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1、THE FUTURE IS ELECTRIC 1BOSTON CONSULTING GROUPTHE FUTURE IS ELECTRICA Decarbonisation Roadmap for New Zealands Electricity SectorBOSTON CONSULTING GROUP2 THE FUTURE IS ELECTRIC 3BOSTON CONSULTING GROUPContents1.Purpose and scope of this report 52.Summary of the electricity transition under our road

2、map 63.This report at a glance 83.1 Executive summary 93.2 Future challenges facing the electricity sector 103.3 Our preferred pathway 103.4 Implications for the sector 113.5 Roadmap to deliver a successful transition 143.6 Policy,market,and regulation recommendations to support the sectors decarbon

3、isation 164.The electricity sector is critical to achieving decarbonisation in New Zealand 204.1 New Zealands energy transition is unique 214.2 Emissions reductions are a priority for New Zealand 214.3 Theelectricitysector,viaelectrificationandrenewablegeneration,willdelivermoreemissionsreductionsth

4、an any other sector 235.New Zealands evolving energy sector 325.1 Evolving priorities have shaped New Zealands electricity sector;decarbonisation is now front and centre 335.2 New Zealands energy system has performed well across the energy trilemma 365.3 The global energy transition could risk energ

5、y equity and security if not well-managed 405.4 Decarbonisation is changing the context:4 trends that will change New Zealands energy system 445.5 Four energy challenges core to the sectors transition 535.6 The importance of whole-of-sector thinking across the 4 energy challenges 626.Keyfindingsandm

6、odelling666.1 Our 5 Pathways 676.2 Modelling outcomes 736.3 Preferred pathway 826.4 Evaluation of 9 fundamental questions 897.Decarbonisation roadmap 1167.1 A roadmap for the 2020s,2030s,and 2040s 1177.2 The importance of applying a whole-of-sector perspective to this roadmap 1197.3 Addressing our 4

7、 energy system challenges 1208.Policy,market,and regulatory recommendations to support the future electricity sector and achieve the preferred pathway 140Recommendation theme 1:Support accelerated renewables development 143Recommendation theme 2:Encourage the right energy and capacity mix 148Recomme

8、ndation theme 3:Scale transmission and distribution network investment 177Recommendation theme 4:Enable a smart electricity system 181Recommendationtheme5:Drivedecarbonisationthroughelectrification193Recommendation theme 6:Enable the implementation of this roadmap 1969.Conclusion 20010.Acknowledgeme

9、nts 201Glossary 202BOSTON CONSULTING GROUP4 Boston Consulting Group(BCG)was commissioned to write this independent report on behalf of several participants across the electricity sector,comprising generators,distributors,and retailers.1Concept Consulting conducted the quantitative modelling of pathw

10、ays used in this report.BCG has drawn on this modelling,together with other data sources,to produce the resulting insights,conclusions,and recommendations.RSM has provided probity assistance to ensure that the report is held to the highest standard of independence and integrity.This includes attendi

11、ng meetings between BCG and sector participants and confirmingthatchangesmadetothedraftreportarebased on facts and not subjective interpretation.Russell McVeagh has provided compliance assistance to ensure appropriate information barriers and confidentialityrequirementshavebeenobservedbetween sector

12、 participants in the provision of information to BCG.Disclaimer1.Sector participants that commissioned this independent report include Contact Energy,Genesis Energy,Mercury,Meridian Energy,Vector,Unison Networks,Powerco,Wellington Electricity,and Orion.Manawa Energy,Lodestone Energy,Eastland,Nova En

13、ergy,Transpower,and Copenhagen Infrastructure Partners provided data but otherwise were not involved in the commissioning of this report.4 DISCLAIMERTHE FUTURE IS ELECTRIC 5BOSTON CONSULTING GROUP1.Purpose and scope of this reportThis report presents a holistic view of Aotearoa New Zealands electric

14、ity sector today and how the sector can evolve to best contribute to the countrys decarbonisation objectives.This holistic view is critical to ensuring the sector makes the greatest possible contribution to emissions reduction while maintainingaffordableandreliableelectricityforallNew Zealanders.In

15、this report,we evaluate potential pathways for the sector and answer fundamental questions about New Zealands future energy system to identify a preferred pathway.We detail a roadmap and recommendations for the sector to achieve this pathway.We have considered the entire electricity value chain(gene

16、ration,transmission,distribution,retail,and behind-the-meter)in an impartial way.The resulting roadmap and recommendations represent the best contribution the sector can make to New Zealands decarbonisation,not what is best for a given sector participant.Sector participants have contributed to this

17、report by providing and fact-checking data,but we have developed the analysis and recommendations independently(see disclaimer on previous page).This report covers the existing electricity value chain aswellasadjacentelectrifiablesectors.Wehaveonlydiscussed broader energy considerations when they ha

18、ve a direct bearing on the electricity market.This reportdoesnotdelveintohighlyimprobableshiftstothe electricity market,nor does it assign roles and responsibilities for implementing recommendations.Authors noteA list of technical terms and abbreviations are provided in the glossary at the end of th

19、is report.Alldollarfiguresareinrealterms(i.e.,inflationhasbeen taken into account of)and New Zealand dollars,unless indicated otherwise.THE FUTURE IS ELECTRIC 5Purpose and scope of this reportBOSTON CONSULTING GROUPBOSTON CONSULTING GROUP6 SUMMARy OF THE ELECTRICITy TRANSITION UNDER OUR ROADMAP2.Sum

20、mary of the electricity transition under our roadmapv Summary of the electricity transition under our roadmapTHE FUTURE IS ELECTRIC 7BOSTON CONSULTING GROUPvThe electricity sector can enable rapid decarbonisation of the energy system.The 2020s will be a critical decade for the electricity sector and

21、 New Zealands transition to net zero carbon.With decisive,early action supported by the right policy,regulatory,and market settings,the electricity system can:By 2030 Transition to 98%renewables and kick-startelectrification,reducingNew Zealand emissions by 8.7 Mt CO2-e per yearBy 2050 Enablerapidel

22、ectrificationoftransport and heating,reducing New Zealand emissions by 22.2 Mt CO2-e per year This roadmap leads to faster and greater emissions reductions from the electricity sector than outlined by the Climate Change Commission(CCC).2 If it is adopted,it would signal the sectors dedication to the

23、 rapid and deep decarbonisation of New Zealands energy system.These exciting outcomes are within reach for New Zealand but only if action is taken at pace.It will require unprecedented investment across generation,storageandnetworksbutwillleadtoflathousehold electricity bills and declining household

24、 energy bills.Deep,rapid decarbonisation at the lowest cost to consumers reliesonaswiftbuildofrenewablegeneration.Itwillseedemand peaks and dry years(when less hydroelectric generation is available)supported by batteries,demand response,some renewable generation overbuild(building more wind and sola

25、r generation than is ordinarily needed),and a small amount of fossil fuel generation(2%of total generation)in 2030.It will require an investment of$42 billion in the 2020s,including increased spend across generation,transmission,and distribution.Modelling shows that this investment can be supported

26、with slight increases in electricity unit prices while continuedenergyefficiencyimprovementshelphousehold electricity bills(excluding electric vehicles)remainflat.Theenergytransitionwillultimatelyleadtolower average household energy bills around 10%lower in 2030and45%lowerin2050asconsumersbenefitfro

27、msignificantfuelsavingsduetotheelectrificationoftransport.To deliver this future,the electricity system will undergo a rapid transformation,starting in the 2020s.In the 2020s,the system will transition from one that consistsofprimarilybaseload,mid-meritandflexibleresources to one that comprises most

28、ly intermittent and flexibleresources.Asmoreintermittentgenerationentersthe electricity system and over 95%renewables is achieved,the value of slow-start thermal power plants formeetingpeakdemandwilldeclinesignificantly.This results in North Island peaks becoming increasingly difficulttomeet,buttheg

29、reaterenergyprovidedfromnew renewable generation will assist with alleviating dry year risk.These factors result in an increasing need forfaster,moreresponsiveflexiblesupply-sideanddemand-side resources.Additionalfaster,moreflexibleresourcesthatcouldprovidetherequiredflexibilitythisdecadeincludebatt

30、eries,opencycle gas turbines(OCGT)and dynamic demand response.Today,however,batteries are not yet economic enough to be deployed on a very large scale and there is carbon risk associated with investing in new gas generation.Smart systemenablers,likeautomationandartificialintelligence(AI),are also on

31、ly emerging in networks.As we transition to broad-based,near real-time,highly automatedsystemflexibilityinthe2030s,networksmayneedtorelyonmoremanual,targetedmeansofflexibilityin the 2020s.There are several challenges,but none are insurmountable.Policy,regulatory,and market reforms will be required t

32、o enable the transition this decade.From 2030,the transition will likely become easier as the cost of technologies like lithium-ion batteries,long-duration storage,zero-emissions generation and smart system enablers decline in the 2020s.With this storage and smarts,the system will become less relian

33、t on fossil fuels to meet peaks and dry years.Electricity networks,particularly distribution networks,willalsobenefitfromthisincreasedsystemflexibility,allowingthemtobettermanagecomplex,multi-directionalpowerflowsthatwillemergeontheir networks.Aotearoa New Zealand has a world-leading electricity sec

34、tor,butslowreformwillsignificantlyjeopardisethisposition.Timely,meaningful reform could lead to a system of almost 100%renewables by 2030 that delivers moreaffordablehouseholdenergythantoday.This report outlines what the electricity sector needs to do to deliver this transition,and the required poli

35、cy,regulatory,and market settings required to drive this change.2 Climate Change Commission,IniaTonuNei,2021BOSTON CONSULTING GROUP8 THIS REPORT AT A GLANCE3.This report at a glanceThis report at a glance8THE FUTURE IS ELECTRIC 9BOSTON CONSULTING GROUP3.1 Executive summaryNew Zealands energy system

36、is one of the best in the world.It is ranked 9th in the world and 1st in Asia for its combined equity,security,and sustainability.3 New Zealands high share of renewable electricity(82%)is a major contributor to this performance,enabling NewZealandtoaffordablygeneratealowlevelofemissions and be resil

37、ient to global energy shocks.New Zealands electricity sector can improve this ranking by playing a major role in decarbonising the broaderenergysector,improvingenergyaffordability,and increasing energy independence.Despite this high share of renewable electricity,only 28%of New Zealands total energy

38、 consumption is from renewable sources.Roughly 30%of New Zealands gross emissions come from sources that can be decarbonised by the electricity sector.By powering these sources with renewable electricity,household energy bills could decline by 10%by 2030 and 45%by 2050.New Zealands reliance on forei

39、gn oil imports will also decline substantially as transportiselectrified,increasingenergyindependenceand resilience to global energy shocks.Electrifying transport and heat,and increasing renewableelectricity,willbethemostsignificantcontributors to New Zealand achieving net zero carbon by 2050,delive

40、ring an estimated 70%,or 22.2 Mt CO2-e per year,of the gross emissions reductions required to achieve New Zealands net zero carbon target by 2050.Thisincreasedelectrificationandrenewableelectricity will also kick-start the energy sectors decarbonisation journey to 2030.Our modelling shows that it ma

41、kes economic sense for New Zealand to reach 98%renewable electricity by 2030.This,combined with acceleratingelectrificationoftransportandheat,willdeliver 8.7 Mt CO2-e of emissions reductions in 2030,equivalent to a 27%reduction in energy emissions over the next 8 years.This represents faster and gre

42、ater emissions reductions from the electricity sector than outlined by the Climate Change Commission.Delivering this future will require an unprecedented investment of$42 billion in the 2020s,including:$10.2 billion in 4.8 GW of new utility-scale renewable generation capacity more than a 50%increase

43、 on installed capacity in the system today.$1.9 billion in new flexiblegeneration and demand resources to cater for peak demand periods and dry years.Thisrepresents4timesthesupply-sideflexiblecapacity that was developed in the 2010s.$8.2 billion in transmission infrastructure to enable new renewable

