The New Zealand green energy landscape

New Zealand is a recognized leader in the global transition to renewable energy. In 2022, the proportion of renewable energy out of total energy consumption was at an all-time high of 30%.¹

Currently the main sources of renewable energy in New Zealand are geothermal, hydro, and solid biofuels.² With wind at 2.8% and solar at 0.4%,³ these are ideal areas for future growth, and green hydrogen has also been identified as a major opportunity.⁴ There has recently been noticeable interest and investment in solar, wind, and green hydrogen from both local and overseas investors.

Historically, regulatory frameworks have slowed renewable energy development, but current government initiatives focused on increasing funding and legislative reforms are aimed at supporting investment in renewable energy. They will be critical to the New Zealand government's aspirational target of 100% renewable electricity by 2030,⁵ and to its commitment to a carbon-neutral economy by 2050.⁶

 

Challenges

Resource Management Act 1991

The Resource Management Act 1991 (RMA) regulates the use of land and impacts of that use on the environment. The RMA imposes strict environmental and ecological controls on proposed renewable energy developments, and is supported by a national, regional and district planning framework.

The government is currently working on reforming the National Policy Statement for Renewable Electricity Generation and the National Policy Statement for Electricity Transmission. These reforms are to recognize the national significance of renewable electricity generation and electricity transmission, and strengthen the existing direction to give greater emphasis to the national benefits of this infrastructure to meet emissions reduction targets.⁷

Overseas Investment Act 2005

The Overseas Investment Act 2005 (OIA) imposes a strict regime governing investment by "overseas persons" in significant business assets and sensitive land. Particularly relevant to renewable energy projects are the restrictions on the acquisition of an interest in sensitive land by overseas persons. An interest in sensitive land requiring consent is a freehold estate, a lease, or any other "interest" for a term of ten years or more (unless it is residential land). If the land includes farmland, there’s also a requirement for the relevant interest to be advertised before the interest is acquired. The application for consent will usually be under the "Benefit to New Zealand" test, which requires an assessment of the benefits resulting from the investment by reference to the capital investment, creation of jobs and the contribution to New Zealand's targets and obligations under the government's relevant policies for renewable energy and climate change response obligations. The cost and timing consequences of applying for consent can be significant.

Infrastructure constraints

While New Zealand's location and geography give rich renewable resources for energy production, they also restrict the development of infrastructure outside the dispersed main centers. This adds to development costs, which has slowed investment in renewables.

 

Solar

The New Zealand climate provides abundant sunlight hours that can be harnessed for electricity production. New Zealand is currently benefitting from increased investment in solar developments, mainly land-based solar and rooftop solar.

Land-based solar

The restrictions under the RMA in terms of the location, types of activity and effects of a solar development, as well as costs and delays in consenting are relevant considerations for these developments. The government has also recently released the National Policy Statement for Highly Productive Land, which seeks to protect highly productive land. The impact of these new restrictions on solar development is yet to be fully tested.

The requirement for consent under the OIA for the acquisition of rights in sensitive land can sometimes act as a barrier to investment in solar developments. There have been attempts to structure investments so they’re not caught by the OIA. But the Overseas Investment Office is concerned with the substance of the rights, rather than their legal description, and these attempts have been unsuccessful.

Roof top solar

This involves the installation of solar panels on the roof of a building that is typically owned or leased by a third party. Usually, some or all of the electricity from these developments is sold to the owner/lessee of the building under a power purchase agreement.

Unlike land-based solar developments, if properly drafted and supported by legitimate business reasons, an occupation license (rather than a lease) would be an acceptable arrangement for installation and operation of rooftop solar panels on commercial / industrial buildings. For installation on residential buildings, a license is almost certainly appropriate. There should be no consent requirements under the OIA for the acquisition of the license in those circumstances.⁸

Like land-based solar, RMA considerations may also be relevant for this type of investment.

 

Wind

New Zealand has been active in wind energy for some time. But there is huge opportunity for growth as New Zealand looks to diversify its sources of renewable energy,⁹ including with the development of offshore wind projects.

In 2022, the total energy generated from wind was approximately 6.5%¹⁰ and this proportion is expected to substantially increase over the coming years as New Zealand seeks to achieve its 100% renewable energy target by 2030.

