FEASIBILITY OF ESTABLISHING A NATIONAL NEW-ENERGY ... · play in meeting those challenges and recommends establishing a national new-energy development centre (NNEDC) in Taranaki

Final version

Indicative Business Case

20 February 2019

FEASIBILITY OF ESTABLISHING A NATIONAL NEW-ENERGY DEVELOPMENT CENTRE IN TARANAKI

Commercial In Confidence

CONTENTS

EXECUTIVE SUMMARY 1

Introduction 9

STRATEGIC CASE 12

The current situation 13

The challenges the NNEDC will help overcome 20

Why we need the NNEDC 27

Why Taranaki? 36

What needs to happen to achieve a successful and enduring NNEDC? 41

Strategic alignment 51

Risks, constraints and dependencies 57

ECONOMIC CASE 59

Introduction 60

The long-list of options 62

The investment option 67

Assessment of the investment option 74

FINANCIAL CASE 78

Cost of running the NNEDC 79

Benchmarking 83

Possible funding arrangements for the NNEDC and

energy projects 86

MANAGEMENT CASE 87

Arrangements to establish the NNEDC 88

Establishment “next steps” 89

People and Governance 91

Appendix 1 : Comparison of energy centres from around the world 93

Appendix 2 : A history of energy centres in New Zealand 98

Appendix 3 : What do customers value? 100

Appendix 4 : What the NNEDC could focus on 101

Appendix 5 : Letters of support 104

Appendix 6 : List of tables and figures 117


PREFACE This report has been prepared for Venture Taranaki by Nick Carlaw and

Jason Leung-Wai from MartinJenkins (Martin, Jenkins & Associates

Limited).

MartinJenkins advises clients in the public, private and not-for-profit sectors.

Our work in the public sector spans a wide range of central and local

government agencies. We provide advice and support to clients in the

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Our aim is to provide an integrated and comprehensive response to client

needs – connecting our skill sets and applying fresh thinking to lift

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We have offices in Wellington and Auckland. The company was established

in 1993 and is governed by a Board made up of executive directors Kevin

Jenkins, Michael Mills, Nick Davis, Allana Coulon and Richard Tait, plus

independent director Hilary Poole.

Disclaimer

This Report has been prepared solely for the purposes stated herein and

should not be relied upon for any other purpose. To the fullest extent

permitted by law, we accept no duty of care to any third party in connection

with the provision of this Report. We accept no liability of any kind to any

third party and disclaim all responsibility for the consequences of any third

party acting or refraining to act in reliance on the Report.

We have not been required, or sought, to independently verify the accuracy

of information provided to us. Accordingly, we express no opinion on the

reliability, accuracy, or completeness of the information provided to us and

upon which we have relied.

The statements and opinions expressed herein have been made in good

faith, and on the basis that all information relied upon is true and accurate in

all material respects, and not misleading by reason of omission or otherwise.

We reserve the right, but will be under no obligation, to review or amend this

Report if any additional information, which was in existence on the date of

this Report, was not brought to our attention, or subsequently comes to light.


Document history

• Draft Business Case version 1, 12 November 2018: Reviewed by

project advisory group.

• Draft Business Case version 2, 16 November 2018: Submitted to

Ministry of Business, Innovation & Employment.

• Draft Business Case version 3, 21 December 2018: Submitted to

Venture Taranaki

1 Commercial In Confidence

EXECUTIVE SUMMARY

Governments, businesses and communities around the world are taking

action to address one of the major challenges of our time, climate change.

The global energy system must make a fundamental change. New

Zealand has set ambitious targets as part of its contribution to reducing

global emissions and to achieve a more sustainable and low emissions

economy.

New ways of creating and using energy must be developed. As a country,

we must increase the pace of innovation and leverage international

developments in technology to achieve these goals.

Incremental change alone will not get us there fast enough.

This Indicative Business Case examines the challenges that New Zealand

faces in achieving its energy future and the critical role innovation must

play in meeting those challenges and recommends establishing a national

new-energy development centre (NNEDC) in Taranaki.

The energy centre will be an institution of national

importance, playing an integral role in New Zealand’s

science and innovation system by lifting innovation in

new-energy and supporting New Zealand to

transition to a low-emissions economy

Why a National New-Energy

Development Centre is needed, now

The NNEDC will be a hub that contributes to

achieving national and global emissions targets

• A nationally significant institution that is focused on growing new-

energy innovation in New Zealand.

