Meridian submission

Measures for transition to an expanded and highly renewable electricity system

2 November 2023


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

This submission by Meridian Energy Limited (Meridian) responds to an issues paper published by the Ministry of Business, Innovation & Employment (MBIE) on measures for transition to an expanded and highly renewable electricity system.

For any questions relating to this submission, please contact:

Sam Fleming, Manager Regulatory & Government Relations:

Evealyn Whittington, Senior Regulatory Specialist

Nothing in this submission is confidential.

Table of contents

Executive Summary


Growing renewable generation


Chapter 2: Accelerating supply of renewables


Chapter 3: Ensuring sufficient firm capacity during transition


Chapter 4: Managing slow-start thermal capacity during the transition


Chapter 5: The role of large-scale flexibility


Competitive markets


Chapter 6: Workably competitive electricity markets


Networks for the future


Chapter 7: A transmission system for growth


Chapter 8: Distribution networks for growth


Chapter 9: Is the government's sustainability objective adequately reflected for market



Responsive demand and smart systems


Chapter 10: Increasing distributed flexibility


Whole of system considerations


Chapter 11: Setting priorities and improving coordination



Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

Executive Summary

The issues paper on measures for transition to an expanded and highly renewable electricity system was published prior to the election and under a Labour-led government. While we still do not know the exact composition of the incoming government it is clear that there will be a change. Rather than speculate on the policy direction of the incoming government, this Meridian submission responds at face value to the questions posed in the issues paper. While some of the questions asked may no longer be of interest or no longer relate to the policy priorities of the new government, we respond regardless in the hope that our submission might help to inform officials and the advice they provide to both the incoming government and future governments.

In general, Meridian queries what problem a government strategy or plan is trying to address. Aotearoa has an energy system consistently ranked one of the best in the world across measures of sustainability, security, and equity. The World Energy Council's most recent trilemma index gave the New Zealand energy sector a AAA rating and ranked it number eight in the world - the only country outside of Europe and North America in the top ten. Outcomes in the New Zealand energy sector are delivered by market participants who invest private capital. While the rule making and oversight of the expert economic regulators is critical to the success of energy markets and the long-term benefit of consumers, it is not clear what role there is for government strategies or plans unless they identify and seek to address immediate problems that are outside the jurisdiction of the expert regulators. In our experience, investors respond to market signals, not government strategy documents.

In Meridian's opinion, the existing work programmes of the expert regulators are comprehensive, and they should continue to carry out their functions. If other parts of government second guess existing process and recent regulatory decisions, there will be a loss of confidence in those processes and increased uncertainty in the energy markets, to the detriment of consumers.

Meridian would prefer the government to focus on immediate priority actions, including:

  • Resource management reforms, which are of paramount importance to the electricity industry and for the achievement of New Zealand's emissions reduction objectives. Reform ought to deliver genuine and tangible increases in the rate of


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

consenting and reconsenting renewable electricity generation - otherwise it presents only an uncertainty and potential obstacle to emissions reduction.

  • An emissions or total energy goal rather than an aspirational goal of 100 percent renewable electricity by 2030, as well as clarity on whether the Government intends to invest directly in a mega-scale dry year storage and peak capacity project. Just over 90 percent of New Zealand's electricity generation was from renewable sources in the four quarter moving average to June 2023. Recent and planned investments in renewable generation are expected to lift that to around 96 percent renewable generation within a decade without any intervention. Prematurely squeezing remaining emissions out of the electricity sector would come at significant cost to taxpayers and/or consumers, would not achieve significant emissions reductions for the cost, and might actually be a step backwards if it slowed electrification of the rest of the economy due to increased costs and reduced security of supply. Existing policies, while well intentioned, have also created uncertainty and have had a chilling effect on private investment in peak capacity and storage (both generation and demand response). It is extremely difficult to make a business case for private investment while the threat of government investment looms over the top. Additional peak capacity investment is needed now, not in the timeframes contemplated by the previous government's New Zealand Battery Project.
  • Demand side measures to accelerate electrification and low-cost emissions reductions, primarily in the industrial and transport sectors. The Government Investment in Decarbonising Industry (GIG) fund has been successful at bringing forward investments to decarbonise industrial processes, primarily through electrification and use of biofuels. While GIDI is a policy of the previous government, without some support or incentives the pace of industrial emissions reduction activities will slow. If the Emissions Trading Scheme is the only tool used, the settings will need to be adjusted to further constrain unit supply, lift the expected price path, and increasingly expose industrial businesses to those emissions prices. There are also barriers to the roll out of nation-wideelectric vehicle (EV) charging infrastructure. Work by the Electricity Authority on distribution pricing reform and an access regime for new connections to distribution networks would assist but take time to develop and implement. Therefore, in the near term there may be a role for the incoming Government to help overcome network costs and ensure the roll-outof public charging infrastructure keeps pace with EV uptake.