44、andflexiblegeneration.Investmentsinkey projects like Central North Island,Wairakei Ring and an additional HVDC cable will be critical.$22 billion in distribution infrastructuretoenableelectrificationin the 2020s and prepare networks for rapid electrificationandmulti-directionalflowsofelectricity in

45、the 2030s.Total investment need in 20262030 is forecast to be 30%higher than 20212025.Asignificantincreaseinskilledworkforceacross the electricity value chain is required to deliver this investment.3 World Energy Council,Trilemma Index,2021BOSTON CONSULTING GROUP10 THIS REPORT AT A GLANCE3.2 Future

46、challenges facing the electricity sectorDecarbonisation poses challenges for the electricity sector,but none are insurmountable.To date,New Zealands electricity sector has maintained reliable andaffordableelectricitywhilereducingemissions.Theelectricitysectorssignificantcontributionto New Zealands e

47、mission reduction journey relies on 4 conditions:1.New renewable generationatasufficientpace2.Sufficientflexibledemandandgenerationcapacity to meet increasing peak demand3.Sufficientflexibledemandandgeneration energy to meet dry year energy needs when less hydroelectric generation is available4.Suff

48、icientnetwork infrastructure(including smart virtualinfrastructure)tomeetnewelectrificationdemand,connect new renewable generation sources,andprovideflexiblenetwork capacity 3.3 Our preferred pathway We assessed multiple decarbonisation pathways to deliver these conditions.The preferred pathway,Smar

49、t System Evolution,encourages a smart whole-of-system transition,deploying a range of technologies including batteries,distributed energy,and demand response.It ensures emissions reductions comparable to a 100%renewable electricity scenario,the lowest total system cost,the mostaffordablehouseholdene

50、rgybills,andreliableelectricity supply.It also achieves 98%renewable electricity by 2030 and retains optionality to strive for 100%renewables beyond 2030 existing thermal plantscanberetrofittedforgreenfuelsorreplacedby other storage technologies.By 2030,this pathway saves$1.9 billion in total system

51、 costs,reduces average annual household bills by$70,and reduces emissions by an additional 205 kt CO2-e,relative to a business-as-usual pathway.10 THIS REPORT AT A GLANCETHE FUTURE IS ELECTRIC 11BOSTON CONSULTING GROUPOur assessment of the various pathways for the electricity sector also generated c

52、ritical insights:1.Electrificationwillsupportdecarbonisation,improve household energy bills,and increase the resilience of New Zealands energy system.It will remove 18.4 tonnes CO2-e per year by 2050.It is forecast to substantially reduce average(mean)household energy bills by about 10%in 2030 and 4

53、5%in 2050.It will also improve New Zealands energy independence,increasing energy supplied from domestic production from 55%today to 8590%in 2050.2.Asmarter,moreflexibleelectricitysystemwill save around$10 billion on an NPV basis to 2050,incorporating demand response,smart electric vehicle(EV)chargi

54、ng,and distributed energy resources.Investment in new technologies like distribution network visibility and coordination will unlock many of these measures,enabling at least 2 GW of demand-sideflexibilityby2030and5.8GWofdemand-sideflexibilityby2050.3.Todays just-in-time approach to transmission and

55、distribution network investment wont be suitable for the expectedrapidelectrificationandrenewable generation development.The existing regulatory system supports just-in-time investment decisions in a relatively stable environment,waiting as late as possibletoachieveconfidencebeforeeachincrement of i

56、nvestment.However,with rapidelectrificationandrenewablegenerationdevelopmentonthehorizon,asignificantincrease in network investment is needed under conditions of higher uncertainty,ahead of time.Late investment will stall low-cost renewable generation development andelectrification,increasingemissio

57、nsand net prices for consumers.Electrification supports decarbonisation,affordability and energy independenceFossil-fuel power stations have a role to play but reliance on them will decreaseSmarter,more flexible system saves$10 billion to 2050Large scale pumped hydro has some advantages but also dra

58、wbacksAhead of time investment needed for networksA hard 100%renewable electricity target will lead to sub-optimal outcomes162345Hydrogen export facility could provide valuable demand-side flexibilityImplementing a suite of low cost solutions will maintain optionalityElectricity and biomass likely t

59、o displace reticulated gas through time789THE FUTURE IS ELECTRIC 113.4 Implications for the sectorBOSTON CONSULTING GROUP12 THIS REPORT AT A GLANCE4.The Lake Onslow pumped hydro project has several advantages as well as some drawbacks.Lake Onslow would provide 5,000 GWh of low carbon inter-year stor

60、age to support security and 100%renewable electricity in all hydrological years.Lake Onslow can provide real-time system stability,peaking capacity,and dry year support making it an all-round flexible,renewableresource.LakeOnslowwould also reduce the renewable overbuild needed to meet electricity ne

61、eds in dry years and reduce the electricity markets reliance on gas.There are also some drawbacks,including cost,and its location in the South Island being less suited to meeting North Island peaks.The Governments$80 million investigation into Lake Onslow will provide improved information on the pro

62、ject,including greater details on the cost,timeline to build,generation capacity,lake storage,how Lake Onslow will operate in the market,and other aspects like consenting.Until these details emerge it is too early to develop a strong view on its viability.5.A hard 100%renewable electricity target wi

63、ll likely lead to sub-optimal outcomes.New Zealand is likely to achieve 98%renewable electricity by 2030 in the absence of a hard target.The return on investment for achieving the additional 2%of renewable electricity will come at a marginal abatement cost of$340 to$2,000 per tonne of CO2-e.Phasing

64、out thermal generation entirely could also pose reliability and resilience risks and inhibitelectrificationduetotheresultinghigher prices,leading to lower overall emissions reductions.Closer to 2040,the cost to transition the electricity system from 98%to 100%renewable electricity is likely to be mu

65、ch lower as relevant technologiesbecomesignificantlymoreaffordableandnewtechnologiesemerge.6.Fossil fuel power stations have a role to play through the transition but our reliance on them will reduce substantially through time.As we transition,gas will still likely be needed to support the system du

66、ring dry years.Dry years will remain a critical issue but will be alleviated by new solar and wind generation.Gas will also support in extenuating peak circumstances over the next decade.In the 2030s and beyond,theneedforfastresponse,flexiblegeneration,and demand capacity will be increasingly addres

67、sed due to declining costs of storage technologies and smart demand response.As the requirement for thermal peaking generation and capacity declines from 2030,there is the potential to use biofuels instead of natural gas near 2040,achieving 100%renewable electricity and further reducing greenhouse g

68、as emissions from electricity generation.THE FUTURE IS ELECTRIC 13BOSTON CONSULTING GROUP7.Ahydrogenexportfacilitycould providevaluabledemand-sideflexibilitybutwouldonlybeeffectiveiftheuniteconomics of producing hydrogen in New Zealand stack up.A facility in New Zealand(whereby most of the hydrogen

69、is exported)could reduce wholesale electricity sector costs by$50 million per year.Economically,the facility could add$400600 million GDP per year to the New Zealand economy and 4,100 7,200 jobs.The value to the grid ofprovidingdemand-sideflexibilitycouldbe a negative for hydrogen customers internat

70、ionally:the production would likely be exported to Japan and South Korea where reliability and regularity of supply would likely be valued.This may require either storage or contractual solutions.8.Electricity and biomass will likely displace gas for low-and medium-temperature processes;hydrogen is

71、unlikely to be an economic alternative to gas in pipelines.Electricity is cleaner and cheaper than coal or gas for low-temperature processes,and a lower cost and easier way to decarbonise gas than hydrogen.However,there are some use cases like steel production and very heavy transport where hydrogen

72、 is likely to be the most suitable decarbonisation fuel.9.A suite of low-cost solutions that maintain optionality is required to meet New Zealands system stability,peak capacity,and dry year energy needs,and support an electricity sector comprised of more than 98%renewables.To achieve New Zealands e

73、missions reduction objectives,we need a suite of solutions.As we transition away from fossil fuels,differentsolutionswillprovidedifferentservices(real-time,peaking,and dry year)across varying time durations at the most effectivecost.Thesolutionswillcontinueto evolve as technology improves so maintai

74、ning optionality will support a lower cost transition.BOSTON CONSULTING GROUP14 THIS REPORT AT A GLANCE3.5 Roadmap to deliver a successful transitionThis report provides a roadmap to deliver the preferred pathway and the best outcomes for New Zealand:Source:Concept modelling,BCG analysisSummaryElect

75、rification enablers2020s2030s2040sRapidly build renewable generation to reach 98%renewable electricity;phase out coalRamp up electrification supported by targeted thermal gen.,demand flexibility and storageTurbocharge electrification through a continued fast build of renewable electricityDevelop new

76、 flexible renewables,storage options and a highly automated demand-sideContinue electrification at pace to support close to full decarbonisation of key sectorsSignificantly scale up batteries and embrace new smart demand technologiesRapidly electrify light vehicle fleet1 million EVs by 2030Commence

77、large-scale transition of low/med temp.heat to electrification and biomassPhase out ICE vehicles;transition heavy vehicles to electric/hydrogen2.4 million EVs by 2040Transition low and medium temp.processesElectrify almost all land transport4.3 million EVs by 2050Scale up elec./hydrogen for high tem

78、p.processes;phase out fossil fuels in buildings Additionalcapacity2020s4.8 GW2030s5.3 GW2040s5.0 GWAdditionalgeneration2020s10.6 TWh2030s10.8 TWh2040s12.8 TWh%renewableelectricity2020s98%2030s99%2040s99%(Option to achieve 100%at low cost)End-of-decade dry year energy contribution2020s2030s2040s7.6 T

79、Wh8.7 TWh9.4 TWhAdditional peak demand needs2020s2030s2040sSupply-side flexibility(peakers,storage)Demand-side flexibility(EVs,demand response)0.8 GW1.7 GW1.2 GW2.1 GW1.1 GW2.0 GWTransmissionInvestment 2020s2030s2040s$8 billion$10 billion$11 billionDistributionInvestment 2040s$24 billion2030s$25 bil

80、lion2020s$22 billionEnd-of-decade emissions abated by electricity sector(CO2-e per year)2020s2030s2040s8.7 Mt15.6 Mt22.2 MtTHE FUTURE IS ELECTRIC 15BOSTON CONSULTING GROUPWe took a whole-of-electricity sector view of the work already underway and compared it with what needs to be done to achieve thi

81、s roadmap.We found:There is more than enough renewable energy generation in the project pipeline to achieve the roadmaps aim of 98%renewable generation by 2030.There are 10.9 GW of new utility-scale renewables intended to be built against a need of 4.8 GW by 2030.Moreflexible,supply-sideresourcesmay

82、needtobeadded to the pipeline and this is likely to occur as storage costs improve.To achieve peak demand by 2030,we need 1.1 GW of new supply-side peaking resources(OCGT or batteries)by 2030.There are 1.3 GW of resources in the pipeline but 1.1 GW of this is in early concept stage.It is likely that

83、 some early-stage projects will be developed,and new projects will emerge as the cost of storage declines rapidly.Thepipelineofflexible,demand-sideresourcesisoccurringatasufficientpacetomeetdemand.However,the pace of change required to enable a smart system is likely to accelerate over the 8 years a

84、ndthesectorwillneedtoincreaseeffortsby2030.Thereissufficientflexiblecapacityandgenerationin the pipeline to meet dry year demand by 2030.Around 60%of dry year need can be met by renewable overbuild.The remaining 40%can be met by gas or large-scale demand response.If renewable overbuild does not occu

85、r to the levelidentified,gascouldcoverdryyearriskprovidedthereisgasmarketflexibility.Therearealso several other potential dry year projects (e.g.,Lake Onslow,Southern Green Hydrogen,and biomass trials at Huntly)underway which could provide dry year support.There are plans to invest$22 billion in the

86、 2020s in distribution infrastructure to support electrificationanddistributedenergyresources.This is a 30%increase in spend in 20262030 relativeto20212025andissufficientforincreasedelectrificationprovideditissupportedbyregulatoryallowances.Smart network initiatives are occurring atasufficientpace.H

