A new report by lines company Transpower has found that electrification and decarbonisation could save $1.4 billion a year by 2035, Marc Daalder reports
Electrifying transport and industrial process heat and decarbonising electricity generation is not only achievable over the coming years, it will actually save money.
Those are the conclusions of a new Electrification Roadmap from Transpower, the state-owned lines company, which follows on a 2020 report which found electricity demand would jump two-thirds by 2050 and massive amounts of new generation would be needed to keep the lights on.
“We are quite pleased that there’s a feasible option here,” Transpower CEO Alison Andrew told Newsroom. “I mean, there are some real challenges to overcome, but you can see a path forward.”
Currently off-target
Like the Climate Change Commission’s landmark report from last week, Transpower says New Zealand isn’t on track to reach its emissions reduction targets.
“Over the five years since signing the Paris Agreement, emissions have not shown signs of decreasing. Over the last 30 years, transport emissions have nearly doubled, and process heat emissions have remained stubbornly flat,” Transpower’s new analysis noted.
“The opportunity in front of us now is for bold and decisive action across our entire economy to not only stop our growth in emissions but to cut them heavily. If we get the market and policy settings right, New Zealand could reduce annual emissions by 9.6 [million tonnes] and generate annual net benefits to the economy of $1.4 billion by 2035 through electrifying transport and process heat and increasing renewable electricity supply.
“Realising this opportunity will be complex and challenging. It will require coordination and commitment across industry, government and business. We will need more clean, renewable energy to be built – and quickly – but this can all be achieved. Clear, ambitious transitional policy and market settings to enable this transformation are required this year – 2021.”
Andrew said she was optimistic the Government would do what was needed.
“We’re very hopeful. And I think that’s where it’s very complementary with the Climate Change Commission’s budgets. They’ve identified the same issue: We do have to go harder, faster,” she said.
The roadmap touched on all aspects of the energy sector but focused on the opportunities in electrifying transport and decarbonising industrial process heat.
By 2030, the decarbonisation of these two sectors – as well as electricity generation – could lead to New Zealand emitting 4.7 million tonnes (Mt) less than it is today. That’s a 20 percent decrease. Annually, the country would be saving $500m a year at that stage.
Five years later, the emissions reductions will have more than doubled and the country would receive $1.4b in annual benefits. By the time we reach our 2050 net zero target, the country would be emitting 20.2 million tonnes less in the energy space than it is today – a three-quarters decrease – and saving $3.1b a year.
Mass EV adoption by 2025
Transpower’s roadmap hinges on electrifying transport, which is New Zealand’s fastest-growing sector in terms of emissions. Cars, trucks, boats, trains and planes make up more than half of the country’s energy emissions, a third of the emissions subject to the 2050 net zero target and one fifth of the country’s overall gross emissions.
While cutting transport emissions will take time to ramp up – transport and electricity generation are both expected to make up 2.1 Mt of emissions reductions in 2030 – it will play the largest role by far by 2050, when transport will represent 13.4 Mt of the 20.2 Mt of energy emissions reductions by that date.
It is also the source of all of the benefits Transpower touts in its report.
By 2030, the entire transport sector could be decarbonised at a negative abatement cost – meaning money would be saved in the effort. Already, some 8 Mt of transport emissions can be abated at negative cost.
“The negative abatement costs for each transport sector shows that converting a vehicle to a low emissions alternative will save money for each tonne of CO2 abated. For example, fully electrifying the light commercial vehicle fleet in 2030 would save approximately $370 for each tonne of CO2 abated and abate 2.6m tonnes of CO2 per annum, leading to annual savings of $960m,” Transpower found.
That the 8 Mt of transport able to be abated at negative cost hasn’t been shows there are non-cost barriers to decarbonisation, Andrew said.
“I’d call it three access barriers. First of all, access to electric vehicles – are there enough electric vehicles around? Second is access to capital, because the upfront cost of EVs at the moment is higher. Third is access to charging infrastructure. You have to make it easy for people.”
The report recommended a number of potential policy options for the Government to pursue if it wants to accelerate EV uptake, such as a feebate scheme where a fee is placed on high-emitting vehicles and a corresponding rebate is placed on EVs, or a ban on the import of petrol and diesel vehicles from a certain date. Ensuring more EVs make it into the secondhand private fleet via the government vehicle fleet and commercial fleets through the Government’s public sector carbon neutrality pledge and a Fringe Benefit Tax exemption for EVs was also recommended. Policies to accelerate this uptake will need to happen within the next five years as EVs reach total cost of ownership parity with internal combustion engine (ICE) vehicles.
