NZ REZ consultation paper released by Transpower

Introduction

On 28 February 2022, Transpower announced its national consultation programme for a potential Renewable Energy Zone (REZ) project in Northland. Together with local lines companies Top Energy and Northpower, Transpower’s proposal is designed to contribute towards New Zealand’s growing demand for electricity and its net zero carbon strategy and to provide a response to the growing demands for new renewable energy sources in New Zealand from both consumers and potential developers.

Transpower states that New Zealand will need 68% more electricity by 2050. To meet this anticipated demand, Transpower has noted a significant increase in the number of new renewables projects that are being proposed in New Zealand. However, as things stand, current infrastructure would not fully allow this new electricity to be distributed. Transpower has highlighted Renewable Energy Zones (REZs) as providing a potential solution to this problem.

In this update, we have addressed the fundamentals of the proposed Northland REZ and highlighted some lessons that could be learnt from overseas - with a focus on NZ’s Trans-Tasman neighbour, Australia – who is also in the early stages of the development of a number of REZ’s in its quest towards net zero, greater integration of renewable technologies and electricity system security and reliability.

Definition of a REZ

REZs seek to ensure that renewable energy generators such as wind, solar and battery storage systems are developed and co-located in areas with network infrastructure and transmission capacity to be able to send clean energy and meet the users demand for electricity in the relevant market.^[1] As such, REZs enable the connection of multiple generators and storage facilities in the same location to capitalise on economies of scale. Through co-location, investors can share the costs of, electricity infrastructure. The cost of this investment is recovered from these generators and/or large electricity users. REZs are therefore designed to ensure that generators and consumers are connected into the distribution or transmission network in a time and cost-effective manner.

Funding of a REZ

Upgrades to transmission connection or distribution assets would be recovered from generation developers as incremental costs. The primary benefit of REZs is that they allow for developers to share the costs of building the necessary grid connections, mitigating the disincentives and costs associated with first movers’ disadvantage. This would be accomplished by coordinating a commercial framework through which generation developers provide up-front commitments. These commitments are intended to ensure that any investment goes toward connecting generators prior to the development of transmission and distribution assets, reducing the need for a single customer or network owner to fund an oversized connection.

The economic case for REZ development in Northland

Transpower has identified Northland as a feasible REZ location. The region’s promising wind, solar and geothermal resources have attracted significant attention from developers and investors in recent years. Developers have made enquiries and/or applications to Transpower and lines companies with an aggregate capacity that would equate to approximately 2GW of new renewable generation. However, current and imminent grid constraints in this area threaten the ability of this new generation to service national demand.

Furthermore, the existing 220kV grid backbone interconnection lines from Auckland to Marsden are underutilised at present. These lines can export 300MW of electricity even during times of interruption and a further c. 600MW of electricity when all transmission assets are fully operational to Auckland. A REZ in Northland could take advantage of this unexploited interconnection.

Transpower has recommended that investments and upgrades to the existing transmission network would be more cost efficient than building new lines and substations. It therefore proposes to partner with local companies Northpower and Top Energy and the combined network assets of those three entities (shared lines, substations, infrastructure, and equipment) would be used in the Northland REZ pilot.

The Australian REZ experience

Similarly, Australia’s commitment to reach net-zero emissions by 2050 will require renewable energy generators to secure connection to the national electricity market (NEM) in a timely, affordable, and reliable manner. As larger volumes of renewable energy capacity are forecast to be installed in the NEM to replace fossil fuel sourced energy, the NEM needs to accommodate periods of very high or very low renewable generation with demand to maintain system strength and inertia.^[2] A key planning tool for managing this balance is the development of REZs.

Australia has considered the establishment of REZs for similar reasons to New Zealand – new jobs for Australians, reducing Australia’s reliance on fossil fuels,^[3] and lowering electricity prices for households and businesses^[4].

