New Zealand proudly counts itself among only a few countries to have a net zero emissions goal enshrined in law.
The latest report from the independent Climate Change Commission1 is a powerful call to arms to the nation to act today rather than waiting for technology, budgets or, more importantly, other countries to catch up.
According to the report, gross emissions in New Zealand have increased by 26 per cent since 1990, putting the nation in a more difficult position than it might have been had it started developing plans earlier2.
The Commission is critical of some previous government carbon policies including the planting of forests to offset carbon emissions and meet emissions targets, saying this mitigation approach was a temporary solution that is now coming to an end.
It also shows that current government policies do not yet put the country on track to meet recommended emissions budgets or targets, meaning New Zealand must act comprehensively and swiftly to achieve its goal of net zero emissions by 2050.
It is a delicate balancing act. Moving too slowly means future generations will bear the burden of addressing climate change, however, moving too quickly will impact jobs and comes at a short-term cost to the economy3.
AMP Capital manages funds that own Powerco, New Zealand’s largest electricity distributor and the second largest natural gas distributor servicing around 1.1 million customers, which is set to play a critical role in the nation’s path to net zero over the coming years.
In its 2020 Sustainability report, Powerco outlines its commitment to net zero carbon emissions by 20304 and has proudly been reducing its emissions year-on-year since committing to the target in FY2020. However, Powerco’s bigger contribution to New Zealand’s low-carbon future arguably comes from the investment it is making with partners and customers to rethink how the energy network operates.
Part of Powerco’s investment focuses on climate change resilience and ensuring the energy supply system remains robust despite changing weather patterns and extreme weather events.
This includes developing electricity pillar boxes that can survive flooding for low lying coastal areas at risk of inundation from rising sea levels. Another program uses laser light measurements taken from an airplane to collate 3D models of powerlines, trees and other structures to help plan for and manage storm damage. A large-scale battery installation in the rugged Whangamatā region automatically powers a bespoke generator if there is a power cut, ensuring continuous and reliable supply of electricity to the community even when the grid is down.
The company’s sustainability work is also developing even more advanced technology.
A new off-grid stand-alone power system (smaller than a backyard shed) uses a combination of solar power, batteries and a diesel generator to produce power for households and farms in remote areas during storms or faults. Work is ongoing on converting these units to hydrogen power, with excess solar energy generated through the day used to produce hydrogen, which can then be used to heat a home.
Another important element of Powerco’s sustainability journey is helping its customers adapt to a low-carbon future. The company is working with its largest customers to help reduce carbon emissions from their heating and industrial processes which can mean shifting to electricity or moving to a lower carbon emitting fuel.
Powerco is also strengthening its electricity network to cope with the demands of distributed, renewable power generation, allowing customers to sell back excess energy from solar panels or other generation into the network. Future work will focus on further network enhancements to support the expected widespread adoption of electric vehicles.
In our view, natural gas networks will also play an important role in the energy mix of New Zealand’s decarbonised future. Not only does natural gas help reduce greenhouse gas emissions (GHGs) when displacing coal and other hydrocarbon fuels, it does so in an affordable way.
Furthermore, advances in renewable gas technology offer a genuine alternative path for reducing GHGs from the gas network. Renewable gas is an umbrella term that can be used as a source of energy without contributing to additional carbon emissions. One type of renewable gas is biogas – which is a mix of gases created from decaying plant or animal matter and waste. Biogas can be produced from solid animal and plant matter or captured from landfill and wastewater treatment plants5.
Another renewable gas is hydrogen. Created from water, hydrogen can be used as a carbon-free fuel alternative for transportation fuels or can even converted into electricity. Importantly, biogas and hydrogen have potential to replace natural gas in the future. These green gases can be blended with natural gas as the energy system transitions to make use of existing infrastructure6. This could minimise the cost of the transition to net zero by avoiding wasting taxpayer money though the write-off of billions of dollars of in-the-ground pipeline assets.
From an investor’s point of view and in our opinion, Powerco is a model for how the energy industry prepare for a low-carbon future. AMP Capital’s ESG team has worked extensively with Powerco to formulate its sustainability framework. This shareholder stewardship approach is vital.
AMP Capital was instrumental in facilitating Powerco’s participation in The Global ESG Benchmark for Real Assets (GRESB) survey. GRESB – originally the Global Real Estate Sustainability Benchmark but now applied to infrastructure assets as well – is the leading global benchmark for the sustainability performance of real assets. Investors use GRESB to monitor investments, engage with managers and make investment decisions. Powerco was one of the first infrastructure assets to undertake the survey in 2016 and performed strongly ever since.
For all the challenges on the path ahead, the Climate Change Commission is confident that transition to a low-emissions society “can be economically affordable and socially acceptable7”.
The Commission envisages action on climate change will cost GDP around 0.5 per cent in 2035 and 1.2 per cent in 2050 than it would have been otherwise. However, in delaying key actions – notably the move to electric vehicles and more efficient farming – this could results in GDP in 2050 falling by as much as 2.3 per cent. “To achieve this, it must be well-paced, well-planned, well-signalled and co-designed… involving local government, regional economic development agencies, businesses, workers, unions, the disability community and community groups8.”
New Zealand should be congratulated for its global leadership in enshrining carbon reduction into law. The challenges it faces in coming years will be mirrored all over the world, as the inexorable shift to renewable energy plays out.
Author: Sue Jiang, Investment Director Sydney, Australia
Source: AMP Capital 29 July 2021
Reproduced with the permission of the AMP Capital. This article was originally published at AMP Capital
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