Onshore wind

New Zealand is considered to have one of the most consistent wind energy resources in the world,¹¹ but it is yet to be fully harnessed. Currently the largest wind farm has capacity to generate 2% of New Zealand's electricity.

RMA and OIA frameworks present some obstacles to investment and development, and limited infrastructure outside of main centers also adds to development costs, hindering investment in this area. Despite these constraints, there are still numerous onshore wind projects in the planning, consenting and construction phases.

There is pressure on the government to unlock the country's wind energy potential through developing and refining its regulatory frameworks. Recently, three wind farm projects were referred for fast track consenting, which is expected to reduce the average consenting time by 18 months per project.¹²

Offshore wind

New Zealand's offshore wind resources are even greater than onshore, but the potential of offshore wind farms is only recently being explored. There is currently a lack of any specific regulatory framework for this sector, and, at present, there are no offshore wind developments. However, the government has committed to developing an offshore renewable energy framework (including offshore wind farms) by 2024. This has heralded a surge in offshore wind proposals from investors, concentrating on the Taranaki region.

 

Green hydrogen

In line with global trends, New Zealand is actively promoting green hydrogen to bridge the gap between electrification and complete decarbonization, through production of hydrogen fuels using electricity from renewable sources. The green hydrogen industry is in its early stages, but significant growth is anticipated in this area.

The government has partnered with communities, industry, and academics to explore the production and use of green hydrogen in various sectors. As of April 2022, there were 22 government-linked green hydrogen projects in New Zealand and this number is growing.¹³ The private sector has also taken a leading role in the development of New Zealand's green hydrogen capabilities.

New Zealand faces challenges to this industry from global factors, including high production costs, limited infrastructure, and the need for further research and development. Regulatory systems are not well equipped to promote new hydrogen technologies and applications. To address these issues, the government has launched initiatives that include funding for pilot projects and research and is actively engaged in developing regulatory frameworks and standards to ensure safety and environmental sustainability.

The government has also committed to developing a hydrogen roadmap as part of the New Zealand Energy Strategy due to be released by the end of 2024.¹⁴ The roadmap will outline the government's initial position, the role of hydrogen in New Zealand's energy system, climate and economic goals and propose government actions to establish a sustainable and safe hydrogen industry in New Zealand.

 

The future

While New Zealand is already progressing well in its transition to renewable energy, diversification in renewable energy resources is needed to achieve fully renewable electricity and a carbon neutral economy. There is broad support for renewables in New Zealand, including from the government, which is reviewing regulatory settings to support investment in renewable energy. It’s an exciting time for New Zealand's bright green future.

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¹ Ministry of Business, Innovation & Employment, "Energy in New Zealand 2023" (August 2023) Ministry of Business, Innovation & Employment at 3.
² Ministry of Business, Innovation & Employment, above n 1, at 10.
³ Ministry of Business, Innovation & Employment, above n 1, at 10.
⁴ Invest New Zealand, "Renewable Energy".
⁵  Ministry of Business, Innovation & Employment, "Consenting improvements for renewable electricity generation and transmission" (20 April 2023).
⁶ Invest New Zealand, above n 4.
⁷ Ministry of Business, Innovation & Employment, above n 5.
⁸ There may be other consent requirements under the OIA, for example if the amount of the investment required exceeds the relevant threshold in the Act (generally, NZD100 million).
⁹ Energy Efficiency and Conservation Society "Wind"<www.eeca.govt.nz>.</www.eeca.govt.nz>
¹⁰ Ministry of Business, Innovation & Employment Energy in New Zealand 2023 (August 2023) at 13.
¹¹ At 72.
¹² Beehive.govt.nz Hon Dr Megan Woods and Hon David Parker "Fast- tracked wind farms will cut emissions and create jobs" (press release, 7 August 2023).
¹³ Ministry of Business, Innovation & Employment "Hydrogen in New Zealand" (9 August 2023).
¹⁴ Ministry of Business, Innovation & Employment "New Zealand's hydrogen roadmap" (9 August 2023)<www.mbie.govt.nz>.</www.mbie.govt.nz>