87、owever,thepaceofchangerequired to enable a smart system is likely to accelerate over the next 8 years and the sector will needtoincreaseeffortstoachievewhatisneededby 2030.Thereissufficienttransmissionplannedforincreasedrenewablegenerationandelectrificationunder Transpowers Net Zero Grid Pathways pr

88、ogram,however timely delivery of this will be critical.Electrificationoftransportandprocessheatisincreasingsignificantlyprimarilyduetothereformed emissions trading scheme(ETS),the Clean Car Discount and the GIDI fund.Average monthly EV registrations have increased by 5 times since the introduction o

89、f the Clean Car Discount,while over 50 industry decarbonisation projects have been co-funded under the GIDI fund.BOSTON CONSULTING GROUP16 THIS REPORT AT A GLANCEWhile on paper this progress and these intentions are positive,it is unlikely that the required activity will be delivered at the pace nee

90、ded to achieve the preferred pathway.This is because:1.In some instances,policy,regulatory and market settings do not provide incentives that align with these intentions for example,providing smart flexibilityindistributionnetworkswilllikelyrequireimproved funding mechanisms and allowances.2.In some

91、 instances,policy,regulatory,and market settings may create barriers to deploying the required infrastructure for example,the Resource Management Act(RMA)could inhibit the level of new renewable generation development required.In absence of timely reform in these critical areas,weexpectemissionsredu

92、ctions,affordability,andreliability of supply to be compromised.To deliver the roadmap,New Zealand needs a policy,regulatory,and market environment that encourages and facilitates action from government and sector participants.These actions include:1.Support accelerated renewables development.Ensure

93、 consenting frameworks enable rapid renewable development(high priority);develop mechanisms to mitigate supply chain risks,improve opportunities for Iwi investment that providecommunitybenefits;andfacilitateadeeper power purchase agreement(PPA)market.2.Encouragetherightenergyandcapacitymix.Assess an

94、d deploy market mechanisms to provide New Zealand with the assurance of both capacity and energy to manage peak demand and dry years,including:Recommended for implementation:Deepen contract and derivatives markets,including for demand-side(high priority);implement an emergency reserve scheme;improve

95、 forecasting;improve tracking,monitoring,and visibility of markets and price formation;inflationindexscarcitypricing;andinflationindextheCustomerCompensationScheme charge.Recommended for investigation:Assess an Operating Reserve Demand Curve to enable increased reserve cover(high priority);a 30-minu

96、te reserve service;a day-ahead market;a limited dispatch mandate;and a retailer reliability obligation.3.6 Policy,market,and regulation recommendations to support the sectors decarbonisationTHE FUTURE IS ELECTRIC 17BOSTON CONSULTING GROUP3.Scale transmission and distribution network investment.Accel

97、erate transmission development to enable renewable generation(high priority);scale distributioninvestmenttoenableelectrification(high priority);and consider options for Renewable Energy Zones.4.Enable a smart electricity system.Improve distribution peak pricing signals and smart managedtariffs(high

98、priority);establish a roadmapforformingcompetitiveflexibilitymarkets(high priority);update regulatory frameworks to support virtual network investment including implementing totex funding(high priority);mandatedefaultoff-peakEVcharging(high priority);and enable network investment in key aspects of o

99、rchestration,including visibility and operations.5.Drivedecarbonisationthroughelectrification.Provide a roadmap from Clean Vehicle Standards to an ICE vehicle import ban;extend GIDI funding(if required);and improve the ETS in line with New Zealands emissions targets.6.Implement this roadmap.Deliver

100、this whole-of-sector roadmap,coordinating with the National Energy Strategy(high priority);and implement a sector workforce development strategy.New Zealand faces an exciting opportunity to build on the strong steps already taken and decarbonise the electricity sector.By working together and applyin

101、g systems-thinking,the electricity sector can unlock a cleaner,greener,more equitable Aotearoa New Zealand.BOSTON CONSULTING GROUP18 THIS REPORT AT A GLANCESupport accelerated renewables development2022-2025Ensure consenting frameworks enable rapid renewable deployment via RMA reform2026-2030Continu

102、e to improve consenting frameworks to enable rapid renewable deployment2026-2030Encourage the right energy and capacity mix2022-2025Progress work to deepen contract marketsProgress investigations into mechanisms to extend reservesImplement an emergency reserve schemeInflation index scarcity pricing

103、and Customer Compensation Scheme2026-2030Implement deepened contract marketsImplement mechanisms to extend reservesReview efficacy of emergency reserve schemeReview price signals to assess sufficiencyScale up transmission and distribution network investment2022-2025Accelerate approvals and consentin

104、g for key enabling transmission projectsEnsure distribution funding for 2026-30 is sufficient to enable electrificationDeliver key enabling transmission projectsImplement efficient distribution funding flexibility mechanisms to enable investment where unforeseen needs arise2026-2030Enable a smart el

105、ectricity system2022-2025Improve distribution peak pricing signals and smart managed tariffsEstablish roadmap for formation of competitive flexibility marketsUpdate regulatory frameworks to support virtual network investmentMandate default off peak electric vehicle chargingContinue to improve distri

106、bution peak pricing signals and smart managed tariffsImplement roadmap for formation of competitive flexibility marketsImplement TOTEX funding framework and new innovation mechanismsIncrease network investment in orchestration,including visibility and operationsDrive decarbonisation through electrif

107、ication2022-2025Further strengthen ETS and policies to support transport and heat decarbonisation2026-2030Establish ban on ICE vehicles from 2032-2035Extend and expand GIDI funding if requiredEnable the implementation of this roadmap2022-20252026-2030Implement roadmap and continue to monitor progres

108、sEvolve and update roadmap as context evolvesDevelop joint industry statement of intent and action planImplement roadmap and incorporate into National Energy StrategyRoadmap of priority recommendations in the 2020sThis report provides a roadmap for the implementation of the priority recommendations

109、this decade THE FUTURE IS ELECTRIC 19BOSTON CONSULTING GROUPBOSTON CONSULTING GROUP20 THE ELECTRICITy SECTOR IS CRITICAL TO ACHIEVING DECARBONISATION IN NEW ZEALAND4.The electricity sector is critical to achieving decarbonisation in New ZealandThe electricity sector is critical to achieving decarbon

110、isation in New Zealand20THE FUTURE IS ELECTRIC 21BOSTON CONSULTING GROUP4.1 New Zealands energy transition is unique This section provides an overview and context for New Zealands energy transition and highlights the role that the electricity sector can play in New Zealands energy system.NewZealands

111、emissionsprofileisunlikethatof any other country.It has one of the worlds most renewable electricity sectors at 82%in 2021,but some of the highest emissions per capita in the world.4 Agriculture plays a big part in these emissions accounting for nearly half of New Zealands gross greenhouse gas emiss

112、ions,while electricity represents only 6%of emissions.5 Other than agriculture,transport and heat are the major sources of emissions,representing 31%of New Zealands gross emissions and 50%of emissions covered under the 2050 net zero carbon target(which excludes biogenic methane).By electrifying thes

113、e 2 areas,leveraging its highly renewable electricity sector,New Zealand has a significantopportunitytodecarbonise.4.2 Emissions reductions are a priority for New ZealandNew Zealand,as with all countries,needs to play its role in the global transition to a net zero economy.With the 2nd highest level

114、 of emissions per GDP in the Organisation for Economic Co-operation and Development(OECD),New Zealand is lagging other developed economies(see Exhibit 1).6 The 2020s will be a critical decade for the electricity sector to change the emissions trajectory and enable New Zealands transition to net zero

115、 carbon.The sector appears to strongly support the countrys climate change objectives.Exhibit 1:New Zealands gross emissions have increased by 17%since 1990Source:The World Bank2000201019901995-20%20052015-40%0%20%40%Change in gross greenhouse gas emissions v 1990(%)AustraliaNew ZealandUnited States

116、JapanEuropeanUnionUnitedKingdom4 Worldometer,CO2 Emissions per Capita,20225 Climate Change Commission,IniaTonuNei,20216 OECD,Environmental pressures rising in New Zealand,2017BOSTON CONSULTING GROUP22 THE ELECTRICITy SECTOR IS CRITICAL TO ACHIEVING DECARBONISATION IN NEW ZEALANDNew Zealand has 2 mai

117、n legislated emissions targets:In a 2021 letter to the Prime Minister and Ministers of Energy and Resources,the Environment and Climate Change,11 of the largest electricity sector participants sector wrote:We recognise and fully support the urgent need to take bold action to achieve the goal of net

118、zero carbon emissions by 2050.The delivery of secure,affordable,andlowcarbonenergy is critical for a successful transition,and we want to support this outcome for Aotearoa New Zealand.7 By 2030,a 50%reduction in net greenhouse gas emissions below gross 2005 levels 10%reduction in biogenic methane em

119、issions below 2017 levels by 2030By 2050,net zero carbon excluding biogenic methane 24 47%reduction in biogenic methane emissions below 2017 levels by 2050TheGovernmentrecentlyreleaseditsfirstemissionsbudgets and Emissions Reduction Plan,which aim to ensure these targets can be met(see Exhibit 2).Em

120、issions budgets from Governments Emissions Reductions Plan2030:Net emissions target of 41 Mt CO2-e12050:Net zero carbon+2017 biogenic methane target20206040801002005201020152020202520302035204020452050Net emissions(Mt CO2-e)18-25 MtFurther abatement actions requiredInternational carbon offsets requi

121、redHistoric emissionsNew Zealands commitments at COP26Current policy settingsClimate Change Commission demonstration pathDraft Emissions budgets1.50%of New Zealands gross emissions in 2005(82 Mt CO2-e)2.24-47%reduction on 2017 levelsNote:New Zealand has committed to reducing biogenic methane to 24-4

122、7%below 2017 levels(33.5 Mt CO2-e),21.6 Mt CO2-e is midpoint of 24-47%reductionSource:Climate Change Commission,Ministry for the EnvironmentExhibit 2:New Zealands emissions commitments7 Contact Energy,Genesis Energy,IEGA,Meridian Energy,Mercury,Orion,Powerco,Transpower,Trustpower,Unison,and Vector,B

123、acking the transition to a thriving low carbon economy for Aotearoa New Zealand,2021THE FUTURE IS ELECTRIC 23BOSTON CONSULTING GROUP4.3 The electricity sector,via electrification and renewable generation,will deliver more emissions reductions than any other sectorAlthough 82%of New Zealands electric

124、ity is renewable today,only 28%of the countrys total energy consumption is met by renewable sources.A large proportion of this non-renewable energy is oil(petrol and diesel)used for transport.Estimates are that the proportion of energy derived from renewable sources will need to be 50%by 2035 and 80

125、%by 2050 to reach emissions targets.8 While every part of the economy must contribute to New Zealands decarbonisation objectives,the electricity sector can play a critical and substantive role throughout the 2020s across 3 measures:Electrifying transport Electrifying process heat,and space and water

126、 heating in buildings Increasing the proportion of electricity provided by renewable resourcesWith these 3 measures,the electricity sector can reduce emissions from sectors that account for up to 30%of gross emissions,equivalent to 50%of emissions covered under New Zealands net zero target(a target

127、which excludes biogenic methane),from 2019 levels by 2050(see Exhibit 3).Exhibit 3:The electricity sector can directly support emissions reduction in activities accounting for 30%of New Zealands emissions1012%Other energy6%Electricity generation2%Space and water heating10%Other emissions6%Low/med te

128、mp process heat16%Light/med vehicles48%AgricultureEmissions that can be addressed by the electricity sectorSource:Climate Change CommissionNew Zealand 2019 gross emissions(Mt CO2-e)Source:Climate Change Commission8 Climate Change Commission,IniaTonuNei,2021BOSTON CONSULTING GROUP24 THE ELECTRICITy S

129、ECTOR IS CRITICAL TO ACHIEVING DECARBONISATION IN NEW ZEALANDEven with New Zealands current electricity mix,electrificationrepresentsalargeemissionsreductionopportunity.Concept Consulting estimates electrificationcouldreduceNewZealandsbaselineemissions by 4.8 Mt CO2-e in 2030.Transpowers electrifica

