MarsdenPointOilRefineryatnight

WestWindMakara windfarmnearWellington (imagecourtesyofMeridianEnergy)

Howdowe Modelthe future?

NewZealand’’sEnergyOutlook

MethodologyOverview GDP,Pop,Households,OilPrice,XͲRate,$CO2

ElectricityDemand

GEM

GasSupplyCurve

Electsupplymodel

ElectricityGeneration

Oiland Gas Model

SADEM

NewGenerationBuild

Determinessupply/demand equilibriumintheenergy market

PriceIndicator Model Determinesprice forecastbasedonLRMC ofnewbuildandSRMC ofexistingthermal

ElectricityPrice

MoT RoadTransport Demand

VFM

WhatdoesSADEMlooklike?

SADEMSareasofstrength • Supplyanddemandinteractionsbetweenthenaturalgas andelectricitymarket. • Transport–– Implicationsofchangesinvehiclefleeton transportenergydemand. • Electricityspecific • Economicstructureandenergydemand SADEMis: • Nationallevel • Aggregatefuels(nottechnologyspecific) • Groundedonhistoricaltrends

ElectricitySupplyͲ ElectricityAuthority'sGEM • GenerationExpansionModel • Whattechnology,when,howmuch(MW),where(NI/SI)? • Optimalsolution–– findslowestcostcombinationofnewplant tomeetsenergyandpeakdemandneeds •Considerstechnologycharacteristics(e.g.windcan’’tbereliedontomeetpeakdemandrequirements,butthermalscan)

• BeforeusingGEMwemustassume: • WhatprojectscouldbebuiltͲ techspecs&location. • FromSADEMͲ FuelAvailability,&energy/carboncosts • PointestimateofcapitalandO&M(nonͲfuel)costsforevery possibleplant.NZGenerationDataUpdate2011.

Outputofourgassupplymodel

Themodel: •Estimatestheprobabilityof‘‘technicalfinds’’ofoilandgasinNZ’’ssedimentarybasins •Usesafinancialmodeltoassessthecommercialviabilityofthesefindsusingestimates ofproductioncostsineachbasin

TransportModelling • WeusetheVFMmaintainedbyMinistryofTransport. • Incorporatestopdownprojectionsoftravelandcompositionofthe fleetwith““bottom””upmodelsthatreflectroadandtraffic conditions. • Usesdetailedfuelfactorscalibratedwithrecentvehicletestcycle data

Largeindustry/SpecificIndustry • Projections=futureproduction*energyintensity

Moreinfoandotherapproaches • Moreinformation • Technicalguide • Contactus.

• Otherapproachestoenergymodellingingovernment • OPENZ@EECA • InterestinGeneralEquilibriummodelling.

MarsdenPointOilRefineryatnight

WestWindMakara windfarmnearWellington (imagecourtesyofMeridianEnergy)

Someinsights fromrecent Energy Outlook modelling

EnergyOutlookresults • ResultsofEnergyOutlookmodelling • Demand • Supply • Emissions • Energyintensity • wholesalepriceindicators

The‘‘OceanBounty’’oilrigwithMt.Taranaki inthebackground

NZEOElectricityInsight

• • • •

ElectricitySupplyScenarios ElectricityDemandSensitivities Noonescenariocanbeusedtopredictthefuture.But…… byconsideringthescenariosandsensitivitiestogether,we canmakegeneralconclusionsaboutthefuture(‘‘key insights’’)

TheSupplyScenarios…… Mixedrenewables

Highgeothermalaccess

• IEAWEO‘‘currentpolicies’’scenario assumptionsforoilandcarbonprice

• Sameasmixedrenewablesbutwith higheravailabilityofgeothermal resources

• MidcasepopulationandGDPgrowth

Lowcostfossilfuels

Globalcleanenergy

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Noglobalagreement(s)onclimate change,carbonpricelow Highoilpriceencouragesoil exploration–– gaspricestayslowerfor longer

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IEAWEO‘‘2degrees’’scenario assumptionsforoilandcarbonprice Globalagreementonclimatechange R&Dlowersthecostofrenewable generationtechnologies

TheDemandSensitivitiestotheMRS…… Mixedrenewables

Highgrowth

• IEAWEO‘‘currentpolicies’’scenario assumptionsforoilandcarbonprice

• Whatifeconomicandpopulationgrowth arehigherthanexpected?

