a developer should be able
	commercial permit duration? If not,	to apply for a further commercial permit for
	what would be an appropriate	repowering and continuing to operate at an
	duration?	existing site.
8.	Should a developer that wishes to	Yes.
	geographically extend their
	development be required to lodge new
	feasibility permit and commercial
	permit applications? Why or why not?
9.	Would the structure of the feasibility	Research and development and
	and commercial permit process as	demonstration projects should be enabled
	described enable research and	under a feasibility permit.
	development and demonstration
	projects to go ahead? If not, why not?
10.	Is there an interdependency between	Yes. One would be a revenue stream for a
	the case for revenue support	project and the other would be a cost. In
	mechanisms and the decision as to	both cases the Crown would be the
	whether to gather revenue from the	counterparty and the revenue and cost
	regime? What is the nature of this	would net out for both parties. The simplest
	interdependency?	form of support would be to not impose
		added royalty costs.
		4

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

11.	Is there a risk in offering support	Meridian opposes financial support
	mechanisms for offshore renewables	mechanisms for offshore renewable
	without offering equivalent support to	generation (or, for that matter, for any form
	onshore renewables? Are there any	of renewable generation).
	characteristics of offshore renewables	It is not clear what problem public financial
	which mean they require support that
	onshore renewables do not?	support would be trying to solve. There is
		massive renewable electricity generation
		investment occurring from both incumbents
		and new entrants without any public financial
		support. Subsidies in any form (including to
		provide revenue stability) would be a cost to
		taxpayers that delivered no net gain in
		renewable generation. The subsidised
		generation would simply displace other
		economic options that would have been built
		anyway without any support.
		Subsidies also risk further market distortions
		that then require further interventions to
		correct. For example, in Australia
		subsidised rooftop solar resulted in very low
		or negative daytime prices, and
		subsequently challenges for the economics
		of firm thermal generation and security of
		electricity supply.
		A lack of generation subsidies has long been
		a strength of the New Zealand electricity
		market and as generators we are proud to
		deliver investment free of subsidy to meet
		demand at least cost.
		To the extent developers need revenue
		stability, for example in order to gain project
		financing, then there are commercial
		mechanisms that can be explored such as
		PPAs. For well-resourced businesses,
		intermittency of generation and revenue is
		less likely to be a concern, particularly when
		a project forms part of a wider generation
		portfolio.
12.	Should there be a revenue flow back	Offshore projects would occupy public space
	to government? And, if yes, do you	rather than private land. Royalty revenues
	have views on how this should	for the Crown may be reasonable and could
	optimally be structured?	be equivalent to the land acquisition or
		access costs for onshore developments.
		However, the impact of royalties on project
		economics must be carefully assessed.
		Royalties should reasonably reflect use of

5

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

		public resources without overly deterring
		investment.
13.	Do you agree with the proposed	Yes.
	approach to cost recovery? If not, why
	not?
14.	Is there anything you would like us to	Iwi, hapū, and whānau will be best placed to
	consider as we engage with iwi and	comment.
	hapū on Māori involvement in the
	permitting regime?
15.	Have we identified the key design	Iwi, hapū, and whānau will be best placed to
	opportunities to work collaboratively	comment
	with iwi and hapū alongside
	consultation? Is there anything we
	have missed?
16.	Are there any Māori groups we should	Iwi, hapū, and whānau will be best placed to
	engage with (who may not have	comment
	already engaged)?
17.	For each individual development,	Meridian is comfortable with the status quo
	should a single consent authority be	where there is the ability to make a joint
	responsible for environmental	application with the process administered by
	consents under the RMA and the EEZ	the EPA and ministerial power to establish a
	Act? Why or why not?	Board if Inquiry to consider the application in
		its entirety.
18.	Do environmental consenting	Yes.
	processes adequately consider
	environmental effects such that it is
	not necessary to duplicate an
	assessment of environmental effects
	in the offshore renewables permitting
	regime?
19.	Should the offshore permitting regime	See our response to question 20 below.
	assess the capability of a developer to
	obtain the necessary environmental
	consents? If not, why not?
20.	What is the optimum sequencing	The optimal sequencing would be for
	between obtaining feasibility permits,	environmental consents to be obtained
	commercial permits and relevant	before a commercial permit, i.e.
	environmental consent(s)?	environmental consents could be a pre-
		requisite to the granting of a commercial
		permit. The two could overlap somewhat to
		expedite a project but the environmental
		6