• A leader in helping New Zealand develop an overarching new-energy

strategy, necessary to transition to a low emissions future.

• An energy system integrator that brings new-energy innovation

together across multiple organisations, agencies and locations.

• A focal point for government, the research sector and the private

sector, drawing in the best ideas and technology from overseas.

• A partnership-based hub that provides an engine for growth and

catalyst for change through innovation at scale.

• A lead voice for new-energy solutions within the science and

innovation system.

• A credible and trusted source of evidenced-based, commercially impartial

advice and information to government and industry.


The NNEDC will enable more new-energy innovation

– at faster rates and lower cost and risk

• Better access to infrastructure to develop and test new-energy

technologies.

• A place to pilot new-energy solutions in real world test environments.

• Greater access to public and private funding from within New Zealand

and overseas.

The NNEDC will support a just transition for Taranaki

and grow a more resilient region and economy

• Help to strengthen the resilience of the energy industry by diversifying

energy activity.

• Support economic adjustment in the Taranaki region, which is

significantly exposed in New Zealand’s shift toward a low-emissions

economy.

• Showcase Taranaki and New Zealand as a leader in the development of

new-energy.

What is the NNEDC?

The NNEDC’s vision is:

A globally successful new-energy industry that leads New Zealand

into a low-emissions future

The NNEDC’s mission is:

An organisation of national significance that fosters a new-energy

eco-system to leverage national and global industry knowledge and

specialist expertise to reduce the time, cost, and risk associated with

developing new-energy technologies

The NNEDC’s unique selling point is:

A collaborative and partnership-based approach that leverages a

powerful ecosystem of new-energy leaders, mature companies,

research expertise and government to build, test and deploy new-

energy solutions

The NNEDC will be a nationwide hub that services its customer ecosystem

– made up of industry, government, research expertise and leaders.

Major companies and small and medium-sized enterprises from across

industry and New Zealand will be able to work together in diverse, multi-

functional teams to solve energy challenges by unlocking innovation at

scale.


A hub and spoke model will connect the NNEDC with institutions across

New Zealand and internationally, while also championing new-energy

innovation in Taranaki and harnessing the region’s capability, knowledge

and expertise to build, test and deploy new-energy solutions.

What will the NNEDC do?

The NNEDC will answer the call for more new-energy innovation –

providing a platform for it to occur at a faster pace and with less cost and

risk. At its core, the NNEDC will focus on enablement of product

development, demonstration and deployment of new-energy solutions.

The NNEDC will focus on innovation that contributes

to efforts in New Zealand and globally to transition to

a low-emissions future

The NNEDC’s customer ecosystem in action


The NNEDC will have 6 main functions

• Scanning new-energy research and emerging technologies, and

disseminating information with stakeholders.

• Identifying new-energy opportunities that will deliver regional, national

and global benefits.

• Physical and virtual co-location of industry stakeholders, providing a

shared space and forum for working, meeting and holding events.

• Acting as a hub to exchange knowledge, expertise and capability with

other institutions in New Zealand and internationally.

• Enabling easy access to specialist expertise across government,

industry and the research sectors.

• Facilitating the development, testing and piloting of new-energy

solutions, and connecting these to the market.

• Ensuring the highest safety standards are applied to development and

testing.

• Systematising elements of the commercialisation process, funding

and investment streams and project management.

• Supporting apprenticeships, mentoring programmes, and training

organisations to identify the future capability requirements of the

sector.

• Providing independent and impartial advice to government and

industry to inform thinking around new-energy strategy and policy.

• Working with regulators and industry to reduce potential barriers to

innovation and ensure the application of best practice health and

safety.

• Facilitating tailored access to specialist services to support

commercialisation and funding and to help projects get investment-

ready.

• Providing robust governance to achieve the NNEDC’s purpose and

report on its performance to government and stakeholders.

• Showcasing and promoting new-energy solutions to investors and

other stakeholders, and demonstrating progress towards a low

emissions future.


What will the NNEDC focus on?

The NNEDC will utilise a portfolio

approach to investing in projects to

optimise where it focuses its efforts

(see figure on the right).

The NNEDC is likely to gravitate

towards those projects that it excels

at, building on successful results and

forming deep pockets of expertise.

It is anticipated that the majority of the

NNEDC’s focus will be on energy

projects that involve collaboration and

partnerships with mature companies

and their supply chain network,

although the portfolio approach will

ensure there is space for start-up

ideas that need a strong incubator

focus.