130、tionroadmapestimatedthatacceleratedelectrificationcouldreduceemissionsbysimilaramounts:2.7 Mt CO2-e per year by 2030(which excludes further abatement from electricity generation).9 With more renewable electricity,this would increase to 4.7 MtCO2-e per year by 2030.In hard-to-abate areas such as heav

131、y vehicle transport,itisunclearwhetherelectrificationorhydrogen will be the best solution.Even if hydrogen is the preferred technology for some heavy trucking,significantelectricitywillstillbeneeded.Forexample,displacing 10%of New Zealands petroleum product consumption(roughly equivalent to the shar

132、e attributable to heavy vehicle transport)with locally sourced green hydrogen would require at least 10 TWh of electricity for electrolysis,equivalent to more than 20%of New Zealands electricity consumption today.At a glance:New Zealands electrification opportunity Sector2019 energy emissions availa

133、ble for abatement (Mt CO2-e)%NZ 2019 gross emissions that could be abated%NZ emissions covered under the net zero target(excludes biogenic methane)Primary technologiesGround transport13.3 Mt16.2%25.7%Electric vehicles for light transport,buses,light and medium trucks,and some heavy transportLow to m

134、edium process heat5.0 Mt6.0%9.7%Electric heat pumps and electrode boilersHeating space and water in buildings2.0 Mt2.4%3.9%Electric heat pumpsTotal electrification potential20.3 Mt24.6%39.3%Electricity generation emissions5.1 Mt6.2%9.8%Renewable electricityTotal sector potential25.4 Mt30.8%49.1%The

135、electrification opportunityThis 30%of emissions come from ground transport(excluding heavy trucks and some rail),low-to-medium temperatureheatingprocesses,andheatingforhomesandbusinessbuildings,andcanbeeasilyelectrified.9 Transpower,ElectrificationRoadmap,2021THE FUTURE IS ELECTRIC 25BOSTON CONSULTI

136、NG GROUPExhibit 4:Renewable electricity to account for 58%of energy demand in 2050Overall,theelectrificationopportunityissignificant.CCC data and BCG analysis reveals that,from a base of 19%today,renewable electricity will make up 58%of our energy consumed in 2050(see Exhibit 4).Alongside the rise o

137、f biomass(particularly in industry),most of New Zealands energy needs will be met through domestically produced,low,or zero emissions fuels.10 Exhibit 4 highlights the impact that electricity has in reducingoverallenergydemand,duetoitsefficiency.Total energy demand will decrease by 270 TWh,while ene

138、rgy demand for transport and industry will decrease by 40 TWh and 30 TWh respectively.2 20 02 20 02 20 05 50 019%58%9%23%8%5%23%4%41%10%10%Transport5 59 943%5%19%Comm.19%8 84 47%12%29%16%61%21%Residential16%15%5%9 952%Industry55%2 20 0100%8%Primaryindustries1 16 6Renewable electricityBiomass and oth

139、erOilCoal2Gas211%42%95%7%12%30%87%Residential69%Industry32%Comm.Transport2%18%8%7%73%Primaryindustries2 20 05 53 32 20 01 14 46 6T TWWh hT TWWh h1 18 88 8 T TWWh h1 11 13 3 T TWWh hTotal energy demand1.Demand in TWh is energy consumed,not primary energy.2.Coal and gas numbers include electricity gen

140、eration,converted from primary energy to the actual TWh electricity consumedSource:Climate Change Commission,BCG analysis10 With 23%of New Zealands 2050 energy needs met by biomass and other renewable fuels,renewable energy should surpass the 80%target proposed by the Climate Change Commission.BOSTO

141、N CONSULTING GROUP26 THE ELECTRICITy SECTOR IS CRITICAL TO ACHIEVING DECARBONISATION IN NEW ZEALANDTransport electrificationElectrificationpresentsawell-establishedpathwaytoreducing the 20%of New Zealands gross emissions(16 Mt)that come from transport today,with electric vehicle(EV)development and a

142、doption accelerating globally.Road transport accounts for 91%of New Zealands transport emissions,with the remaining 9%attributable to aviation,rail,and marine where the roleofdirectelectrificationislesscertain.Forroadtransport,thereisbroadconsensusthatelectrificationis the path forward for most vehi

143、cles.The economics ofelectrificationaremostcompellingforprivatepassenger vehicles and light/medium trucks(representing 80%of transport emissions)but are more marginal for heavy trucks where green fuels such as hydrogen may be more appropriate.The Ministry for the Environment forecasts that in 2030 e

144、lectrificationofvehicleswillhaveanegativemarginalabatement cost,saving costs for consumers and the economy while reducing emissions(see Exhibit 5).EVs are already near-economic from a whole-of-life perspective.The CCC predicts that the whole-of-life cost of EV ownership will reach parity with intern

145、al combustion engines(ICE)in 2026 and will be 20%lower by 2030.By 2035,their modelling suggests a household with an EV would save more than$1,000 in energy costs per year relative to a household with an ICE vehicle(see Exhibit 6).11 Exhibit 5:2030 marginal abatement cost curve for transportation$2,0

146、00$0$4,000$6,000Household with petrol vehicleHousehold with electric vehicleHousehold energy costs 2035(Real NZD)Household electricityTransport electricityTransport petrolSource:Ministry for the Environment-100101724-300-500-400-200-600011141205681615791313Abatement cost NZ$/t CO2eAbatement potentia

147、l Mt CO2e/yrBusLight commercialLarge passengerMedium truckSmall passengerHeavy truckExhibit 6:Household energy cost savings in 2035 for a household with one electric vehicleSource:Transpower11 Climate Change Commission,IniaTonuNei,2021 THE FUTURE IS ELECTRIC 27BOSTON CONSULTING GROUPTHE FUTURE IS EL

148、ECTRIC 27BOSTON CONSULTING GROUP28 THE ELECTRICITy SECTOR IS CRITICAL TO ACHIEVING DECARBONISATION IN NEW ZEALANDHeating electrificationAftertransport,theheatusedinindustrialprocesses(process heat)and in space and water heating for buildings is the lowest cost source of emissions abatement available

149、.Process heat,which represents 9%of New Zealands emissions,includes heat used in activities to cook food(e.g.,a bakery oven),activate chemical processes(e.g.,in steel smelting),or dry products(e.g.,drying milk to form milk powder).Exhibit 7:2030 marginal abatement cost curve for process heatExhibit

150、8:7 Mt CO2-e of emissions from space and water heating and low/medium-temperature heat canbeabatedthroughelectrification2.07.02.6Space and water heating2.0TotalHigh temperature2.6Low/medium temperature5.0Process heat7.69.62 20 01 19 9 e emmi is ss si io on ns s f fr ro omm h he ea at t (MMt t C CO O

151、2 2-e e)Harder to electrifyEasier to electrifyNote:While low/medium process heat contributed 5 Mt of annual emissions in 2019 this analysis only considers part of food processing heat useSource:Transpower based on Ministry for the Environment 2020 analysisSource:Climate Change Commission1.20.20.60.8

152、0.00.42.62.42.8-150-1000501002.01.81.61.41501.02.2-50Abatement potential Mt CO2e/yrAbatement cost NZ$/t CO2eDairy EfficiencyDairy Fuel SwitchMeat EfficiencyMeat Fuel SwitchFood EfficiencyFood Fuel SwitchHorticulture Fuel SwitchOther Fuel SwitchBoth electricity and biomass will reduce emissions in pr

153、ocess heat.Low-and medium-temperature heat(below 300C),including space and water heating,accounts for 73%of New Zealands heat emissions(7.0 Mt CO2-e)and is best displaced by electric heat pumps.For medium-temperature processes(100300C)like drying milk to make milk powder,biomass isalsoaneffectivedec

154、arbonisationsolution(seeExhibit 7).For higher heat activities(over 300C),which contribute 2.6 Mt CO2-e to emissions today,hydrogenmaybeamoreeffectivewaytodecarbonise(althoughinthefuture,electrificationmaypotentiallybecome more economic).Overall,approximately 9.6 Mt CO2-ecanbeabatedthroughelectrifica

155、tion,biomass,and/or hydrogen(see Exhibit 8).This represents a large opportunity to reduce New Zealands emissions.THE FUTURE IS ELECTRIC 29BOSTON CONSULTING GROUPExhibit 9:82%of New Zealands electricity generation is renewable today02040608010020152010%of generation(%of TWh)19951990200020052020GasOth

156、er non-renewablesOther renewablesCoalWindGeothermalHydro8 82 2%renewables1 18 8%fossil fuelsNote:Other renewables includes solar(including estimates of distributed solar PV generation),biogas and wood;Other non-renewables include oil and waste heatSource:MBIE,BCG analysisNew Zealand has abundant ren

157、ewable energy resources.For the past decade,more than 80%of electricity generation has come from renewable sources(see Exhibit 9).12 Hydro provided 58%and geothermal provided 18%of generation in 2019,with the remainder of the renewable electricity produced by wind and solar.13 The country also has l

158、ots of sunshine(average of 1,670-2,100 hours a year),and windy regions(Wellington records 178 days a year at or above gale force).14,15New Zealand has developed high-performing wind farms since the 1990s,with capacity factors averaging 40%well above the global average.16,17 Reducing emissions from e

159、lectricity generation and electrification12 Climate Change Commission,Data and Modelling,202113 Ministry of Business,Innovation&Employment,Electricity statistics,202114 National Institute of Water and Atmospheric Research,Mean monthly sunshine(hours),202215 Metservice,Why is Wellington so windy?,201

160、716 Wind Energy,Wind Generation in New Zealand,201917 Luvside,Capacity Factor of Wind Turbine,2020BOSTON CONSULTING GROUP30 THE ELECTRICITy SECTOR IS CRITICAL TO ACHIEVING DECARBONISATION IN NEW ZEALANDHowever,fossil-fuel-firedpowerstationsstillplayasignificantroleinmaintaininggridstabilityfillingga

161、pswhenhydroinflowsarelowandwhen renewable supply falls short due to the intermittency of wind and solar.As such,electricity generation continues to contribute 6%or 5.1 Mt CO2-e of New Zealands gross emissions,and 10%of emissions covered under New Zealands 2050 net zero carbon target(see Exhibit 10)1

162、8.Increasing renewables and other lower-emissions generation in New Zealands electricity mix will make a direct contribution towards meeting national emissions budgets,as well as increasing thedecarbonisationimpactofelectrification.New Zealands electricity sector is well placed to transition to more

163、 renewable penetration while securely and equitably ramping up electrification.However,tomakethemostmeaningfulcontributiontoNew Zealands net zero ambitions,the electricity sector will have to undergoasignificanttransformationthroughoutthe2020sandbeyond.The following section examines the state of the

164、 sector and some of the challenges it will face throughout the energy transition.Exhibit 10:88%of electricity generation emissions today are from fossil fuelsGeneration4 43 3 T TWWh h2.61.024.01.52.43.8Gas7.80.62.31.60.6EmissionsOther non-renewablesWindCoalGeothermalOther renewablesHydro5 5.1 1 MMt

165、t C CO O2 2-e e1 18 8%fossil fuels8 82 2%renewables8 88 8%fossil fuels1 12 2%renewablesSource:Climate Change Commission,MBIE,BCG analysis18 Climate Change Commission,IniaTonuNei,2021 THE FUTURE IS ELECTRIC 31BOSTON CONSULTING GROUPTHE FUTURE IS ELECTRIC 31BOSTON CONSULTING GROUP32 NEW ZEALANDS EVOLV

166、ING ENERGy SECTOR5.New Zealands evolving energy sectorNew Zealands evolving energy sector32THE FUTURE IS ELECTRIC 33BOSTON CONSULTING GROUPNew Zealands energy sector will need to undergosignificanttransformationaswefocus on decarbonisation.In this section,we:5.1 Evolving priorities have shaped New Z

