February 08, 2024

How can New Zealand ensure an effective energy transition?

With participation from all consumer groups

An inherent challenge in our energy transition.

Electric vehicles (EVs) have been in the news since the coalition government ended the Clean Car Discount (or otherwise dubbed the ‘ute tax’) on 31 December 2023. This is as well as the exemption from road user chargers for EVs (including plug-in hybrids) coming to an end on 31 March 2024. 

There are concerns that these changes might stifle further uptake of EVs, particularly in regard to New Zealand’s broader net-zero commitments and the target for EVs to represent 30 percent of the light vehicle fleet by 2035 as set in the Emissions Reduction Plan. It is important to note that the Clean Car Standard will remain in force.   

The adoption of EVs has increased significantly the last few years

EVs currently represent around two percent of the light passenger vehicle fleet in New Zealand. This was the mark set for ending EV exemption from road user charges. Auckland (2.9 percent), Wellington (2.5 percent), and Canterbury (2.2 percent) are the regions with the highest EV penetration. 

Registrations of EVs have represented around ten percent of monthly light passenger vehicle registrations in the last few years, up from two percent of vehicle registrations in the years prior to 2021. The final month of the Clean Car Discount also saw EVs represent nearly a fifth of all vehicle registrations. 

The upward trend indicates the success of the Clean Car Discount in facilitating the overall uptake of EVs. However, the majority of the growth occurred in areas with comparatively higher EV penetration and overall higher incomes than other regions (Auckland, Wellington, and Canterbury). This generated criticism that the Clean Car Discount mostly delivered benefits for the “rich”, taxed farmers who don’t have as many low-emission alternatives (hence the term “ute tax”), and did not enable low-income consumers to participate. 

These concerns speak to a broader challenge that is being faced in New Zealand’s energy transition.  

Technologies that will help drive the energy transition

Technologies that reduce fossil fuel reliance and decrease carbon emissions, such as EVs and solar panels, will continue to become more widely adopted. Multiple factors are likely to influence this adoption, including growing market penetration, decreasing capital costs, improved consumer environmental awareness, and government incentives and programmes, e.g., the Clean Car Discount.  

Similar to EVs, solar panels are also becoming more widely adopted. Solar currently represents around one percent of New Zealand’s electricity generation, with new installations of solar in the residential market increasing significantly, including 950 new connections in December 2023, compared to 419 in December 2020. These jumps in solar installations have been partly credited to decreasing costs, but also to growing consumer awareness and demand for energy independence. 

Otherwise classified as distributed energy resources (DER), these forms of technologies, among others such as smart grids, smart appliances, and batteries, are able to be installed by households, allowing them to generate, store, and use electricity in a flexible way that contributes to long-term cost reductions and improves energy efficiency.  

Additionally, the electricity network is expected to face increased infrastructure risk and demand during the energy transition. DER offers flexibility and resilience from the consumer side to alleviate some of this risk. This can reduce the potential investment required to upgrade existing infrastructure to accommodate growing electricity demand and reduce the cost of electricity for consumers.   

The broader challenge in our energy transition

Tools like DER are important for our energy transition and will play a critical role in New Zealand achieving sustainable commitments. The broader challenge, and underlying concern, is ensuring that all consumers, whether they be low-income households, businesses, or other groups, are involved in this transition.  

A consumer behaviour survey from the Consumer Advocacy Council found that, although most households are becoming more interested in finding ways to reduce energy costs, low-income households are less likely to benefit from the energy savings that technologies, such as DER, can provide. Low-income households are also less likely to be in a position to adjust energy use to maximise cost savings through the flexibility of DER. This includes the initial upfront cost required for the adoption of different technologies, which still remains a barrier. 

An effective, economy-wide transition will need policy that considers the needs of different consumer groups with innovative and localised approaches to development. Maximising long-term cost reductions, equitable outcomes, and the overall effectiveness of our energy transition will only be achieved if all consumer groups are willing to participate in this future and, importantly, have the opportunity and ability to do so.