Over time, it is expected that the

NNEDC’s focus will change and

evolve to investigate emerging new-

energy opportunities.

The inherent uncertainty involved with

innovation and the rapidly evolving

global energy solution landscape

means it is impossible to predict

exactly what type of projects the

NNEDC would be involved with in the

future.

The NNEDC’s portfolio approach to energy projects


Why the NNEDC has to be in Taranaki

Taranaki has a strong competitive advantage that makes it the location of choice for new-energy innovation. While other regions have

some of these advantages, only Taranaki can claim them all. The diagram below summarises the rationale for the centre being located

in the Taranaki region.


Governance and people

Governance

Once the NNEDC is operational, a governance board would set the

strategy and oversee the performance of the organisation, supported by a

number of board committees (shown in the figure below).

NNEDC personnel

The success of the NNEDC will depend on the capability and capacity of

its personnel being able to demonstrate the value of the NNEDC within a

short period of time and establish a track record of success, while working

“hand in glove” with a wide range of stakeholders.

Based on initial thinking about how the NNEDC might be organised to

deliver its functions, the energy centre would require approximately 35

delivery staff and 9 management and administrative staff once it is fully

operational.

These personnel levels have been benchmarked against other public

sector agencies and overseas energy centres to check for

reasonableness. A process of detailed organisational design would be

undertaken as part of the transition phase for establishing the NNEDC.

Cost of the NNEDC

The total five-year cost of the NNEDC is estimated to be between $35.2

and $43.6 million. The majority of expenditure is expected to be operating

cost to establish and run the NNEDC, with some capital costs incurred to

setup the NNEDC’s office space. The Business Case presents an option to

provide a co-working environment for stakeholders and laboratory space,

which would result in the cost of the NNEDC being in the upper range of

the cost estimate.

Total cost estimate 2019/20–2023/24


Funding arrangements

Funding NNEDC operations

In the NNEDC’s initial period of operations (Years 1–5), the central

government is likely to be the majority funder of the energy centre’s

establishment and running costs, via grant funding (for example, the

Provincial Growth Fund) or a new parliamentary appropriation.

Local government could contribute significant assets to help establish the

NNEDC, for example providing land to a third-party developer in order to

create a long-term accommodation solution for the NNEDC.

Industry is also expected to provide a level of funding for the NNEDC,

which could include in-kind funding of personnel, use of facilities or other

assets, and delivery of services or specific tasks.

Funding energy projects

At this stage, the NNEDC is not expected to have a role to directly allocate

funding to energy projects – although this could become an objective for

the centre in the longer term.

Rather, energy projects will be funded from project sponsors and

participants who would provide cash contributions and in-kind support. The

NNEDC would contribute by connecting energy projects with government,

industry and international funding and investment opportunities.

Establishing the NNEDC

Key “next steps” to establish the NNEDC

Step 1 would commence once there is sufficient certainty about future

funding arrangements.


INTRODUCTION

A unique opportunity for Taranaki and

New Zealand

Taranaki is an energy-producing region in transition, and has a unique

opportunity to lead New Zealand into a new energy future.

A pivotal role in New Zealand’s low-emissions future

Governments, businesses and communities around the world are taking

action to address one of the major challenges of our time, climate change.

The global energy system must make a fundamental shift away from carbon-

intensive energy sources. New ways of creating and using energy must be

developed. Already, technological advancements are emerging much faster

than expected.

New Zealand has set ambitious targets as part of its contribution to reducing

global emissions. The energy sector has a significant contribution to make to

a more sustainable and low emissions economy.

As a country, we must increase the pace of innovation and leverage

international developments in technology to achieve these goals.

Incremental change alone will not get us there fast enough.

Taranaki has the opportunity to be at the forefront of this transition, driving

change though business innovation and industry collaboration.

The purpose and scope of this Business

Case

This Business Case examines the feasibility of establishing a National New-

Energy Development Centre in Taranaki.

This proposal stemmed from Taranaki’s economic development strategy,

Tapuae Roa: Make Way for Taranaki. The proposed energy centre is part

of a vision for the region to have strong, secure and sustainable energy

industries, and to be an exporter of renewable energy and new-energy ideas

and technologies for the benefit of New Zealand.