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

Addressing these immediate priorities would support investment in an expanded and highly renewable electricity system.

Meridian is part of a group of energy sector participants and stakeholders that have developed an Energy Sector and Government Decarbonisation Framework. If agreed and established, this Framework could provide a forum for the sector and government to collaborate on lasting policy changes that will transform and decarbonise Aotearoa's energy system. We look forward to working with the incoming government on this Framework and on the future of the energy policy work programme.


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

Growing renewable generation

Chapter 2: Accelerating supply of renewables

Meridian agrees that electrification of industry and transport, and economic growth, will significantly increase the demand for electricity, and require significant new investment in renewable electricity generation and network infrastructure.

Significant investment is occurring now, and various investigations have found that the pipeline of renewable generation projects across the sector is more than adequate to meet forecast demand growth to 2030 and cover the retirement of baseload fossil-fuelled thermal generation, resulting in 98 percent renewable electricity generation by 2030.

Meridian agrees with recent work by the Electricity Authority highlighting impediments to investment in renewable electricity generation. In Meridian's opinion, the main impediments to generation investment are:

  • resource consenting requirements and uncertainty regarding the resource management reforms;
  • uncertainty regarding the Government's aspirational renewable electricity goals and intentions to intervene directly in the market to supply electricity generation; and
  • the regulatory environment for future fossil gas supply and flexibility (including storage) to support peaking generation through the transition.

Meridian's views on these topics are set out in further detail in our submission on the Electricity Authority's paper on promoting competition in the wholesale electricity market.1 In short, the electricity market relies on significant investment of private capital to deliver generation to meet growing electricity demand. The threat of Crown intervention in the market via a mega-scale flexibility project, risks chilling private investment in other forms of flexibility provision, both for peak and dry year solutions. It reduces incentives to invest in demand flexibility and crowds out potential investment in additional fast-start gas peakers or other sources of flexibility which could be required before 2030 to ensure a secure and affordable supply of electricity (well in advance of the timeframes for delivery of any Crown project).

1 Available at: _Promoting_competition_in_the_wholesale_electricity_marke_TIukYsn.pdf


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

The MBIE issues paper identifies a lot of the work already underway to facilitate investment in renewable generation and demand response. Meridian considers the existing work programmes to be comprehensive and that no further measures are required.

In Meridian's opinion, there is no reason for the Government to consider subsidies for new renewable generation (regardless of the mechanism used). It is not clear what problem this would be trying to solve. The issues paper states that:

"If existing market arrangements are not expected to deliver sufficient renewable generation at a scale to displace existing fossil fuel use, meet new demand growth as well as maintain affordability and security of supply during transition, then there are a range of mechanisms that could be considered to support investments."

It is clear from the start of this statement that this chapter of the issues paper is a collection of solutions looking for a non-existent problem. Existing market arrangement are delivering sufficient renewable generation at a scale to displace fossil fuel use and meet demand growth while maintaining affordability and security of supply. Both incumbent generators and new entrants are making massive investments. By our estimate, generators collectively have committed around $3 billion in new generation since 2020, and another $2 billion will very likely be committed over the next few years. The new generation built, committed, or highly likely since 2020 adds around 7 TWh of new generation to the power system (approximately a 16 percent increase on all current supply). This investment is occurring despite very minimal underlying demand growth, i.e. it is occurring in anticipation of future demand.