• MidcasepopulationandGDPgrowth

LowGrowth

TiwaiClosure

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•• ••

Whatifeconomicandpopulation growtharelowerthanexpected?

MidͲcaseͲ but…… WhatiftheTiwaiPointaluminium smelter(13%of2012demand)wasto close, graduallydecliningover2016–– 2018?

Note:Wearecurrentlyincorporating2012calendaryeardataintothemodelling–– this islikelytoresultinadownwardslevelshifttothe‘‘MixedRenewables’’projection

• Regardlessof scenario,wind andgeothermal generation expectedto growstrongly • Current assumptionis thatgaswillplay apartinall scenariosin 2040

• 1990levelsin MR • Further reductions requiresfurther retirement • Riskytoinvest innewfossil fuelbaseload plants • But……mustnot forget transport.

Accesstolowcost geothermalisvery important

RenewablesͲ NewZealand’’s competitiveadvantageinalow carbonworld?

The‘‘OceanBounty’’oilrigwithMt.Taranaki inthebackground

GasSupplyOutlook

Looking back……

FYI: Oil

NaturalGas (a.k.a.Gas)

GAS

P50resourceestimatesbalancepotentialsupply anddemand…… Balancedscenario(P50)for gasproduction: • Supplyanddemandwell balanced • Gaspricesstaynear currentlevelsuntilthe mid2020s • EnergyOutlookassumes methanolproduction ceasesinthelate2020s becauseofmore expensivegas

GAS

P10resourceestimatescouldmeanLNGexports……

Optimisticscenario(P10)for gasproduction: • Potentialsupplyexceeds demand • Plentyofgasavailablewith abreakͲevenpricelower thancurrentwholesale price • EconomicsofCCGTslook favourable • Notechartexcludes‘‘LNG’’ sizediscoveries

GAS

P90resourceestimateswouldmeanbig changesforgas……

Pessimisticscenario(P90)for gasproduction: • Supplynotenoughto meetdemand • Wouldmeanretirementof gasͲfiredelectricityplant • Methanolproductionno longerpossible

The‘‘OceanBounty’’oilrigwithMt.Taranaki inthebackground

Workingforthestate

Beingapublicservant Thepublicserviceispoliticallyneutral

Whatis"politicalneutrality"? • Politicalneutralityisaboutpublicservantsdoingtheirjobsprofessionallyandwithoutfavouringone politicalpartyoveranother.Thisisimportantforthemaintenanceoftrustintheinstitutionsof government,anditallowsgovernmentbusinesstocontinueregardlessofwhichpartyisinpower. • Thepoliticalneutralityprincipledoesnotmeanyoucan’’ttakeapersonalinterestinpolitics.Itdoes meanthatyoumust““keepyourjoboutofpoliticsandpoliticsoutofyourjob””.

Canapublicservantbepoliticallyactive? • Outsidework,youarefreetotakeanactiveinterestinpoliticalmatters.Inthegreatmajorityofcases, itisacceptableforyoutobelongto,andtoplayanactiverolein,apoliticalparty.Butrememberto ““keepyourjoboutofpoliticsandpoliticsoutofyourjob””. • Althoughpublicservantshavethesamerightsofpoliticalexpressionoutsidetheworkplaceasordinary membersofthepublic,theyneedtobepoliticallyneutralatwork. • Itisnotappropriatetouseworkpremisesorresourcesforpartypoliticalpurposes. • PublicservantsareentitledtostandforelectiontoParliamentbutmustlettheirmanagers,chief executiveorboardchairknowassoonasthedecisionismadetostand.

http://www.ssc.govt.nz/electionͲguidanceͲ2014

What'sitliketoworkforCentral Government • Gettodealwithbigpictureissues: • GrowNewZealandforall • AddressingClimateChange–– NewZealand'scontributiontoaglobal problem. • Strategicwholeofenergymarketanalysis(ratherthanlookingat theregulatorydetail).

• Most‘‘PolicyAdvisors’’havetraininginthingslike: • Economics • Law • Politics

• Butdon’’tletthatstopyou!‘‘EnergyAnalysts’’gettodothe funworkanyway!

That’’sallfolks! Formoreinfo: • Visitourwebpage http://www.med.govt.nz/sec torsͲ industries/energy/energyͲ modelling • Email [email protected]