Fraser Clark: Winds of change blow towards renewable energy

The world is recognising the security and supply benefits of wind farming. Photo / Hawke’s Bay Today

Opinion

Most of us would consider the remote possibility our home may burn down is a good reason for taking out insurance. Yet Brian Leyland argues that a "90 per cent risk" that climate change is caused by human activity is insufficient reason for us to take out the "insurance policy" of legislation aimed at reducing greenhouse gas emissions.

I'd agree it is "prudent risk management" we are after, but would draw quite a different analogy between the sub-prime loans crisis and climate change than Mr Leyland's example.

Bankers and lenders were prepared to gamble on high-risk loans because of the potential upside of high returns and the perception any downsides would be mitigated through being spread across the economy.

Are the expected returns good enough for us to take a chance on the "10 per cent risk" that climate change is unrelated to human activity? That crops might grow faster is not enough of an upside for me compared to the effects of rising sea levels and extreme weather events associated with the "90 per cent risk" scenario. And it is unlikely the downside will be absorbed elsewhere in the global environment. The impacts of climate change will be felt in New Zealand,
just as we are now feeling the effects of other people's risky investment decisions.

But to focus narrowly on the "insurance policy" that renewable energy provides for climate change is to also ignore the "insurance" that renewables provide for energy security and independence.

Fortunately renewable energy developers understand this and consider a much wider range of factors than just the price of carbon emissions when making investment decisions.

Our long history of renewable generation can sometimes make us blind to its benefits. However, the high level of support for and activity in the global wind energy industry serves as a useful reminder that renewable energy has no fuel price risk, no long-term fuel supply risk and no political risk - all important considerations for security of supply and affordability.

Many countries are now dependent on imported fossil fuels for their electricity supply and so are exposed to significant supply and price volatility. They are turning to renewable energy to reduce their exposure.

President Obama's New Energy for America plan enables investment in renewable energy in recognition of the risk reliance on imported fossil fuels poses to national security, the environment, the economy and the budgets of working families. The European Union has also set mandatory targets for renewable energy.

In Europe and the US, as well as China and the rest of the world, wind energy is expected to provide the majority of this new renewable electricity generation.

Wind is a plentiful fuel source that nobody else wants, will never run out and results in no carbon emissions when used for electricity generation.

Global installed wind energy capacity has grown at a phenomenal rate in recent years and now sits at over 120GW - almost 13 times New Zealand's total generating capacity. Predictions are for installations to nearly triple in the next five years, even given the economic downturn.

The viability and value of wind energy also are increasingly recognised in New Zealand. All of New Zealand's large generators and several experienced global developers are investigating wind farm sites. With wind providing about 2.5 per cent of New Zealand's annual generation, we are only just beginning to harness the power in our wind. Installed capacity will grow by 50 per cent this year, and in the next 15-20 years, wind could provide 15-20 per cent of
our electricity.

While New Zealand does not rely on imported fossil fuel, there are still supply and price challenges. The availability of natural gas beyond the middle on the next decade is not certain, and Contact Energy recently flagged it expected gas prices to rise from around $7.15/GJ now to around $10.50/GJ by 2015.

New Zealand wind farms receive no subsidies. They are constructed only when they can produce electricity at a cost that is competitive with other forms of generation. Rising gas prices will only make wind and other renewables even more competitive.

With New Zealand's existing generation so dependent on hydro, the increase in diversity provided by greater wind generation can only be to the benefit of security of supply, especially during "dry" years.

These wider security and price benefits of renewable energy are driving global and New Zealand growth in wind energy - and it is these benefits which will ensure investments in wind energy will not crash and wind farms will not be abandoned if, as Mr Leyland suggests, climate change proves to be natural.

The continual reiteration of climate change policy has created a high level of risk and uncertainty for investors in electricity generation. It is important that New Zealand establishes a clear and settled carbon policy so that developers can more clearly and confidently assess their investment decisions.

There is no sensible argument for continuing to delay policy initiatives for responding to climate change. This will only increase the risk that insufficient investment will be made to meet growing electricity demand - the consequences of which we will feel the next time we have a "dry" year.

* Fraser Clark is the chief executive of the New Zealand Wind Energy Association.