Imported Layers Created using Figma Group Created using Figma Shape Created using Figma Shape Created using Figma Imported Layers Created using Figma Shape Created using Figma Shape Created using Figma Imported Layers Created using Figma Path Created using Figma logo Created using Figma “ Created using Figma Group Created using Figma

It’s not easy being green

CS web 17
Craig Stent | Posted on Jun 4, 2021

The Climate Change Commission’s final advice to the Government is due to be released next Wednesday.  This follows a review of interested party submissions and feedback from the initial draft report.   We do not see the key draft recommendations changing, but at the margin we might see some alterations to the Commission’s recommendations.  

Harbour made a submission which focused on five main areas:

  • We support, on balance, a feebate scheme to incentivise the uptake of electric vehicles (EV’s) and penalise the use of high emission vehicles. Many northern hemisphere countries, such as Norway, provide a leading example of encouraging fleet conversion and associated carbon emission reduction. 
  • We encourage further investment in renewable electricity generation. Innovation and technologies will continue to bring closer the 100% renewable energy target. We need to be aware of the economic costs of pursuing the 100% target. Certainly, moving rapidly away from coal-fired generation is necessary, on current technologies firming capacity from gas may still be required.
  • Industrial heat pumps are a viable option for primary industries.
  • Additional funding should be provided by government for conversion of government and local government assets, such as schools and hospitals, to convert from coal boilers to alternatives. The 2021 Budget started to allocate more funding; we would encourage an even stronger focus on removing coal as a heating fuel.
  • With large pools of capital locally and globally available, public-private partnerships ought to be available for economic projects to get off the ground.

Many of the recommendations will have economic costs to them.  Some of them will require incentives, whilst others will stack up on an economic basis.   The electricity generation sector (the gentailers) are key to accelerating decarbonisation in their own generation assets, and are also key enablers for others. 

We recently attended two industry days by listed companies Meridian and Contact Energy.   Clearly the industry has had its ups and downs in the last 12-18 months with the ongoing NZ Aluminium Smelter (NZAS) ‘stay-leave’ circus.  At the industry days, both companies talked up the potential opportunity set for demand replacement for the smelter load.   As a reminder, Meridian has extended a very attractive power pricing contract to the end of 2024 to NZAS. To be clear, this is an exit deal that has been struck, unless NZAS is prepared to pay a material increase in price from their current arrangements.   In the intervening time, both Meridian and Contact are working hard  to find alternate, competing demand sources for their South Island electricity generation.   Both companies face the most risk to their revenue given they have the most electricity generation assets vulnerable to the smelter closing. 

So, what are the alternatives for this demand?  In a data-intensive storage world, both companies have had what seems to be serious interest for data centre capacity in the Southland region.  With the potential for further data cable investment across the Pacific and Tasman to be made, maybe this is not such a silly proposition.    In an odd sort of way, cooler climatic conditions in Southland may actually suit data centres. Lower temperatures assist the energy intensity associated with cooling data installations.  

The other yet-to-be proven export opportunity is hydrogen.  Whilst this might seem like replacing one large customer with another or two or three, it is an energy source which could globally be in demand as the wider world looks at its energy needs and decarbonisation requirements.   In particular, Japan and South Korea are rapidly looking for hydrogen to replace thermal energy production.   And large resource companies such as Fortescue Metals are also looking seriously at this emerging technology.

Our recent soundings suggest that there are many potential sources of new demand that could replace smelter demand. If only it was that easy.  One potential scenario is that alternative electricity demand might provide some tension for Rio/NZAS in any future negotiations. We are all interested in using our renewable electricity generation in the best way. At the same time, most of the industry is moving ahead with further capital investment in new renewable generation, principally in the North Island closer to both demand and the geographies where we need to phase out thermal generation.  Contact is pushing ahead with its world class 152MW Tauhara geothermal development which, in our opinion, is a key enabler on the path to decarbonisation.   Not only enabling the closing of Contact’s own thermal fleet but also providing opportunities to partner or contract with other thermal operators (read Genesis).

What are the other options that might have more of a meaningful contribution in decarbonising our local economy?   Transforming industrial energy use in the agricultural industry, and more specifically Fonterra, is a key plank in achieving this.  To date, the appetite from Fonterra appears to be lacklustre.  Fonterra at this stage appears to be pursuing a biomass strategy to replace their coal boilers, however, indications from industry are that there is not enough biomass available to supply Fonterra.   Clearly for the country to make a meaningful reduction in carbon emissions requires us all rowing in the right direction. 

Transport and agriculture, whilst being the largest emitters are potentially the hardest to solve.  Some of this will be solved with technology and the general fall in cost curves. In our opinion, we need significant political leadership on EVs. A big statement for improving uptake is needed. Just look at what can be achieved in countries like Norway. Decarbonisation will also be achieved through technology and companies investing ahead of the cost curve in their own decarbonisation.  

However, one of the enablers continues to be the electricity sector, where there seems to be many moving forces currently.  Most of it can be solved by market participants, which is preferable, but we also have the risk of government intervention.  Project Onslow is both an opportunity and significant risk; albeit longer dated, the development of a $10bn plus investment in energy storage would materially change the shape of the electricity generation market.  With current elevated wholesale electricity prices, very dry conditions in our lakes and low hydro generation, the political willingness to make changes could be real.  Whether further signalling on Project Onslow is part of the Climate Change Commission’s recommendations or another policy announcement we will have to wait and see. 

As Kermit famously said – ‘It’s not easy being green’. 


Harbour Asset Management Limited is the issuer and manager of the Harbour Investment Funds. Investors must receive and should read carefully the Product Disclosure Statement, available at We are required to publish quarterly Fund updates showing returns and total fees during the previous year, also available at  Harbour Asset Management Limited also manages wholesale unit trusts. To invest as a Wholesale Investor, investors must fit the criteria as set out in the Financial Markets Conduct Act 2013. This publication is provided in good faith for general information purposes only. Information has been prepared from sources believed to be reliable and accurate at the time of publication, but this is not guaranteed. Information, analysis or views contained herein reflect a judgement at the date of publication and are subject to change without notice. This is not intended to constitute advice to any person.  To the extent that any such information, analysis, opinions or views constitutes advice, it does not take into account any person’s particular financial situation or goals and, accordingly, does not constitute financial advice under the Financial Markets Conduct Act 2013. This does not constitute advice of a legal, accounting, tax or other nature to any persons.  You should consult your tax adviser in order to understand the impact of investment decisions on your tax position. The price, value and income derived from investments may fluctuate and investors may get back less than originally invested.  Where an investment is denominated in a foreign currency, changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Actual performance will be affected by fund charges as well as the timing of an investor’s cash flows into or out of the Fund.. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. Neither Harbour Asset Management Limited nor any other person guarantees repayment of any capital or any returns on capital invested in the investments. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this or its contents.