167、ealands electricity sector;decarbonisation is now front and centreNewZealandsregionalelectricitynetworkswerefirstconnectedtoformonenationalgridinthemid-20thcentury.Since then,the priorities of the nations electricity sector have evolved(see Exhibit 11).A full description of the developments that sha

168、ped the electricity market as it is structured today can be found in the supporting Appendix 1:Context of New Zealands Electricity Sector.Exhibit 11:ThemultipleprioritiesofNewZealandselectricitysector,withdifferentfocusesemergingoverdifferenttimelinesProvide an overview of how New Zealands electrici

169、ty sector has been shaped by evolving priorities over time,including the current focus on decarbonisation.Explore New Zealands performance on energy equity,security,and environmental sustainability,and how decarbonisation can risk equity and security outcomes if not well managed.Assess how decarboni

170、sation is driving 4 trends that will fundamentally change the way the future energy system operates and leave the energy system facing 4 challenges that it will need overcome to decarbonise while maintaining energy equity and security.T To o t th he e l la at te e 1 19 97 70 0s sA focus on access1 1

171、9 98 80 0s sLiberalisation drives efficiency2 20 00 00 0s sAddressing concerns around reliability2 20 01 10 0 +Addressing the challenge of climate changeAccessEquitySecuritySustainabilityTablestakeEnergy trilemmaBOSTON CONSULTING GROUP34 NEW ZEALANDS EVOLVING ENERGy SECTORTothelate1970s:Expandingele

172、ctricityaccess Until the end of the 1970s,improvements in the electricity sector focused on expanding access to electricity across the country.Substantial public sector investments were made to build generation(particularly hydro and thermal)and connect geographicallydisperseddemandintothegrid,often

173、at a high cost.19,201980sand1990s:Drivingefficienciesthroughliberalisation By the early 1980s,99%of New Zealands population relied on around-the-clock access to electricity.21 At this time,the entire electricity value chain was owned and operated by the New Zealand Government.The formation of the El

174、ectricity Corporation of New Zealand(ECNZ)in 1987 introduced liberalised market forces.Corporatisation,deregulation,and partial privatisation of electricity assets was pursued to achievegreaterefficiencyacrossthesystem.TheNew Zealand Wholesale Electricity Market(NZEM)opened in 1996,ensuring that pri

175、ces could signal anefficientmixofgenerationresourcesfordispatch(short-term market outcomes)and investment(long-term market outcomes).19 Engineering New Zealand,New Zealand Electricity sector,202220 Te Ara,Energy supply and use,201021 Electricity Engineers Association,Over 125 Years of Electricity Su

176、pply,202234 NEW ZEALANDS EVOLVING ENERGy SECTORTHE FUTURE IS ELECTRIC 35BOSTON CONSULTING GROUP2000s and 2010s:Improving electricity supply reliability and productivityRegulation of new transmission investment helped to avoid overspending on grid expansions.However,a seriesofhigh-profilegridfailures

177、inthe1990sandthe2000shighlightedtherisksofnotsufficientlyinvestingin network redundancy.There was a multi-week blackout in Aucklands CBD in 1998 and a 7-hour outage in the 2006 Auckland Blackout.22,23 In 2009,Auckland and Northland systems were brought down whenaforkliftknockedoutacircuit.The late 2

178、000s and 2010s saw major grid developments in response to these blackouts.The developments focused on increasing network capacity,replacing,and upgrading deteriorating infrastructure assets,and enhancing the resilience of the grid.The upgrades increased reliability in the electricity sector in New Z

179、ealand and ensured that electricity demand was met.The introduction of performance-based regulation of transmission and distribution networks in the 2010s alsoimprovedreliabilitywhileprovidingsufficientincentive for improved expenditure productivity.2020s:AshifttoastrongfocusondecarbonisationDecarbo

180、nisation is now a priority on top of access,equity,and security.The challenge for the sector over thecomingdecadeswillbeensuringaffordable,reliable electricity supply while enabling the rapid decarbonisation of the energy sector.The 2020s will be a critical decade for New Zealands electricity sector

181、 to support the energy systems decarbonisation.While there was some focus on decarbonisation in the early 2010s,it increased significantlyfromthelate2010swiththesigningofthe Net Zero Carbon Act,the announcement of a more aspirational 2030 emissions target,the release of the CCCs Inia Tonu Nei:A Low

182、Emissions Future report,thereleaseofthefirstemissionsbudgetsandEmissions Reduction Plan,and implementation of a suite of policy reforms including a strengthened Emissions Trading Scheme(ETS).22 Lindy Newlove,Eric Stern and Lina Svedin,Auckland Unplugged:Coping with Critical Infrastructure Failure,20

183、0323 Claire Jordan,Henning Rasmussen,and Ratneesh Suri,Expectations for loss of supply in the New Zealand power system,2006THE FUTURE IS ELECTRIC 35BOSTON CONSULTING GROUP36 NEW ZEALANDS EVOLVING ENERGy SECTOR5.2 New Zealands energy system has performed well across the energy trilemma New Zealands a

184、bundant renewable resources have allowed for the bulk of low-emissions energy generation.The national grid accommodates the 3rd highest penetration of renewables in the OECD,making New Zealand a“success story for the development of renewable energy.”24,25 The decarbonisation of supply has been pursu

185、ed while upholding the electricity marketsotherpriorities:access,efficiency,affordability(equity),and productivity and reliability(security)of supply.New Zealands electricity sector is highly energy independent;100%of New Zealands electricity is produced domestically,with 95%of the primary resources

186、 used to produce electricity sourced domestically.All renewable energy and gas is sourced domestically(only coal is imported).This means New Zealands electricity sector is largely shielded from global energy crises,which have led to recent spikes in electricity prices elsewhere(see Exhibit 12).Exhib

187、it 12:New Zealand electricity sectors resilience to global energy shocks02004006008001,000AustraliaWholesale electricity price(monthly average,NZD/MWh)Jan-21Jul-21New ZealandJan-22Jul-22FranceGermanyJapanSource:Electricity Authority,OpenNEM,Refinitiv One,BCG analysis24 Ministry for Business,Innovati

188、on and Employment,Energy in New Zealand,201925 International Energy Agency,New Zealand,2022Source:ElectricityAuthority,OpenNEM,RefinitivOne,BCGanalysisTHE FUTURE IS ELECTRIC 37BOSTON CONSULTING GROUPAcross the world,energy systems have struggled to realise the degree of grid decarbonisation achieved

189、 by New Zealand without risking reliability or causing sizable hikes to electricity bills.Such challenges of the global energy transition have renewed focus on the importance of balancing the 3 aspects of the energy trilemma:equity,security,and sustainability(see At a glance:The energy trilemma).Ach

190、ieving the trilemma requires the harmonisation of various technical,market,regulatory,environmental,economic,and consumer considerations in the context of rapid decarbonisation.Renewables can help lower emissions,but some of their intermittent supply characteristics require additional reliability me

191、asures,which,with current technology,could increase electricity prices.BOSTON CONSULTING GROUP38 NEW ZEALANDS EVOLVING ENERGy SECTORThe energy trilemma,as outlined by the World Energy Council,demonstrates the need for well-functioning energy systems to balance outcomes across 3 dimensions(See Exhibi

192、t 13)Energy equity:Ability to provide universal access to reliable,affordableenergyfordomesticandcommercial use Energy security:Ability to meet current and future energy demand and the ability to withstand and respond to system shocks Environmental sustainability:Ability to mitigate and avoid enviro

193、nmental degradation and climate change impacts Maintaining a balance across these dimensions is a key challenge as we progress to more decentralised,decarbonised,and digital systems with the risk of passivetrade-offsbetweenequallycriticalpriorities.Within each dimension of the trilemma,there are cor

194、e and secondary considerations.While a holistic view of the trilemma has been taken throughout the report,it is the core considerations(energy equity,energy security,and environmental sustainability)that are the focus of the pathways in Section 6.2.At a glance:The energy trilemmaExhibit 13:The energ

195、y trilemmaThe Energy TrilemmaCoreconsiderationsSecondaryconsiderationsThe Energy TrilemmaElectricitymarket prioritiesSustainabilitySecurityEquityAccessEnergy prices across fuels(oil,electricity,gas,and others)for residential,commercial and industrial consumersQuality of ongoing energy supply to cust

196、omersAbility to meet peakenergy demandEnergy affordability1aEnergy accessEnergy povertyEnergy contribution to GDP and value addTrade and fiscal contributionEnergy diversificationEnergy independence Import supply securityEnergy storage and reservesEnergy infrastructure securityEconomic development1bR

197、eliability2aResilience2bEmissions per capitaCO2-e emissions per unitof energyEnergy intensityLow carbon energy shareGreenhouse gas emissions3aSOx/NOxemissionsWasteEnvironmental hazardsLand use and impact on landSustainability3bTHE FUTURE IS ELECTRIC 39BOSTON CONSULTING GROUPNew Zealands electricity

198、sector has made impressive contributions towards each of the dimensions in the energy trilemma while decarbonising.The countrys energy system was ranked 9th in the world and 1st in Asia by the World Energy Councils(WEC)trilemma index in 2021.New Zealand was one of only 9 countries to achieve an A-ra

199、ting across all 3 elements of the trilemma challenge and,for each factor on its own,was ranked in the top quartile of the 127 countries that were assessed(see Exhibit 14).26 With respect to the electricity system,New Zealand hadthe10thmostaffordableresidentialelectricityprices in the OECD in 2017 an

200、d,from a security and reliability perspective,has been well supported by the electricity sectors market for ancillary services.27 Exhibit 14:NewZealandsEnergyTrilemmaIndexrankingoutof127countries17thEnergy Equity18thEnvironmentalSustainability28thEnergySecurityOverall ranking:9th26 World Energy Coun

201、cil,World Energy Trilemma Index,201927 New Zealand Government,Electricity Price Review,2019Source:World Energy CouncilBOSTON CONSULTING GROUP40 NEW ZEALANDS EVOLVING ENERGy SECTORExhibit 15:New Zealand wholesale electricity price over the last 10 yearsWhen it comes to equity,several factors related

202、to New Zealands energy transition have placed upwards pressure on wholesale electricity prices in recent years.New Zealands carbon spot price has more than doubled in the last 2 years,adding to the cost of electricity production from fossil fuels.Meanwhile,coal prices have increased due to New Zeala

203、nds imports from Indonesian coal markets.Domestic gas prices have been risingasthePohokuragasfield,whichmet40%ofNewZealands gas needs at its peak,has produced less gas thanexpected.Thedeclinehasbeensignificantenoughto lead to sustained conditions of tight supply.28The pressure on electricity prices

204、from high thermal fuel costs has been exacerbated by some periods of low hydroinflowsanddeclininglakestoragelevels.Thishasincreased the cost of hydro generation and at times promptedhigherratesofcoal-firedelectricityasasubstitute;Exhibit 15 below outlines the wholesale electricity price over the las

205、t decade.29 Uncertainty over thepotentialforTiwaiPointsexittofloodthemarketwith additional supply has also led to a systemic under-build of renewable generation projects over the last few years,even as the cost to build new renewables has significantlydeclined.In terms of security,due to increasing

206、electricity demand and the rising penetration of intermittent renewables,the electricity system will need to physically balance a morecomplexandunpredictableresidualloadprofile(i.e.,remaining electricity demand net of the component supplied by intermittent renewables).5.3 The global energy transitio

207、n could risk energy equity and security if not well-managed 2012201420182016202050202220242000100150Price($/MWh)Monthly wholesale price(12-month rolling average)Source:Electricity Authority,BCG analysis28 Gas Industry Co.,Gas supply and demand projections 2022 update,202229 Electricity Authority,Wha

208、ts Behind Current Forward Prices,2022THE FUTURE IS ELECTRIC 41BOSTON CONSULTING GROUPExhibit 16:Risks to energy security from Ukraine-Russia eventWhilethecurrentdriversoffinancialandgeopoliticalrisk could be transient,global energy markets still retain their exposure to fossil fuels.To achieve energ