The Australian Energy Market Operator Integrated System Plan (ISP) Report released in July 2018 (AEMO ISP Report 2018) identified a number of highly valued REZs across the NEM with good access to existing transmission capacity, noting that to connect renewable projects beyond the current transmission capacity, further action will be required.^[5] Since that report was released, many State governments have announced plans to develop REZs as a priority for the near future.^[6] In parallel, numerous transmission network service providers (TNSPs) have engaged in consultation processes, studies and evaluations to determine suitable approaches to REZs in their areas and transmission infrastructure required.^[7]

In March 2020, the COAG Energy Council began discussions with the Energy Security Board (ESB) to support the development of REZs with a two-stage approach including initially an Interim REZ Framework and later a REZ Connection Hub development:

• Stage 1 rules – Under the stage 1 rules, detailed staged plans for each of the priority REZs identified in the ISP would be prepared by TNSPs. The design would include details such as the ideal location for each connection hub and the necessary transmission infrastructure required for each REZ.
• Stage 2 rules – The stage 2 rules are intended to create development plans with the REZs and focus on the development of stages (or connection hub) which are required for the REZ Connection Hub Development. ESB would consider factors including the costs for providing access and the creation of the required shared network.

The Australian Energy Market Operator ISP Report released on 30 July 2020 (AEMO ISP Report 2020) identified potential REZs across Australia that are considered optimal in improving the transmission of electricity in the NEM, having regard to:

• energy targets, policies and scenarios;
• resource quality;
• existing network capacity;
• demand correlation and correlation with other favourable REZs;
• cost of developing or augmenting with other favourable REZs; and
• proximity to the load centre.^[8]

Following the release of the AEMO ISP Report 2020 a number of Australian Governments have announced plans to establish REZs. We have summarised these below:

• the NSW Government released the Electricity Infrastructure Roadmap in November 2020 with plans to deliver 5 REZ’s in Central-West Orana, New England, South-West, Hunter-Central Coast and Illawarra regions. All REZs in NSW are in the early stages of planning, except for the REZ in Central-West Orana which is currently in the development phase.^[9]
• the Victorian Government announced in November 2020 its decision to invest AUD 540 million to establish 6 REZs located in Central North, Gippsland, Murray River, Ovens Murray, South Victoria and Western Victoria. The ‘Stage One Projects’ in respect of these proposed REZs comprised of minor network augmentation works, projects to strengthen the system and larger augmentation projects are in the procurement phase. The Victorian Government is expected to decide on whether to proceed with the project from Quarter 2, 2022.^[10]
• the Queensland Government announced in its COVID-19 Economic Recovery Plan released in June 2021 plans to provide AUD 145 million to establish 3 Queensland REZs (QREZ) in Northern, Central and Southern Queensland. Northern QREZ and Southern QREZ are ready for development, whilst Central QREZ is currently in the early stages of planning.^[11]

REZs are to be developed on a large scale and often span across multiple states. In order to improve the coordination between each of respective state-based development frameworks, the National Electricity Amendment (Renewable energy zone planning) Rule 2021 was introduced. The rule aids in ensuring REZ development frameworks remain aligned with the AEMO developed ISP. This is done by establishing requirements including the creation of REZ design reports, which provide details of a community impact assessment after consultation with the relevant local councils, communities and stakeholders that may be impacted by the REZ.

However, there are several issues within Australia’s renewables industry which hinders its ability to unlock potential REZs in respect of REZs which are intended to connect to the NEM, such as:

• difficulties in gaining approval to connect new projects to the grid;
• transmission losses;
• congestion in parts of the network;
• thermal constraints and system strength;^[12]
• the coordination of timing of investment decisions, financial close and completion of projects being developed at different stages with different stakeholders; and
• competition issues requiring Australian Competition and Consumer Commission clearances.

While Australia is still in early stages of developing REZs, they are commonly seen as a key solution to overcome grid connection, transmission and reliability issues arising as a result of the increase in renewable energy generation in Australia. Success will largely be driven by commitment to the zones by industry and Governments (at all levels) and streamlining regulatory approval pathways.