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

		consent should be granted first. This would
		mean the decision-maker for the commercial
		permit would not need to consider
		environmental matters or the ability of the
		developer to obtain environmental consents,
		reducing duplication of effort and costs to
		both the developer and the government.
21.	Are there are any other matters about	The offshore permitting regime should not
	the environmental consent regimes	duplicate environmental considerations.
	that you think need to be considered in	Meridian agrees that there may be value in
	the context of the offshore renewable
	energy permitting regime?	expanding the scope of the National Policy
		Statement on Renewable Electricity
		Generation (or any equivalent in the National
		Planning Framework) so that the importance
		of renewable generation to the achievement
		of national emission reduction goals is
		recognised in environmental decision
		making under the EEZ regime as well as
		within territorial waters.
22.	How should the factors outlined	In Meridian's opinion the regime should be
	influence decisions to pursue offshore	open to developer-led projects in both the
	renewable energy developments in the	territorial waters of New Zealand and the
	EEZ or the Territorial Sea? Are there	EEZ.
	other factors that may drive	Feasibility work by developers will identify
	development in the EEZ versus the
	Territorial Sea?	the most economic, and low risk sites for
		environmental consenting.
		Environmental impacts and competing uses
		are not likely to be distinctly different on one
		side of the marine boundary compared to
		the other. There is likely to be just as much
		variability within each area. Certainty the
		natural environment does not conform to
		jurisdictional boundaries.
23.	Are the trade-offs between a	Meridian supports a developer-led approach
	developer-led and a TSO-led	to give developers more control and
	approach, set out above, correct? Is	confidence regarding cost and timeframes.
	there anything missing? What could	Under a TSO-led approach, we would not
	we learn from international models?
		expect transmission infrastructure to be
		publicly funded like the Netherlands, rather it
		would be Transpower capital expenditure
		that would be recovered from the connection
		customer over the life of the asset. Public
		funding of transmission would be a separate

7

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

		consideration as it would be a form of
		subsidy for offshore projects.
		Developer-led projects would still need to
		connect to the grid at an onshore grid
		injection point. The current Transpower
		connection queue could be a barrier for
		projects as investment decisions may not be
		made in the absence of confirmed grid
		access in a timely manner. Transpower
		states that the current connection queue
		process is for projects up to 500MW.
		However, bespoke connection arrangements
		may also need to be considered for offshore
		projects smaller than 500MW.
24	Which party do you think should build	Development and construction of offshore
	offshore connection assets? Can	connection assets should be developer-led.
	existing processes already provide the	The assets could be operated and owned by
	flexibility for this to be carried out by	developers by designating the connection
	the developer?	point at the onshore substation. Giving
		ownership and operation of multiple offshore
		transmission assets to Transpower adds risk
		to developers and significant additional
		operational risk for Transpower.
		In Meridian's opinion existing processes
		provide the flexibility for offshore connection
		assets to be built and maintained by
		developers.
25.	What are the potential benefits and	We agree there may be potential benefit in
	opportunities for joint connection	joint connection infrastructure and that
	infrastructure? Do you agree with the	developers could reach commercial
	barriers set out and how could these	agreements to reduce overall costs.
	be addressed?	However, the barrier identified will make this
		challenging as will the added complexity of
		competitors undertaking collaborative
		activities while remaining in compliance with
		the Commerce Act.
		These are barriers for developers to
		consider and overcome where the identified
		benefits of joint connection infrastructure
		outweigh the costs. We do not see a role for
		the Government.
26.	Do you agree with the representation	These challenges also exist for onshore
	of the timeline challenge for onshore	generation developers and incentivise
	interconnection assets? What	generation investment that most efficiently
	opportunities might there be to front	utilises the grid. If developers want to
	load planning work for interconnection	accelerate work on interconnection
		8