The Business Case sets out the strategic, economic, financial and

management cases for establishing an energy centre. It:

• describes the challenges New Zealand faces in achieving its energy

future and the critical role innovation must play in meeting those

challenges

• shows how the energy centre will be an institution of national

importance, playing an integral role in New Zealand’s science and

innovation system by lifting innovation in new-energy and supporting

Taranaki and New Zealand to transition to a low-emissions economy

• describes the focus of the energy centre, including the types of new-

energy projects it would support

• identifies the energy centre’s mission and purpose, the functions it

would deliver, and the governance, funding arrangements and

structures needed to give effect to this.


Key terminology and key players

The terminology we have used

The Business Case uses these key terms in the following way:

• Innovation: The OECD defines innovation as the implementation of a

new or significantly improved product (good or service), or process, a

new marketing method, or a new organisational method in business

practices, workplace organisation or external relations.

We use the concept of the innovation chain, shown below, to describe

the specific activities that make up innovation.

• New-energy refers to sources of energy that are more renewable and

sustainable and/ or have lower emissions than current energy options.

• Renewable energy refers to energy that is collected from renewable

resources and is naturally replenished on a human timescale. The term

is sometimes used interchangeably with clean energy.

BRIEF BACKGROUND: Energy centres around the world

Energy centres exist in a number of countries throughout the world.

This Business Case has examined a number of these energy centres to inform the proposal for the NNEDC in Taranaki, and to think about how the NNEDC could be positioned as part of a global network of energy centres.

The unique selling proposition of energy centres is to enable and de-risk energy innovation, sometimes with a particular focus on a technology (such as marine, wind, solar or electricity energy). A number of energy centres also offer additional services such as laboratory facilities.

All successful energy centres have active government, research and industry participation. In some cases, they are established in legislation (eg the Australian Centre for Renewable Energy).

Funding arrangements involve a mix of central and local government and private sector, with the majority contribution provided by government. Private industry contributes in the form of cash and/or in-kind funding.

Appendix 1 provides a summary of some of the successful energy centres in other countries that we have researched as part of this Business Case.

In New Zealand, two previous attempts have been made to establish an energy centre – one in Ōtaki and one in Taupō. Appendix 2 provides short case studies detailing the history of these energy centres and key lessons that can be applied to the NNEDC.


Key Taranaki and New Zealand players we refer to

Throughout the Business Case we refer to various companies, facilities and

other entities that use, produce, store and distribute energy.

• Energy producers: These are companies that explore in and operate oil

and gas fields, extracting energy for export or for input into other areas such

as electricity generation, direct use, and feedstock into other processes.

• Electricity generators and energy providers: Several significant gas-

based electricity generation facilities are based in Taranaki.1 There is

also a hydro-electric facility on the Patea River and several small hydro

sites in the region.

• Industrial production: Taranaki has significant petrochemical,

engineering and manufacturing capability. Current companies

developing industrial chemicals from gas include Ballance Agri-

Nutrients, Methanex, and AICA (NZ).

• High energy users: Taranaki has several high energy users,

particularly of process heat. These are largely in the food manufacturing

sector and include companies such as Fonterra, ANZCO, Silver Fern

Farms, and Tegel.

• Service and supply chain: Companies with specialist expertise

including in the areas of engineering, health and safety, science and

project management.

• Logistics and transport companies: The region also has large

manufacturing, logistics and transport companies that use significant

amounts of energy to transport goods around the region and country –

for example, Fonterra, TIL, and Symonds Transport.

1 Stratford (Contact Energy), Kapuni (Vector/BOP Energy), Whareroa (Fonterra/Nova Energy, and

McKee (Nova Energy).

12 Commercial In Confidence 31 May 2019 8.51 AM

STRATEGIC CASE


THE CURRENT SITUATION

This section sets the scene for explaining why New Zealand needs

an NNEDC and why Taranaki is best placed to be the national home

of new-energy development. It describes how the global response to

climate change is affecting energy demand and supply, and the

unique role Taranaki plays in New Zealand’s energy system.

The need for change

Climate change is one of the major challenges of our time.

From shifting weather patterns that threaten food production, to rising sea

levels that increase the likelihood of catastrophic flooding and put property at

risk, the impacts of climate change are a major threat to global wellbeing.

While greenhouse gases are naturally occurring and essential to making the

Earth liveable, there are well-established links between humanity’s actions

and the cumulative level of greenhouse gas emissions. The concentration of

greenhouse gases has been rising steadily, along with mean global

temperatures, since the time of the Industrial Revolution. The most abundant

greenhouse gas, carbon dioxide (CO2), is the product of burning fossil

fuels.2

2 http://www.un.org/en/sections/issues-depth/climate-change/ Accessed September 2018.