Subsidies would be a cost to taxpayers that delivered no net gain in renewable generation. Renewable generation development is already economic and lower cost than other non- renewable generation options. The Emissions Trading Scheme already incentivises renewable generation investment relative to fossil fuelled alternatives. New Zealand already has a high market share of renewable generation, and that market share is growing because of the favourable economics. Subsidised renewable generation would simply displace lower cost renewable options that would otherwise have been built without any subsidy. Subsidies of any form also risk market distortions that then require further interventions to correct.

The absence of generation subsidies has long been a strength of the New Zealand electricity market. Generators are proud to deliver investment free of subsidy to meet demand at least cost. We understand that generation developments need to be commercially sound. It


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

should be telling that the country's largest electricity generator rejects the potential for free taxpayer money. It is simply unnecessary and not in the interests of taxpayers or consumers.

The only parties asking for renewable generation subsidies seem to be international offshore wind developers that are used to doing business in Europe where generation subsidies of one form or another are the norm. The costs of offshore wind development are currently prohibitive. That may change in future. However, subsidies to bring froward offshore developments would only displace lower cost onshore generation projects and result in no net gain for the New Zealand power system.

To be clear, contracts for difference, power purchase agreements, and other financial instruments are actively traded in the market now to help generation developers stabilise their revenues (and provide price certainty for purchasers). However, these are agreed on commercial terms as opposed to the taxpayer funded, favourable terms with a government counterparty that seem to be contemplated by the issues paper.

Consultation questions

1. Are any extra measures needed to support new renewable generation during the transition?


2. If you think extra measures are needed to support renewable generation, which ones should the government prioritise developing and where and when should they be used? What are the issues and risks that should be considered in relation to such measures?

Meridian does not think such measures are needed.

3. If you don't think further measures are needed now to support new renewable generation, are there any situations which might change your mind? When and why might this be?

Such measures could be considered if there is ever evidence that investment is not occurring in response to existing market signals. There is no evidence of this currently.

Chapter 3: Ensuring sufficient firm capacity during the transition

Meridian agrees with the observation in the issues paper that flexible, dispatchable capacity plays a critical role to ensure security of supply. Meridian's own internal modelling is well aligned with that of the Climate Change Commission, BCG, and MDAG indicating an ongoing role for some fast start peaking generation in the foreseeable future.


Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023

Meridian disagrees with the statement in the issues paper that demand response "cannot economically cover multi-day wind and solar generation intermittency or provide firming for dry years." That has not been our experience to date with industrial demand response and we would expect demand response to eventually displace the few remaining fossil gas peakers in the system as emissions prices increase and large-scale demand response resources become more economic.

As examples of the potential of industrial demand response, Meridian recently agreed a new demand response contract with the New Zealand Aluminium Smelter for 50MW of sustained on call demand response to help cover a dry year. This response can be called in advance of other smelter demand response triggered by lake levels, arresting the decline of storage levels earlier than would otherwise be the case. Meridian is also working with:

  • dairy processors like Open Country Dairy, with whom we have agreed a contract for up to 27MW of demand response; and
  • Woodside Energy, Mitsui & Co, and Ngāi Tahu to partner on development of a world- class hydrogen and ammonia export facility in Southland called Southern Green Hydrogen.

The economics of any investment in hydrogen production in Aotearoa are finely balanced and we consider the key factor to be the flexibility of electrolysis. Financially rewarding that flexibility can reduce the total energy input cost and make hydrogen production in New Zealand commercially viable. Concept Consulting has modelled the potential for flexible electrolysis plant in Southland with up to 600MW of demand response capability, finding that: 2

"… large-scale flexible demand from a facility such as a hydrogen production plant can potentially deliver significant system flexibility benefits. Coupled with renewable overbuild, and assuming the plant could manage significant reductions in output during dry years, such a facility could help New Zealand cost-effectively achieve 100% renewable generation."

Further details are set out in Meridian's submission on MBIE's Interim Hydrogen Roadmap consultation.

In Meridian's opinion the existing energy-only market provides the right incentives for ongoing investment in flexible, dispatchable capacity. Some capacity challenges have



Meridian submission - Measures for transition to an expanded and highly renewable electricity system - 2 November 2023


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Meridian Energy Limited published this content on 23 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 November 2023 22:27:03 UTC.