“This is the single most important policy question for accelerating EV adoption in the transport sector in the 2020s: where EVs offer total savings for consumers, businesses, the economy and our climate, but the up-front purchasing cost is a barrier, how can policy overcome this?” the report offered.
By the second half of the decade, Transpower expects EVs to reach sticker price parity with ICEs – a Nissan Leaf will cost the same upfront as a Mazda 3, for example – and schemes like the feebate could have their settings adjusted. By the 2030s, incentives could be phased out.
“It’s important to stress that many policy initiatives to kick-start electrification will be short-term and transitional in nature – countries like Norway and Germany are already winding back some of the initial support that is now successfully electrifying their transport sectors.”
Despite its ambition, Transpower’s projections fall short of the reductions called for by the Climate Change Commission. The Commission wants to see transport emissions fall by 2.9 Mt by 2030 and 7.8 Mt by 2035, from 2018 levels – compared to Transpower’s reductions of 2.1 Mt by 2030 and 6.1 Mt by 2035, from 2020 levels.
“As you’re solving for an endgame, there are lots of different ways to get there. You can try and go harder in one area, you can relax in one,” Andrew said.
Both the Commission and Transpower expect to reach the same endpoint, they just expect different levels of contribution from different sectors. Andrew did specify that the Commission’s trajectory in the energy sector, although more ambitious, looked achievable to her.
“If we’re visionary enough and we’re ambitious enough and if we actually take the positive, proactive steps that we need to, you can accelerate this,” she said.
Stranded assets
The other target for decarbonisation is process heat – that is, energy used by industry and businesses to create heat for manufacturing, processing and warming spaces.
Most process heat assets, like boilers or gas heating systems, are long-lived, requiring a slower decarbonisation track than in transport or electricity generation. By 2035, process heat emissions will have fallen a quarter from 2020 levels in Transpower’s vision, followed by a steeper 70 percent drop by 2050.
The cost of this decarbonisation is not expected to be negative, as with transport, but it will be minimal. By 2030, the average annual cost of this process would be $50 million, rising to $100m by 2035 and $300m by 2050 – still very much offset by the gains in the transport sector.
As with transport, the tools to decarbonise process heat are available – the key difference is the timelines and embedded infrastructure that is involved. Transpower found that just 20 to 30 percent of the country’s coal and gas boilers will reach end-of-life and be suited for switching out within the next decade. These boilers are likely to be affordably replaced with electric heat sources (with an electricity price of $25-75 per megawatt hour) or biomass (if the price of electricity is much higher).
The picture for decarbonising existing boilers is much less rosy, however. Most coal and gas boilers would be cheaper to operate on that fuel before they reach their end-of-life stages unless the carbon price spikes and/or electricity prices drop to $25-50 per megawatt hour, Transpower found.
There is an opportunity for biomass, which often comes from agricultural and forestry waste and produces lower emissions than fossil fuels, to serve as a transition fuel in Transpower’s report.
“This is one of the interesting findings from this piece of work we’ve been doing, is the complementary nature of biomass and electricity. It’s not an either or,” Andrew told Newsroom.
“Where electricity and biomass can work vertically together is if you have a medium or high temperature process heat requirement, using electricity to do the first part of the lifting and then you can use biomass for your medium or higher temperature needs. And the biomass can be fed straight into your coal boiler.”
Much of the transition will depend on the price of electricity. Transpower had previously found electricity demand will spike in the coming decades and around 40 new massive generation and battery projects will be needed in just the next 15 years at a cost of $8-10 billion.
“To put this in perspective, as much generation will need to be built in the next 15 years as was built in the past 40 years,” the 2020 report stated.
The more renewable generation that is built, the cheaper power will become. The Climate Commission’s projections called for a major build-up of wind generation, with New Zealand set to construct more new net generation capacity between 2027 and 2035 than has been built since 1990.
Much of this will be in wind, which the Commission expects will be able to generate an extra 10 terawatt hours by 2035.
“We think that wind has good potential in New Zealand,” Andrew agreed.
“We are going to need the whole mix of things. Wind’s in the money now but we think that rooftop solar is going to have a [role] to play. But certainly from where we sit today, you definitely can build some very economical wind farm developments.”