3 The Paris agreement is the global agreement on climate change, where all countries signed up commit

to take action on climate change. The purpose of the Paris Agreement is to: keep the global average

temperature well below 2 degrees centigrade above pre-industrial levels, while pursuing efforts to limit

“A changing climate will affect our economy, environment and

way of life. While we are uncertain about the pace and scale of

future change we do know that planning for the future means

planning for a different climate.” – Ministry for the Environment

The international response

Governments around the world are taking action to address the effects of

climate change, as well as the new opportunities this affords.

The Paris Agreement

On Earth Day, 22 April 2016, 175 world leaders signed the Paris Agreement

at United Nations Headquarters in New York.3 This was the largest number

of countries ever to sign an international agreement on a single day.

The Paris Agreement built on the Kyoto Protocol, bringing countries together

to combat climate change and adapt to its effects, with greater support to

assist developing countries to do this.

Significant change is underway

It is now widely recognised that, to meet the intensifying climate challenge,

the global energy system must undergo a fundamental transformation –

away from carbon-intensive energy sources to other energy sources.

the temperature increase to 1.5 degrees centigrade; strengthen the ability of countries to deal with the

impacts of climate change; make sure that financial flows support the development of low-carbon and

climate resilient economies.

http://www.un.org/en/sections/issues-depth/climate-change/


Many developed and fast-developing countries have begun to take steps to

transition to a low-carbon economy as a competitive and development

priority. They understand that the transition requires far-reaching changes in

technology, finance, policy and societal behaviour.

Governments are developing and implementing policies to meet their

targets. Since 2015, 194 countries have agreed to reduce their greenhouse

gas emissions through policies that address all aspects of energy

transmission, storage and use, not just emissions from electricity

generation.4

Many of the largest economies in the world are among those leading the

transition to renewable energy and low-emission fuel and process

technologies.

For example, China has announced that it will invest $360 billion in

renewable energy by 2020 and has scrapped plans to build 85 coal-fired

power plants.5 European countries are banning new diesel and petrol

vehicles, starting with the Netherlands and Norway from 2025, Germany

from 2030, and France and the UK from 2040.

Manufacturers, suppliers, and customers are looking for low-emission

energy solutions, and this in turn creates opportunities for progressive

countries and regions to develop and test new-energy technologies that

meet those needs.

4 https://www.chiefscientist.gov.au/wp-content/uploads/HydrogenCOAGWhitePaper_WEB.pdf.

Accessed October 2018.

5 https://www.nytimes.com/2017/01/05/world/asia/china-renewable-energy-investment.html. Accessed

September 2018.

CASE STUDY: Japan’s energy strategy

Japan has set itself the goal of cutting emissions (from a 2013 baseline) by

26% in 2030 and 80% in 2050. However, the country imports fossil fuels for

about 94% of its primary energy supply, which makes meeting that goal

extremely challenging.

Japan’s energy strategy identifies hydrogen as a zero-emission fuel that can

be used in power generation, mobility, heating and industrial processes.

Japan will seek to import hydrogen from low-emission sources, demonstrate

supply chains for hydrogen, and use hydrogen for large-scale dispatchable6

electricity generation. It has numerous targets for mobility, such as 200,000

fuel cell vehicles and 320 hydrogen-refuelling stations by 2025.

For its existing industries, Japan will use hydrogen for energy where

electrification is difficult and invest in developing innovative technologies for

high-efficiency electrolysis, highly efficient energy carriers and low-cost fuel

cells.

Japan’s energy strategy includes building community awareness about the

safety and the significance of hydrogen, in co-operation with local

governments and businesses.

6 Dispatchable generation refers to sources of electricity that can be used on demand at the request

of power grid operators, according to market needs.

https://www.chiefscientist.gov.au/wp-content/uploads/HydrogenCOAGWhitePaper_WEB.pdf

https://www.nytimes.com/2017/01/05/world/asia/china-renewable-energy-investment.html


The global energy picture

Growing demand

Global demand for energy is growing considerably, and is forecast to climb

by 25% by 2040.7 Emerging economies such as India are a big driver of this

growth. Within the context of climate change there is also an increasing

demand, driven both by customers and regulation, for renewable energy and

low-emission fuels.

Figure 1: Global energy consumption

Source:

https://www.eia.gov/pressroom/presentations/capuano_07242018.pdf Accessed October 2018.

7 2017 Outlook for Energy ExxonMobil.