Other international approaches to REZs

In addition to Australia and New Zealand, there are a range of examples of overseas jurisdictions considering and implementing similar models to enable the connection of renewable generation and electricity consumption.

South Africa

In 2019, Phase 2 of South Africa’s Strategic Environmental Assessment (SEA) for wind and solar energy proposed three additional Renewable Energy Development Zones (REDZs) for wind and solar projects. Phase 1 had already identified eight REDZs in 2018. Renewable energy projects to be developed in these new REDZs have been identified to support a transition in those specified areas including where 12 GW of existing coal power stations are planned to be decommissioned by 2030.

Prior to the implementation of REDZ projects, there were concerns that the South African government’s strategy for renewable electricity generation failed to account for spatial considerations as it did not define generation capacity allocations, which led to difficulties for strategic and proactive spatial planning. The implementation of REDZs were seen to mitigate these issues by identifying precise geographical areas in which large-scale wind and solar PV developments could be supported.

However, while spatial issues may have been addressed by the REDZs, grid infrastructure constraints and resulting timelines for and costs of grid expansion are still seen as key challenges for the future of South African renewable energy development and the REDZ programme is seen by many to remain in its conceptual phase.

Texas

In 2005, the Public Utility Commission of Texas (PUCT) began the designation of ‘Competitive Renewable Energy Zones’ for the production and maintenance of reliable and affordable renewable electricity. Within 9 years all anticipated CREZ transmission lines were in operation. This included a multi-year consultation and selection process where PUCT (as sole administrator and regulator) engaged with stakeholders and vetted applications. The 3,600 circuit miles of transmission lines added in connection with the CREZ represented 23% of all new high-voltage lines added to U.S. transmission networks in the past 12 years.

Whist success can be measured by many different metrics, the Texas CREZ has success understood to have facilitated the installation of significant new wind power to Texas’ energy portfolio - around 22,000 MW of new wind generation has been installed since CREZ’s conception, although this cannot be solely attributed to the CREZ

Final points for NZ consultation

The challenges and successes of REZ projects undertaken in comparable jurisdictions provide valuable lessons in the consideration of similar projects in New Zealand. A focus on identifying regulatory and investment obstacles and finding ways to mitigate those challenges effectively via a comprehensive process of consultation and stakeholder engagement is likely to be an important factor in ensuring the long-term success of the Northland REZ, and any subsequent REZ projects.

Consultation for the Northland REZ project is open until 5.00pm, Friday 8 April. The EOI phase is set to commence Q3/4 2022 depending on the support during the consultation period. See www.transpower.co.nz/REZ for further details.

For more information on the New Zealand REZ consultation please contact Jeremy MacIver.

[1] Climate Council, ‘What are Renewable Energy Zones?’ (Web Page, 23 November 2020)

[2] Australian Energy Market Operator, 2020 ISP Appendix 6. Future power system operability (Report, July 2020) 15 

[3] Ibid.

[4] Ibid.

[5] Australian Energy Market Operator, 2018 Integrated System Plan (Report, July 2018)

[6] Climate Council, ‘What are Renewable Energy Zones?’ (Web Page, 23 November 2020)

[7] Powerlink Queensland, ‘Queensland Renewable Energy Zones’ (Web Page, 2022); Transgrid ‘Central-West Orana REZ Transmission-Wollar substation upgrade’ (Web Page)

[8] Australian Energy Market Operator, 2020 ISP Appendix 5. Renewable Energy Zones (Report, July 2020) 18

[9] New South Wales Government, ‘Renewable Energy Zones’ (Web Page, 2020)

[10] Victoria State Government, ‘Renewable Energy Zones’ (Web Page, 27 January 2022)

[11] Queensland Government, ‘Understand renewable energy zones | QREZ’ (Web Page)

[12] Arenawire, ‘What are renewable energy zones, and why do they matter?’ (Blog Post, 7 February 2020)