209、y independence,electricity systems around the world must both diversify and decarbonise their sources of energy supply.The EU has already launched plans through RepowerEU to reduce its dependence on Russian gas imports by two-thirds before the end of 2023.The target forms part of a broader ambition

210、to reduce long-term gas consumption by both diversifying the EUs exposure to key energy security concerns,as well as making a At a glance:Electricity sector disturbances are not unique to New Zealand,but point to emerging risks within the global energy transitionTrends suggest the energy transition

211、is unlikely to always be smooth in any country,highlighting the importance of itbeingwell-managed.Ascountriesshiftfromfossilfuelsto low-carbon sources of electricity,many have been challenged by issues relating to energy security,supply chain pressures,and increased price volatility.Impact of war in

212、 Ukraine Russias invasion of Ukraine has thrown energy markets around the world into turmoil,highlighting the geopolitical risks associated with global energy security.Sanctions on Russia a major exporter of natural gas,oil,and coal have constrained upstream energy supply chains,impacting the availa

213、bility and cost of energy for consumers and industries such as steel,chemicals,and transportation.The price hikes that have evolved from these supply and liquidity pressures have had second-ordereffects,erodingmarginsinenergy-intensiveindustries,andcontributingtoinflationarypressures(see Exhibit 16)

214、.Source:International Energy Agency,BP Statistical Review;Eurostat,IHS Markit,S&P Capital IQ,BCG analysis 94.8%82.2%5.2%Supply17.8%ExportsWorlds 2nd largest coal reserves,6th largest producer3rd largest coal exporterWorlds 3rd largest oil producer(after US,Saudi Arabia)Worlds largest oil exporterRus

215、sias role in global energy market%global supply/exportsIncreased energy costsRussia supply by end market78%56%51%51%26%23%6%2%FinlandGermanyBulgariaFranceHungaryPolandItalyTurkey%week on week price change-50100050Crude oil(Brent)-50050100Gas Henryhub(US)Gas TTFJan 22Feb 22Mar 22Start of warin Ukrain

216、e95%84%74%71%60%44%41%41%38%FinlandHungaryGermanyBulgariaPolandFranceTurkeyItalyNetherlands-5001005007.14.17.10.03.24.31.07.21.28.CoalAPI2 ARA%of supply from Russia36%28%24%22%15%14%8%4%ItalyFranceGermanyFinlandBulgariaHungaryTurkeyPoland83.4%74.7%16.6%SupplyExports25.3%87.7%88.0%12.3%Supply12.0%Exp

217、orts2nd globally behind USMain exporter in Europe;Norway 2ndRussiaOthersSource:International Energy Agency,BP Statistical Review;Eurostat,IHS Markit,S&P Capital IQ,BCG analysis GasOilCoalBOSTON CONSULTING GROUP42 NEW ZEALANDS EVOLVING ENERGy SECTORstructuralshifttowardsalessemissions-intensiveenergy

218、mix that will be more resilient to global energy market shocks over the longer term.RepowerEU is targeting 1 TW of combined new wind and solar capacity by 2030,2.5 times the existing wind and solar base of 400 GW.Supply chain pressures The global energy transition has led to an international surge i

219、n demand for renewables and storage capacity across the world.The recently legislatedInflationReductionAct(IRA)intheUnitedStates is anticipated to accelerate the transition away from fossil fuels by providing material incentives for low-carbon electricity generation with almost USD$370 billion in cl

220、imate and energy funding committed over the next decade(see Exhibit 17).Other substantial pieces of government policy,as well as ambitious private sector commitments,are also accelerating growth in other global markets for renewables and storage technology.The IRA will accelerate demand for renewabl

221、e generation equipment in conjunction with increased EuropeandemandresultingfromtheconflictinUkraine.Outside of the United States and Europe,international action on climate change is also increasing.Globally,this additional activity may see increases in total renewable capacity greater than the aver

222、age 305 GW per year previously forecast by the IEA to 2026.30Exhibit 17:Step-change increase in renewable energy for US from IRASource:BCG analysisInstalled Capacity(GW)6812523072212881408252359904-6x2x500 x40-50 x2020 capacity2030 capacity,base case(conservative adoption rates)2030 capacity,deep gr

223、een (wider adoption rates)Utility-scale SolarSource:BCG analysisOnshore WindOffshore WindNon-residential Storage30 IEA,Renewables 2021 Analysis and forecast to 2026,2021THE FUTURE IS ELECTRIC 43BOSTON CONSULTING GROUPThe step-change in international demand is placing pressure on green energy supply

224、chains across the world.Bottlenecks are emerging in low-carbon infrastructure development,and shortages of critical energy resources are driving technology costs higher.To meet the pace of decarbonisation ambitions and avoid unnecessary costs,governments and industries,including in New Zealand,will

225、need to be proactive in establishing their green supply networks,which require forward-thinking to set up in a timely manner.Price volatility Higher penetrations of intermittent renewable generation are also driving higher levels of price volatility in electricity markets around the world.The variab

226、le generation characteristics of some renewables make demand and supply more challenging to balance,leading to more extreme pricing outcomes.For example,between 2011 and 2019,penetrations of wind and solar increased from around 24%to over half of generation in South Australia.Over the same period,wh

227、olesale price volatility has increased by 180%(from an average typical range of$28 AUD/MWh to$78 AUD/MWh).Greater volatility in electricity prices is giving rise to new economic challenges for markets across the world.Higher intra-day variability and more seasonal supply-demand imbalances are creati

228、ng problems around resource adequacy,as well as frequency and voltage stability.The viability of many conventional,slow-start power plants is also being challenged.Most electricity systems,including New Zealands,will require new fast-start dispatchable capacity and increased flexibilityonthedemand-s

229、idetocontinueoperatingsecurely and reliably.Exhibit 18 below highlights the strong correlation between penetration of Variable Renewable Electricity(VRE)and price volatility.Exhibit 18:Correlation between higher Variable Renewable Electricity penetrations and increasing price volatility2019 VRE pene

230、tration(%)0102030405060010203040GermanyAverage 2017-2019 intra-day price volatility(USD/MWh)FranceCWE1 AustriaNorwayBelgiumAUS-South AustraliaNetherlandsSwedenFinlandUS-CAISODenmarkGreat BritainIrelandSpainPortugalAUS-NEMNew ZealandUS-PJMUS-ERCOT1.Based on load-weighted average intra-day price volat

231、ility for Central-West Europe,incl.Belgium,France,Germany,Netherlands.Note:Assuming constant 2019 exchange rates of 1.12 USD/EUR,0.7 USD/AUD,0.66 USD/NZD,and 1.28 USD/GBP;Using hourly day-ahead prices for Europe,using hourly average spot prices for Australia,using hourly average wholesale prices for

232、 New-Zealand,using hourly day-aheadLMPpricesforthedifferenthubswithinCAISO,ERCOT,andPJM;Averagingthestddevforthedifferentzones/hubswithinaregion(for those regions consisting of multiple zones/hubs);Source:ABB Velocity;AEMO;Australian Government,Department of Industry,Science,Energy and Resources;EIK

233、ON;EMI;ENTSO-E;EUROSTAT;EXAA;IRENA;Nordpool;OMIE;S&P Global;BCG analysisBOSTON CONSULTING GROUP44 NEW ZEALANDS EVOLVING ENERGy SECTORThereareaconfluenceoffactorsinfluencingAotearoaNew Zealands energy transition.The drive to decarbonise the energy system will lead to 4 trends that result in fundament

234、al changes to the way the future energy system will operate(see Exhibit 19):Higherratesofelectrification More intermittent renewable generation Less thermal generation A more distributed electricity system5.4 Decarbonisation is changing the context:4 trends that will change New Zealands energy syste

235、mExhibit 19:4 key trends changing the future energy system1.Higher rates of electrification Drivers of higher rates of electrification Electrificationisbeingdrivenbyacombinationofpoliciesthatsupportelectrification,decliningelectrificationtechnologycosts,andrisingcarbonprices.Policiessupportiveofelec

236、trification:Several policies are drivingelectrification.Inthetransportsector,theNewZealand Government is targeting a 41%decrease in 2019 transport emissions by 2035.31 This will be facilitated throughtheelectrificationofatleast30%ofNewZealandslightvehiclefleet,buildingonprogressmadesofarunderthe 202

237、1 Clean Car Discount.32 Since the introduction of the Clean Car Discount,average monthly registrations of EVs have increased by nearly 5 times(see Exhibit 20).On the supply-side,the Clean Car Standard will see EVs increasingly favoured by applying tighter emissions standards to imported vehicles ove

238、r time.33Industrial process heat will be another key driver of electrification.Improvingeconomicscontinuetoenhancethe appeal of commercial fuel-switching;electrifying uses of low-temperature heat can already save 4070%of Declining costs of Distributed Energy Resources(DER)Increasing digitisation and

239、 smart technologiesDrivers of decarbonisationEnergy system changesFuture trends Policies supportive of electrification Decreasing electric transport and heat costs Higher carbon prices Higher carbon prices Declining solar and wind generation costs Higher carbon prices Declining solar and wind genera

240、tion costs Declining cost of storage Higher rates of electrification Increased energy demand Greater peaks in demand profile New types of flexible resources to meet peak capacity and dry year energy needs More variable and less predictable supply Increased need for system smarts to integrate DER Inc

241、reased need for resilience1 More intermittent renewable generation2 Less thermal generation3 More distributed electricity system431 Ministry of Transport,Climate change emissions work programme,202032 Ministry of Transport,Clean Cars,202233 Ministry of Transport,Clean Cars,2022THE FUTURE IS ELECTRIC

242、 45BOSTON CONSULTING GROUPoperating energy costs.34 However,upfront capital costs remainadeterrenttoelectrification.Assuch,therecent$650 million expansion of the Government Investment in Decarbonising Industry(GIDI)program almost 10 times the original funds size will play an important role in helpin

243、g process heat users overcome electrificationcapitalhurdles.Afterthefirst3roundsoftheGIDIfund,28electrificationprojectshavebeenawarded a total of$33 million in co-funding,equating to close to an expected 3 million tonnes of lifetime CO2-e emissions reductions.35The New Zealand Government has also ba

244、nned the installation of new low-and medium-temperature coal-firedboilers,withexistingfacilitiesrequiredtobephased out by 2037.36Decreasingelectrificationtechnologycosts:Realising parity between the total ownership and upfront costs of EV and internal combustion engine(ICE)vehicles will be important

245、 to increasing the use of low-emissions vehicles.EVs are becoming cheaper to maintain and fuel;the whole-of-life cost for a new EV is already close to that of ICE vehicles and battery technology innovations are forecast to continue to bring EV prices down.37 Theeffectivepurchasecost of EVs for consu

246、mers is further reduced by the Clean Car Discount,which provides a discount of up to$8,625 for new EVs and up to$3,450 for used vehicles(GST inclusive,see Exhibit 21).38Exhibit 20:5 times increase in New Zealands electric vehicle registrations since the introduction of the Clean Car DiscountPlug-in

247、hybrid EV registrations%of vehicle fleetBattery electric registrationsClean Car Discount06,0008,0005,0002,0001,0007,0003,0004,0000.5%0.0%1.0%1.5%Quarterlyregistrations2018EV proportion of total vehicle fleet2015202020162017201920212022Average quarterly registrations have increased by 5 times since t

248、he introduction of the Clean Car Discount5xSource:Ministry of Transport34 Transpower,ElectrificationRoadmap,202135EnergyEfficiency&ConservationAuthority,Approved GIDI projects,202136 New Zealand Government,Government delivers next phase of climate action,202137 Climate Change Commission,Iniatonunei:

249、AlowemissionsfutureforAotearoa,202138 Waka Kotahi NZ Transport Agency,Clean Car Discount overview,2022BOSTON CONSULTING GROUP46 NEW ZEALANDS EVOLVING ENERGy SECTORExhibit 21:Total cost of ownership for petrol and electric cars to 2030Exhibit 22:New Zealand carbon spot price since 2009Higher carbon p