Supply: The dominance of fossil fuels

Despite the need to move the global energy system away from high-

emission energy sources, the energy supply continues to be dominated by

carbon-based energy sources – coal, oil and natural gas.

Figure 2: Global primary energy supply

Source: https://www.iea.org/statistics/ Accessed October 2018.

https://www.eia.gov/pressroom/presentations/capuano_07242018.pdf

https://www.iea.org/statistics/


The global energy future

Fossil fuels, in particular natural gas and oil, are expected to continue as the

bedrock of the global energy system for some time to come. The current

ratio of global reserves to annual production (a ratio expressed in time) is

more than 50 years for both oil and gas.8

Despite this, investment in new-energy technologies is expected to be

significant. The New Energy Outlook 2018 base scenario forecasts that

US$11.5 trillion will be invested in new power generation capacity globally

between 2018 and 2050. It forecasts that 75% of that investment will go to

wind and solar, and about 15% to other low-emissions technologies such as

hydro and nuclear.9

Demand for electricity is expected to increase significantly,10 driven by

strong growth in electric vehicles and increasing use and application of

digital activity. 11

Cheap renewable energy and improved energy storage (including batteries,

pumped hydro-electric energy storage, and hydrogen) are expected to

fundamentally reshape the electricity system, as the majority of the world

energy supply shifts from fossil fuels in 2017, to renewable energy in 2050.

Figure 3 shows the expected change in global energy supply to 2040.12

Wind and solar technology are expected to provide almost 50% of total

electricity, with hydro, nuclear and other renewables taking total zero-carbon

electricity up to 71%.

8 World Energy Outlook 2017.

9 New Energy Outlook 2018.

10 ExxonMobil estimate that about 55 percent of the world’s energy demand growth over the next quarter

century will be tied to power generation. A consequence of this trend will be a large uptick in demand

for many types of energy used to generate electricity, notably less carbon-intensive sources such as

natural gas, nuclear, solar and wind.

Figure 3: Change in global energy supply

Source: https://www.iea.org/weo2017/ Accessed October 2018.

Predictions for the future make-up of fossil vs renewable/new

fuels vary. However, it’s clear that the fossil fuel share of

energy supply will fall (especially coal), and that there will be

significant investment both in renewable/new-energy

technologies and in innovation to improve energy efficiency

and manage demand.

11 The largest economies in the world (Europe, North America, and China) represent over 70% of new

vehicle sales globally. Some countries have announced an intention to ban cars solely powered by

petrol or diesel (https://qz.com/1341155/nine-countries-say-they-will-ban-internal-combustion-engines-

none-have-a-law-to-do-so/ .Accessed November 2018).

12 New Zealand has a significantly higher proportion of hydro and geothermal energy supply compared to

the global supply profile.

https://www.iea.org/weo2017/

https://qz.com/1341155/nine-countries-say-they-will-ban-internal-combustion-engines-none-have-a-law-to-do-so/

https://qz.com/1341155/nine-countries-say-they-will-ban-internal-combustion-engines-none-have-a-law-to-do-so/


New Zealand: Current situation and

future pathways

New Zealand has the fourth highest renewable share of energy supply in the

OECD. Renewable resources generate about 40% of the energy we use,

and about 80% of our electricity.

In emission levels, New Zealand ranks relatively low internationally, but quite

high when this is measured per capita.

Most of our emissions occur in the agriculture (methane and nitrous oxide)

and energy (carbon dioxide) sectors. Industrial processes, product use, and

waste account for the remainder of emissions, as shown in Figure 4.13

Figure 4: New Zealand’s carbon profile

13 LULUCG is the removal of greenhouse gases resulting from direct human-induced land use, land-use

change, and forestry activities. Graph source:

http://archive.stats.govt.nz/browse_for_stats/environment/environmental-reporting-

The Government is responding boldly to the climate

change challenge

The Government has stated its commitment to 100% renewable electricity

generation in a normal hydrological year by 2035, and a carbon-neutral

economy by 2050.

The Government’s proposed Zero Carbon Bill is expected to set a carbon

target in primary legislation, establish a Climate Change Commission, and

allow the Government to set carbon budgets to help New Zealand reach its

emissions reduction targets.

An amendment to the Crown Minerals Act has stopped any further permits

for new offshore petroleum exploration being granted, and has limited

onshore exploration to Taranaki.