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

	upgrades? What role do you see for	upgrades this should be achievable on
	the developer in this?	commercial terms. For example, in 2019
		Meridian and Contact entered into
		commercial agreements with Transpower to
		expedite work on the Clutha Upper Waitaki
		Lines Project and reduce transmission
		constraints in the event of a smelter exit.
		Similar arrangements could be agreed with
		an offshore developer to expedite
		interconnection works. However,
		Commerce Commission approval for any
		major capital expenditure would also be
		required.
27.	What changes might be needed in	Developers would need to consider this
	order to deliver the types of port	challenge and come to commercial
	infrastructure upgrades needed to	agreements with ports regarding any
	support offshore renewables?	changes necessary to meet their needs.
28.	Should developers be required to	Yes.
	submit a decommissioning plan, cost
	estimate and provide a financial
	security for the cost estimate? If not,
	why not?
29.	Should the decommissioning plan,	In other jurisdictions, regulations allow
	cost estimate and financial security be	developers to agree alternatives to full
	based on the assumption of full	removal based on minimising environmental
	removal?	effects.
		There is a risk of high levels of
		environmental damage during removal of
		buried elements (cables and foundation
		structures). Decommissioning should follow
		a best practice plan agreed by the
		environmental consenting authorities. The
		decommissioning plan, cost estimates, and
		financial security should be based on this
		consented best practice plan too, rather than
		require full removal at greater harm to the
		environment.
		This may just be a definitional question of
		what is meant by "full removal" under the
		proposed regime.
30.	What are your views on the	The considerations in the paper on cost
	considerations set out in relation to the	calculation and financial security vehicles
	calculation of the cost estimate and	seem reasonable.
	financial security value or suggested
	approach for financial security vehicle?
		9

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023

		In Meridian's opinion bank securities would
		be the vehicle most likely used by
		developers.
31.	What should the developer be required	Meridian agrees that a feasibility application
	to provide in relation to	should demonstrate an initial indicative
	decommissioning at the feasibility	understanding of decommissioning
	application stage?	requirements, capability and experience to
		execute on those requirements, and plans to
		work towards a full decommissioning plan at
		a later stage. In addition, concrete
		decommissioning plans and security
		requirements should be included in a
		feasibility application to the extent that
		structures would be established during the
		feasibility stage (for example for research
		and development or demonstration projects).
32.	What ongoing monitoring approach do	Given the conservatism and inflation
	you think is appropriate for the	adjustments built into the proposed initial
	decommissioning plan, cost estimate	cost assumptions, it may be that a less
	and financial security?	onerous approach could be considered. For
		example, a review every five years with the
		option for ad hoc reviews initiated by the
		Government when it becomes aware of
		material changes.
33.	Are there any other ways in which the	Decommissioning plans should not be time
	regulatory regime could encourage the	bound and there should absolutely be scope
	refurbishment of infrastructure or the	to delay decommissioning to facilitate
	recycling of materials?	extensions to the economic life of offshore
		generation.
		Extensions to commercial permits should be
		allowed on the same terms as the initial
		commercial permit.
34.	Should offshore renewable energy	Yes.
	projects applying for a consent to
	decommission be required to provide a
	detailed decommissioning plan related
	to environmental effects for approval
	by consent authorities?
35.	How can the design of the regulatory	Meridian agrees that the VADE model
	regime encourage compliance so as to	should be followed and that easily
	reduce instances of non-compliance?	understood rules and guidance will be the
		key enablers of compliance.

10

Meridian Submission - Developing a Regulatory Framework for Offshore Renewable Energy - 2 November 2023