250、rices:Under New Zealands ETS,the price of carbon has increased from$10$20 per New Zealand Unit(NZU)5 years ago,to over$80 per NZU today(see Exhibit 22).The carbon price is expected to continue to increaseoverthelongtermafterrecentmajorreformsoftheETS,incentivisingelectrificationandmorerenewablegener

251、ation,and disincentivising thermal generation and fossil fuel use in transport and heat.1503045Net present value($k.excl.GST)37.220302021202520212025203036.337.243.037.832.9MaintenanceEmissionsFuel excise/RUC1Fuel/electricityCapital(net of resale value)OtherPetrol carBattery electric car1.Road user

252、chargesSource:Climate Change CommissionSource:Carbon News New Zealand,BCG analysis5001020304070608020162013Monthly average spot price,redemption-adjusted($/t)200920182010201120122014201520172019202020212022THE FUTURE IS ELECTRIC 47BOSTON CONSULTING GROUPExhibit 23:71%increase in New Zealands gross e

253、lectricity demand by 2050Energy system changes due to higher rates of electrification Electrificationwillincreaseenergydemand,peakdemand,and the need for system resilience.Increased energy demand:With accelerating rates of electrification,modellingfromTranspowerin2020anticipated electricity demand w

254、ill increase by 20%by 2030 and 68%by 2050.Concept Consultings modelling for this report produces results similar to the Transpower forecasts,as shown in Exhibit 23 below.This demand will require much more renewable generation,more transmission networks to enable this generation(and to some extent di

255、stribution)and more dry year cover to meet an increasing energy gap.Greaterpeaksindemandprofile:With accelerating ratesofelectrification,peakdemandwillalsoincrease.Our modelling shows that peak demand is anticipated to increase by 28%by 2030 and 93%by 2050,prior to contributions from EV smart chargi

256、ng and demand response.Thiswillrequiremorefast-startflexiblesupply-sideanddemand-side resources.It will also require distribution networks(and to some extent transmission)to develop newinfrastructuretoenableelectrificationandassociated increasing peak demand.Increased need for resilience:Anelectrifi

257、edfuturewillincrease New Zealands dependence on uninterrupted,reliable electricity supply.To drive adoption of electrifiedtechnologies,theeconomyneedsconfidencethat electricity can be delivered where and when it is needed.In the face of climate change,however,Source:TranspowerWhakamamaiTeMauriHiko(M

258、arch2020)-AcceleratedElectrificationPath;ConceptConsulting,BCGanalysisEnergy demand Energy demand growth contributiongrowth contribution2019-2050+71%+71%TranspowerTranspowerSub-totals shown on graphTotalTotalProcess,space and water heatVehicle electrificationBase growthHistorical baseline+68%+68%+16

259、%+38%+14%FlatConceptConceptTotal shown with pink dotted line+18%+37%+16%Flat040206080201020002020203020402050(TWh,Accelerated Electrification)BOSTON CONSULTING GROUP48 NEW ZEALANDS EVOLVING ENERGy SECTORmeeting this need is challenged by more extreme weather events,which can cause damage to generati

260、on equipment,poles and wires,and lead to supply interruptions.Increasing the resilience of important assets(such as the HVDC cable)where there is a concentration of risk will be important in future(see Exhibit 24).Distributed,flexible,andsmartenergyresourceswillplay a role in improving the resilienc

261、e of New Zealands future electricity supply.Strengthening the physical assets of the system,as well as building out the degree of redundancy they operate with,will also help to reduce the risk of electricity outages,and ensure consumerconfidenceintheprospectsofelectrification.Exhibit 24:Additional n

262、eed for resilience investmentsThis will require more resilient generation,transmission,and distribution assets and increased energy market reserves to meet peak demand to cover high impact,low probability events.2.More intermittent renewable generationDrivers of more intermittent renewable generatio

263、nIntermittent generation will be driven by an increasing carbon price(discussed under drivers of higher rates of electrification),as well as declining solar and wind generation costs.Declining solar and wind generation costs:Our modelling forecasts that,by 2030,assuming New Zealands Tiwai Point smel

264、ter remains,4,400 MW of new utility-scale solar and wind will be needed to achieve 98%renewable electricity and meet increasing demand.Technology innovation continues to enhance the commercial prospects of intermittent renewables by driving down the levelised cost of energy(LCOE)between 2013 and 202

265、0,the energy cost of wind and solar have fallen by 50%and 65%respectively and is forecast to continue to decline in future.39 However,currentsupplychainpressuresandinflationareIncreased reliance on electricity in New ZealandExtreme weather events due to climate changeGreater need for investment in r

266、esilience of assets and the system39 Transpower,ElectrificationRoadmap,2021THE FUTURE IS ELECTRIC 49BOSTON CONSULTING GROUPExhibit 25:Historical and forecast declines in renewable levelised cost of energyincreasing the cost of renewable technologies.We expect this phenomenon to be transitory and tha

267、t,over the long term,declines in the cost of renewables will continue.Exhibit 25 below does not include recent increases in LCOEs due to supply chain pressures but is more demonstrative of the longer-term trend of renewable energy technology costs.Energy system changes due to more intermittent renew

268、able generation More intermittent generation will lead to more variable and less predictable electricity supply.More variable and less predictable supply:In future,an increasing focus will be meeting peak energy demand when wind and solar generation drops due to changes in weather.Greater penetratio

269、n of solar will also carve out the residual load curve(known commonly as the duck curve effect).Midday generation from solar PV will createasteepersystemloadprofileforthesystemtomeet.This increases the gradient of peaks,which requiresflexibleresourcesthatcanrampupfaster(see Exhibit 26).0501001502002

270、0102020203020402050LCOE(NZD/MWh)Wind(historical)Solar(historical)Solar(forecast)Wind(forecast)Source:TranspowerBOSTON CONSULTING GROUP50 NEW ZEALANDS EVOLVING ENERGy SECTORExhibit 26:TypicaldailysystemloadprofileunderdifferentsolarpenetrationsThiswillrequireflexiblecapacitytomeetpeakdemand.In time,t

271、he value of slow-start thermals will decline as they become less able to dynamically come in and out of the market quickly to balance intermittent generation in a system of 95%+renewables.Our modelling predicts that the median time thermal plants will generate per start will decline by 83%from 24 ho

272、urs today to 4 hours in 2030.The mean time thermal plants will generate per start will decline by 97%from 215 hours today to 6 hours in 2030.This will also require networks to dynamically balance supply and demand across the system.In future,the grid will become increasingly important for accommodat

273、ing intermittent generation to dynamically balance out changes in regional supply and demand.For example,if weather patterns lead to declining renewable generation in the North Island,the grid will be able to transfer electricity South to North to balance the system.In future,this will also create o

274、pportunities for new renewable generation projects to pair storage assets to firmtheirproductionoutput.3.Less thermal generationDrivers of less thermal generationLess thermal generation will be driven by higher carbon prices(discussed in drivers of higher rates of electrification),declining solar an

275、d wind generation costs(discussed in drivers of more intermittent renewable generation),and declining cost of storage.Declining cost of storage:Flexible storage has the potential to displace thermal generation for peak capacity and long-duration storage has the potential to displace thermal generati

276、on for dry year energy needs.2,50005,0007,500Time(hh:mm)02:0012:0000:0010:00System load(MW)14:0004:0006:0008:0016:0018:0020:0022:0024:00With 2 GW PV penetrationAverage August national demandWith 3 GW PV penetrationWith 4 GW PV penetrationSource:Transpower,BCG analysisTHE FUTURE IS ELECTRIC 51BOSTON

277、CONSULTING GROUPExhibit 27:Historical and forecast declines in levelised cost of storageUtility-scale battery costs have declined by over 60%in the past decade,with a further 50%reduction forecast by 2030(see Exhibit 27).40Energy system changes due to less thermal generationNewtypesofflexibleresourc

278、estomeetpeakcapacityand dry year energy needs:In the 2020s,New Zealands electricity sector will quickly transition from baseload,mid-merit,andflexibleresourcestoasystemdominatedbyintermittentandflexibleresources.AssumingTiwaiPoint smelter remains,Concept Consulting forecasts that thermal generation

279、will decline by 93%from 6,250 GWh today to 450 GWh(excluding cogeneration)in an average year by 2030.During this time,thermal capacity is forecast to decline from 2.1 GW to 0.7 GW.Capacity utilisation of thermal generation will decline by 77%in relative terms,from 34%to 8%.With less thermal generati

280、on,New Zealands energy system will need renewable overbuild,demand response,demand-sideflexibleresources,andstoragetomeetpeakdemand and dry year energy needs.From a whole of sector perspective,it will be important to consider peak demand and dry year system needs and potential solutions together.Thi

281、s is because some technologies can provide both peak demand and dry year energy cover while others only provide one of the 2.This whole of system thinking is covered in Section 5.6.01002003004005002018202020222024202620282030203220342036LCOS utility-scale battery(NZD/MWh)Note:LCOS figures use Austra

282、lian data as a proxy for New Zealand costsSource:Bloomberg;BCG analysis1 hr utility-scale battery(forecast)4 hr utility-scale battery(historical)1 hr utility-scale battery(historical)4 hr utility-scale battery(forecast)Note:LCOSfiguresuseAustraliandataasaproxyforNewZealandcostsSource:Bloomberg;BCG a

283、nalysis40 National Renewable Energy Laboratory,Cost Projections for Utility-Scale Battery Storage:2021 Update,2021BOSTON CONSULTING GROUP52 NEW ZEALANDS EVOLVING ENERGy SECTORThrough the transition,it will be critical that the electricity market can evolve to ensure that the right incentives are in

284、place to ensure peak capacity and dry year resources are developed.4.More distributed electricity systemDeclining costs of distributed energy resources and increasing digitisation and smart technology will drive a more distributed electricity system.Declining costs of distributed energy resources(DE

285、R):As the cost of DER,such as residential and commercial solar and batteries decline,their uptake is forecast to increasesignificantly.Between2010and2020,thecostofa residential solar PV system declined by 65%,with a further decline of 60%predicted in the 2020s,according to the National Renewable Ene

286、rgy Laboratory(NREL).41,42 NREL also predicts residential batteries will continue declining in cost,reducing by up to 50%this decade.43While purchased primarily for their transport services,EVs can also act as DER across networks.As costs of EVs decline,Concept Consultings modelling forecasts there

287、will be 1 million EVs in 2030,2.4 million EVs in 2040,and 4.3 million EVs in 2050.In time EVs will become the largestsourceofdemand-sideflexibilityinNewZealand,overtaking hot water ripple systems.Increasing digitisation and smart technology:New smart technologies like automation,AI,Internet of Thing

288、s(IoT),real-time communication,and network visibility by household will revolutionise the way electricity systems are operated.As technology improves and the cost of IoT sensors decline,it is likely that millions of DER will be able to interact in real-time with the electricity system.Thisprovidesas

289、ignificantopportunitytoincreaseconsumerparticipationinmarketsandmoreeffectivelymanagecomplexmulti-directionalelectricityflowsthatwill emerge in future.Energy system changes due to a more distributed electricity system Increased need for system smarts to integrate DER:DERsuchassuchasrooftopsolar,batt

290、erystorage,EVs,hot water systems,smart appliances,smart meters,and home energy management technologies will play an important role in New Zealands decarbonisation.With the ability to smooth peak demand and provide an alternative solution to new generation or network infrastructure in certain scenari

291、os,they can deliver significantcostsavings,greatersecurityofsupply,andincreased system resilience.For example,if most consumers were to plug their EVs in at the end of the day,the grids evening peak could increase by an additional 20%in 2035 relative to a system with smart load management(where EVs

292、are charged at the optimal time of day).44The future energy system will require smarter coordination of DER to assist with meeting peak demand andincreasednetworksmartstosignificantlyreducethephysical network infrastructure needed.Peak loads remain a key driver of network and generation investment c

293、osts,with one electrical distribution business(EDB)indicating meeting peak demand accounts for nearly half its costs.45 Every MW of avoided peak demand is estimated to save New Zealand$1.5 million in generation,transmission,and distribution investment costs.46 As such,increasing peak loads have the