“The coalition Government is taking an important step to

address climate change and create a clean, green and

sustainable future for New Zealand” – Prime Minister Jacinda

Ardern, 12 April 2018

The future energy pathway is uncertain

While New Zealand has clear aspirations for its energy future, the pathway

to achieving this vision is not clear. The technologies that the world – and

New Zealand – needs in order to achieve a low-emissions future may not

series/environmental-indicators/Home/Atmosphere-and-climate/nz-greenhouse-gas-emissions.aspx.

Accessed October 2018.

http://archive.stats.govt.nz/browse_for_stats/environment/environmental-reporting-series/environmental-indicators/Home/Atmosphere-and-climate/nz-greenhouse-gas-emissions.aspx

http://archive.stats.govt.nz/browse_for_stats/environment/environmental-reporting-series/environmental-indicators/Home/Atmosphere-and-climate/nz-greenhouse-gas-emissions.aspx


have been invented yet, or be at an early and unproven stage of

development.

New Zealand also faces unique challenges that are likely to need bespoke

solutions. For example, we have weather patterns that make it challenging

to shift to higher levels of renewable energy while also maintaining security

and supply.

The pace of change is quick

Globally, the pace of technological change in energy is rapid.

Closer to home, the Government has signalled a clear intent to move New

Zealand more quickly to a low-emissions economy.

Earlier strategies included a relatively measured set of activities to reduce

greenhouse gas emissions.14 These have now been superseded by new

policies focused on moving New Zealand to a zero carbon economy more

quickly. The Government is investing heavily in supporting new-energy

projects through the Provincial Growth Fund and the Green Investment

Fund.15

New Zealand can’t do it alone

It is not possible for New Zealand to invent all the technology we need to

achieve our emissions targets. New Zealand will need to introduce

technology developed overseas and adapt it for our unique environmental,

regulatory and commercial contexts.16

14 Such as the New Zealand energy strategy 2011 – 2021 and the New Zealand Energy Efficiency and

Conservation Strategy 2017 – 2022.

15 https://www.energynews.co.nz/news-story/hydrogen/39819/govt-eyes-green-hydrogen-dry-year-cover-

alternative Accessed November 2018.

16 New Zealand Productivity Commission: Low-emissions economy: Final report, 2018.

Already New Zealand is looking to leverage its strengths with the help of

international partners. The New Zealand and Japanese governments have

signed a memorandum to work in partnership to develop hydrogen

technology, the first memorandum of its kind with Japan in the world.

In the commercial sector, one example is a trial by energy generator and

retailer Mercury of a grid-scale battery energy storage system using the

Tesla Powerpack 2 battery. Another example is a pilot hydrogen production

plant being built in Taupō, with technology supplied by Japan's Obayashi

Corp and investment from Tuaropaki Trust.17

Taranaki is the heart of New Zealand’s energy sector

Taranaki plays a significant role in the supply of energy in New Zealand and

has high energy production and industrial use per capita.

All of New Zealand’s oil and gas production occurs in Taranaki. The region

is New Zealand’s largest exporter of energy, which includes all the oil

produced in the region.

All gas is used domestically for either industrial feedstock (though the major

product, methanol, is largely exported), electricity generation, cogeneration,

retail or commercial use.

Oil and gas is a significant contributor to Taranaki’s

economic and social wellbeing

In 2016/17, the region had the highest GDP per capita in New Zealand

($70,863), largely because of the capital-intensive energy sector.18 The oil

17 https://www.stuff.co.nz/business/108075481/giving-oxygen-to-hydrogen. Accessed November 2018.

18 https://www.stats.govt.nz/infographics/new-zealands-regional-economies-2017. Accessed September

2018.

https://www.energynews.co.nz/news-story/hydrogen/39819/govt-eyes-green-hydrogen-dry-year-cover-alternative

https://www.energynews.co.nz/news-story/hydrogen/39819/govt-eyes-green-hydrogen-dry-year-cover-alternative

https://www.stuff.co.nz/business/108075481/giving-oxygen-to-hydrogen

https://www.stats.govt.nz/infographics/new-zealands-regional-economies-2017


and gas sector represents almost 30% of Taranaki’s economy, accounting

for $2.1 billion of GDP in 2016 and employment of more than 7,000 FTE

jobs.19

The energy sector provides high-income jobs, and supports a significant

portion of the engineering and construction activity based in the region.

The energy sector creates demand for businesses in the supply chain that

are strong in Taranaki, including freight and logistics, fabrication, and

professional services. This has spill-over benefits for other businesses in

Taranaki like accommodation providers, restaurants and retail businesses.

