Monday, February 11, 2008

Contrasting policies on wind

The Dominion Post on Saturday had an interesting article (offline) about wind farms in Germany and New Zealand, contrasting the very different ways the technology is used in the different countries. In New Zealand, we follow a "think big" paradigm, with generators installing large blocks of turbines in a single location in order to maximise the use of good wind resources and minimise the fixed costs of installation and grid connection. When we moved past the demonstration turbine stage, our wind farms have just got bigger and bigger - Hau Nui was 4 MW, Tararua 30 MW, Te Apiti 90 MW, Westwind 200 MW, and now both Meridian and Contact are planning 600+ MW farms, each the size of our largest hydro stations.

In Germany, they do things rather differently. There, the average windfarm is a single turbine, or at most a handful. And rather than being owned by a large power company like Meridian or Trustpower, they're owned by the local community - either a single farmer who got a loan from a bank, or a community trust. Where 99% of New Zealand's windfarms are owned by large generator/retailers, in Germany the situation is reversed, with 88% of wind farms in community ownership.

Engineering culture is obviously a factor in this. New Zealand's electricity engineers are firmly mired in the top-down, "think big" culture of the 80's. But mostly, the different outcomes are the result of different policies and different policy cultures. New Zealand suffered a neo-liberal revolution in the 80's and 90's, which imposed rigid ideological blinkers on our policy culture. "Markets produce perfect outcomes", and "government cannot do anything right" have been the prevailing policy dogmas, and as a result our policy has been on of laissez faire non-intervention. The exact mix of generation technologies has been left to the market - which in the absence of an internalised cost of carbon, has chosen gas or even coal as a "solution".

(The government's brief dalliance with incentives in the form of carbon credits through the Projects Mechanism isn't any great departure from this, firstly because incentives are a free-market oriented policy, and secondly because they were really just a way of representing future carbon prices).

By contrast, Germany does things rather differently. For a start, they have a "feed-in tariff", essentially setting the price electricity retailers must pay wind generators at an artificially high level (meaning that electricity users subsidise wind farms). Secondly, they have regulations requiring electricity retailers to connect to wind farms at reasonable cost, and to take all the electricity hey generate (so wind displaces cheaper but dirtier forms of generation from the mix). Thirdly, they directly subsidised the cost of turbines, though this has now stopped. In New Zealand, these ideas would be considered heresy, "picking winners", a return to Muldoonism. But the blunt fact is that they have worked. Germany has become a world-leader in wind energy, with over 20 GW of installed capacity. And its easy to install more, as the community ownership model results in fewer objections. By contrast, New Zealand was a late adopter of wind, though we are beginning to catch up as more sites have been surveyed and rising gas prices (and the threat of carbon prices) have made it cost-competitive with gas.

(And for those tempted to spew free market ideology about how picking winners never works, the German policies have already paid for themselves. See W Krewitt & J Nitsch, "The German Renewable Energy Sources Act — an investment into the future pays off already today", Renewable Energy 28 533 - 542).

One lesson in this is that there is more than one way to do it, and that rigid adherence to the free market is not necessarily the most effective path (something our policy community is only just realising as people form the 90's move on). But we should also be asking ourselves whether we've chosen the right path. A report from the Parliamentary Commissioner for the Environment has found definite advantages to the community ownership model for wind generation, including reduced environmental impacts, greater public acceptance, and efficiency gains by locating generation close to demand. Our current policy framework effectively makes this model impossible. If we want those benefits (and they are significant), then we are going to have to shift not just our policy, but also our policy culture.