294、potential toundermineelectricityequityandinhibitelectrificationeffortselsewhereintheeconomy.41 National Renewable Energy Laboratory,Solar Installed System Cost Analysis,202142 National Renewable Energy Laboratory,Residential PV,202043 National Renewable Energy Laboratory,Residential Battery Storage,

295、202144 Transpower,Whakamana i Te Mauri Hiko,202045 New Zealand Government,Electricity Price Review,201846 Transpower,Whakamana i Te Mauri Hiko,2020THE FUTURE IS ELECTRIC 53BOSTON CONSULTING GROUPThese trends leave the sector facing 4 challenges to maintain and improve energy equity,security,and sust

296、ainability(see Exhibit 28):Renewable generation:Developnewrenewablegenerationatasufficientpace.Peak demand:Ensuresufficientflexiblegenerationanddemandcapacitytomeetincreasingpeakdemand.Dry years:Ensuresufficientflexiblegenerationanddemandenergyfordryyears.Networks:Developsufficientdistributionandtra

297、nsmissioninfrastructure(includingsmartvirtualinfrastructure)toenablenewelectrification,generation,flexiblecapacity,andflexibleenergy.5.5 Four energy challenges core to the sectors transition Exhibit 28:Solutions needed to address 4 challengesF Fu ut tu ur re et tr re en nd ds sE En ne er rg gy y s s

298、y ys st te emmc ch ha an ng ge es sS Sy ys st te emm s so ol lu ut ti io on ns s a ac cr ro os ss s t th he e 4 4 c ch ha al ll le en ng ge es sHigher rates of electrificationMore intermittent renewable generationLess thermal generationMore distributed electricity systemIncreased energy demandGreate

299、r peaks in demand profileNew types of resources needed to meet peak capacity and dry year energyMore variable and less predictable supplyIncreased need for system smarts to integrate DERR Re en ne ew wa ab bl le e g ge en ne er ra at ti io on nP Pe ea ak kd de emma an nd dD Dr ry yy ye ea ar rs sInc

300、reased need for resilienceMore renewable generation development neededMore dry year cover needed to meet increasing energy gapMore network infra.needed to enable renewable generationMore flexible supply-side and demand-side capacity neededMore network infra.needed to enable electrificationMore resil

301、ient transmission and distribution neededFlexible capacity increasingly needs to be fast-start to balance changes in systemGrid needs to dynamically balance supply and demand across systemOpportunity for renewable generation to be paired with storage to firm outputMore storage and demand-side flexib

302、le resources needed to help meet peaksRenewable overbuild,demand response,and/or deep storage needed to help meet dry year energySmarts needed to better coordinate DER to assist with meeting energy peak demandNetwork smarts needed to enable significant increase in flexibility to reduce level of phys

303、ical network infrastructure neededIncreased need for reserves to cover high impact,low probability events123N Ne et tw wo or rk k4BOSTON CONSULTING GROUP54 NEW ZEALANDS EVOLVING ENERGy SECTORAt a glance:System stability is an important issue for the electricity systemWhile maintaining system stabili

304、ty(including managing frequency,voltage,and harmonics)will become more difficultinthefuture,ithasnotbeenidentifiedasakeychallengeasitiscurrentlybeingmanagedeffectively.The New Zealand electricity system is relatively well placed to manage frequency issues given high level of renewable inertia provid

305、ed by geothermal and hydroelectricity.Transpowers Waikato Upper North Island Voltage Management project and other investigations are addressing voltage issues.The Future Security and Resilience(FSR)work program that Transpower and the Electricity Authorityhasunderwayissufficienttomeetfuturesystem st

306、ability needs,including for distribution networks as more inverter-based technology is introduced.Challenge#1:Renewable generationTo facilitate the decarbonisation of New Zealands energy system,new renewable generation will need to bedevelopedatasufficientpacetomeetelectricitydemand,displace thermal

307、 generation,and replace retiring renewable capacity.The development of new generation could also meet peak and dry year demand,depending on the renewable generation types and other technologies.Exhibit 29 below shows 3differentmodelsoftotalcapacityrequiredin2030(being Concept Consultings model for t

308、his The Future is Electric report,Transpowers Accelerated Electrification report,and the CCCs Tiwai Stays with Certainty).The 2020s will be a critical decade for the development of new renewable generation.Concept Consulting estimates that 11 GW of utility-scale renewables(that is hydro,geothermal,w

309、ind,and utility solar farms)could be enough to enable renewable penetration of 98%by 2030,up from 82%today.47 Exhibit 29:Total capacity to meet 2030 system needs0.5 0.73.6Concept ConsultingThe Future is Electric-Preferred Pathway(2030)1.22.50.41.44.80.31.20.71.41.12.15.3Transpower Accelerated Electr

310、ification(2030)0.50.10.80.41.25.5CCC Demonstration PathwayTiwai remains(2030)12.6 GW12.1 GW11.7 GWRooftop solarHydroGeothermalWindUtility solarFossilBatteriesOtherToday2.10.18.6 GW0.90.74.8%RenewablesGeneration(TWh)4382%5498%4893%4993%Note:CapacityfactorsappliedtoCCCdemonstrationpathwaygenerationfig

311、ures.Source:Concept Consulting modelling,BCG analysis,Transpower,Climate Change Commission47 Includes both utility and small-scale renewablesTHE FUTURE IS ELECTRIC 55BOSTON CONSULTING GROUPDepending on the volume of generation and penetration of renewables within each of the above models,adifferentc

312、apacitystackcouldalsofeasiblymeet the systems 2030 needs.For example,TranspowersAcceleratedElectrificationscenariokeeps 1.2 GW of thermal capacity in the system out to 2030.Lower renewables penetration and generation volumes are achieved under this capacity mix,but only 8.8 GW of utility-scale renew

313、ables48 are required to meet demand under this scenario.Under the CCCs Demonstration Pathway,in a scenario where Tiwai Point remains,9.9 GW of large-scale renewables achieves renewables penetrations of 93%.All these potential capacity stacks indicate that the futureelectricitysystemwillrequiresignif

314、icantrenewables additions,on top of existing levels,by 2030.New renewables projects will be driven by both decarbonisation and growth in demand,and will need to:Meet increases in electricity demand caused by electrificationandnormalgrowthfactors;Displace thermal generation with higher penetrations o

315、f renewables;and Replace the capacity of any renewables being retired from the system.Concept Consulting models that 4.8 GW of new utility-scale renewables capacity will need to be plugged into the electricity grid by 2030.Of this,2.5 GW will be required to meet increases in electricity demand,drive

316、n byelectrificationandbaselinegrowth.2.0GWwillbeneeded to increase renewables penetrations and allow thedisplacementof1.4GWworthofthermal-firedcapacity.49 0.3 GW worth of renewables are also expected to be retired by 2030 and will need to be replaced(see Exhibit 30).50 Theseexpansionswillneedtooccur

317、atsignificantpaceand scale to continue to meet grid needs over the coming decade.To build 3.0 GW of utility scale wind and 1.4 GW of utility scale solar,it is estimated that 750 wind turbines and 3.5 million solar panels will be required by 2030.51 The scale of the task will require New Zealand to h

318、ave a resilient clean energy supply chain in place,to avoid unnecessary cost impacts and disruptions to new renewables development.A skilled,clean energy workforce will also need to be mobilised to deliver clean energy projects across the full length of the supply chain.Exhibit 30:4.8 GW in utility-

319、scale renewables additions required to meet 2030 system needs2.00.32.54 4.8 8 G GWWCapacity to replace renewables retirementsCapacity to meet future demandCapacity to increase renewables penetrations0.41.4Wind3.0Utility solarGeothermal4 4.8 8 G GWWDrivers of utility-scale renewables additions to mee

320、t 2030 system needsUtility-scale renewables additions to meet 2030 system needs(by technology type)Note:Assumes capacity factors of 95%for geothermal,40%for wind,20%for solar;Capacity does not include battery storage systems or DER/small-scale generation types.Source:Concept Consulting modelling,BCG

321、 analysis48 That is hydro,geothermal,wind,and utility solar farms49 It is assumed that slower starting units(including the Huntly Rankines and the Taranaki Combined Cycle Plant)as well as the Te Rapa cogeneration plant will close by 2030,in line with modelling in Section 650 176 MW worth of old wind

322、 turbines(likely to be replaced/repowered,with new consents required),and 125 MW of Wairakei geothermal that will be decommissioned as part of Contact Energys broader GeoFuture plans(which will result in an 80 MW net increase in renewable capacity).51 This assumes the average capacity of a wind turb

323、ine is 4 MW,and the average capacity of an individual solar panel is 400 W.BOSTON CONSULTING GROUP56 NEW ZEALANDS EVOLVING ENERGy SECTORChallenge#2:Peak demandTheloadonNewZealandselectricitygridisatitshighestinwintermorningsandevenings.Atthesetimes,sufficientreliable sources of electricity need to b

324、e available to meet this peak demand(see Exhibit 31).Exhibit 31:Typicalsummerandwinterdailyloadprofiles5,0004,0001,00002,0003,0006,0007,00008:0006:00Time(hh:mm)System load(MW)00:0002:0004:0010:0012:0014:0016:0018:0020:0022:0024:002021 Summer2021 WinterSource:Transpower,BCG analysisTHE FUTURE IS ELEC

325、TRIC 57BOSTON CONSULTING GROUPAfteradecadeofrelativestability,peakdemandisrisingonceagaininAugust2021,anewrecordforpeakdemandwas set at 7.1 GW across the North and South Islands(see Exhibit 32).5252 Transpower,Security of Supply Assessment 2022,2022Exhibit 32:New Zealand weekly demand peakSource:Tra

326、nspower,BCG analysis863457Jul-18GWJan-16Jan-20Jul-16Jan-17Jan-21Jul-17Jan-18Jan-19Jul-19Jul-20Jul-21Jan-22Higher winterpeaks 2021Source:Transpower,BCG analysisBOSTON CONSULTING GROUP58 NEW ZEALANDS EVOLVING ENERGy SECTORExhibit 33:Transpowers forecast increases to peak demandNZ winter peak demand(MW

327、)Section 5.4 outlined 3 important aspects of changing peak demand dynamics in future:peak demand will increaseduetoelectrification,meetingpeakdemandwill become more challenging with more intermittent generation as it will require increasingly fast-start peaking resources to balance dynamic changes i

328、n supply,andthedifferencebetweentheloaddemandedfrom the system in the day versus the evening will increase as more solar enters the system.Thechangingprofileoffutureresidualdemandwillneedto be addressed through capacity additions and robust operational management of the system.A reserve mechanism al

329、ready exists within the electricity market.It holds enough reserve capacity to cover the largest crediblecontingenteventusuallyeitheratrippingevent at Huntly Power Station or a failure of a HVDC cable.These reserves must be able to ramp up at short noticeandoftentaketheformofpartiallyloadedorsynchro

330、nised(i.e.,spinning)turbines.In future additional reserves will likely be required to cover unexpected declines in intermittent generation.However,if system capacity expansions fail to keep pace with peak demand growth,the future equity and security of New Zealands electricity supply could be at ris

331、k.Whileexistingandcommittedgenerationissufficienttouphold system security out to 2024,beyond this further capacity additions and/or additional demand response will be needed to meet peak capacity.54Under the demand conditions of Transpowers AcceleratedElectrificationscenario,Transpowers2022Security

332、of Supply Assessment estimates that the loss of Huntlys Rankine units will require close to 2 GW of additional capacity above current volumes to meet North Island security standards in 2030,while the complete absence of thermal baseload and peakers in New Zealand will need closer to 2.53 GW of addit

333、ional North Island capacity to safely meet winter peak demand(see Exhibit 34).55 Constrained gas supply could further accelerate the derating of thermal firminggeneration,requiringcapacityadditionstobebrought forward.5619902000201020202030204020506,0004,0005,0007,0008,0009,00010,0009,668 MW8,790 MWExpected forecastPrudent forecastHistoricalSource:Transpower,BCG analysisSource:Transpower,BCG analys