Research report

Energy policies of IEA countries: New Zealand 2017 review

20 Feb 2017
OECD

Description

This review analyses the energy policy challenges facing New Zealand and provides recommendations to help guide the country towards a more secure, sustainable and affordable energy future. In 2016, the IEA decided to modernise the reviews by shifting their focus to key energy security challenges in fast changing global energy markets and to the transition to a clean energy system.

This report on New Zealand is the first review under this modernised structure. It analyses oil, gas and electricity security, the competition in energy markets and offers pragmatic policy advice on how to design energy and climate policies for the energy transition. New Zealand’s power markets are fundamental to the energy system transformation and to the decarbonisation of the economy at large. Therefore, the spotlight of this review is on the electricity sector. The new format of the review offers insights into two special focus areas, which were chosen by the New Zealand government, renewable energy integration and electricity distribution.

The special focus chapter on renewable energy evaluates opportunities and challenges for increasing the share of renewable energy in the power sector and beyond, in industrial heat and transport, while ensuring their continuous system and market integration. Electricity distribution networks and retail markets are at the heart of the energy system transformation, with more digitalisation, higher shares of electric vehicles, battery storage and growing decentralised and intermittent renewable energy.

The report reviews the structure, governance and regulation of the electricity distribution service sector in New Zealand and provides recommendations for network regulation and retail market reforms.

Since the last IEA in-depth review in 2010, New Zealand has further developed its energy policy, as reflected in its energy strategy to 2021 and new rules for more competitive electricity markets.  With its unique resource base, New Zealand is a success story for the development of renewable energy, notably hydro and geothermal, without government subsidies. Geographically isolated, New Zealand has developed robust policies for security of supply. Outside of its largely low-carbon power sector, managing the economy’s energy intensity and greenhouse gas emissions while still remaining competitive and growing remains a challenge.

The IEA review highlights the areas that are critical to the success of the energy policy agenda in New Zealand.  To support sustainable growth in line with the Paris Agreement, the government should facilitate technology opportunities for renewable energy and energy efficiency, in buildings, industrial heat, transport and agriculture.  The government has ambitious plans to boost the share of electric vehicles and renewable energy. The country has a flexible power system, but future growth requires fine-tuning of market rules in favour of even more flexibility, demand response, smart and effective electricity retail and distribution.  While security of supply is well ensured by effective markets, an energy-constraint system can benefit from market-based risk managements tools, including a safety net for dry years as well as access to global LNG markets.