The 2015 study, The Wealth Beneath our Feet: Next Steps, suggests that

for every two people directly employed in the oil and gas sector, one further

job is added by the sector’s indirect and induced impacts.20

Oil and gas activity in Taranaki will continue for some

time – but the long-term outlook is uncertain

The Government’s decision to end offshore oil and gas exploration has

created uncertainty about the scale and longevity of economic activity

generated by the sector. However, there are a number of opportunities

based on existing wells and permits.21 Estimates suggest there are reserves

of about 5–6 years’ annual production for oil and 10–15 years for gas.

The international company Methanex is one of the major users of New

Zealand’s gas as a feedstock in its methanol production process. Earlier this

year, the company signed agreements to receive gas to underpin more than

half of its annual production through to 2029. However, there are limited

opportunities for Methanex beyond 2029 given the available reserves. There

19 https://www.martinjenkins.co.nz/assets/Home/The-wealth-beneath-our-feet-next-steps.pdf Accessed

November 2018.

20 ibid.

will also be limited potential to identify other sources of gas feedstock at a

competitive price.

The significant uncertainty about the level of future activity in the sector is

affecting Taranaki’s service and supply chain sectors. They are acutely

aware that their livelihoods have historically relied on oil and gas exploration

and production, on the distribution of gas, and on the conversion of gas to

electricity and to chemicals. There are risks of labour and capital flight and

risks to business and household confidence in the region.

Looking ahead

Taranaki has long understood the imperative for a global and national

transition to an emissions economy.

While the region has been gearing up to look at new-energy opportunities

through its Tapuae Roa strategy, recent developments have significantly

increased both the urgency of this and the magnitude of the change

required.

Taranaki has a unique opportunity to be at the forefront of this change, by

delivering the thought leadership and the technological development that will

enable New Zealand to transition to a new energy future.

21 Energy companies have exploration activity planned over the next few years. Tamarind Taranaki is

seeking to drill five side-track offshore wells in the Tui Field from 2019. Todd Energy is undertaking

further drilling and hydraulic fracturing of six new wells at the Mangahewa G site. OMV is planning to

drill nine offshore exploration wells during the 2019/20 summer across six permits in the Taranaki

basin. Tag Oil has recently finished drilling at Puketea-1 well in the Puka permit.

https://www.martinjenkins.co.nz/assets/Home/The-wealth-beneath-our-feet-next-steps.pdf


THE CHALLENGES THE NNEDC WILL HELP OVERCOME

This section describes how the NNEDC would help to overcome key

challenges New Zealand faces in seeking to achieve its emissions

targets. It explains how the new-energy centre would position

Taranaki at the forefront of energy innovation in New Zealand.

An opportunity to lead the way

The move to a low-emissions economy presents New Zealand with a unique

opportunity to be an international leader in transitional strategies. The

NNEDC gives concrete shape and substance to efforts by Taranaki and

New Zealand to seize this opportunity.

The new-energy centre would play a key role in addressing and overcoming

some central challenges faced by New Zealand in progressing to a new

energy future.

Three key challenges

There are three central challenges that Taranaki’s new-energy centre would

address:

The Government’s expected net zero emissions goal is an

ambitious target

An acceleration of new-energy innovation is needed to

achieve national and global emission targets

New Zealand needs Taranaki to seize the opportunity to be at

the forefront of the transition to a low-emissions future


The Government’s net zero

emissions goal is an ambitious target

Delivering on New Zealand’s energy targets will be challenging. Figure 5

shows the gap between what our net emissions need to be and what our

carbon budget22 needs to be in order to meet the target.

Figure 5: New Zealand’s emissions and targets

http://www.mfe.govt.nz/climate-change/what-government-doing/emissions-reduction-targets/understanding-our-targets.

Accessed November 2018.

22 A carbon budget is a tolerable quantity of greenhouse gas emissions that can be emitted in total over a

specified time to be in line with what is scientifically required to keep global warming and climate

change ‘tolerable’.

The energy sector will play a big role in how we will solve this challenge.

Although New Zealand has high levels of renewable energy by OECD

standards, energy and industrial processes are significant contributors to our

carbon emissions (45% of New Zealand’s 2016 gross emissions profile).23

“It won’t be easy to meet our 2030 target. There will be a cost

to the economy and we’ll need to make changes, that’s why we

say our target is ambitious.” – Ministry for the Environment

The pathway to achieving our energy future is

uncertain

As discussed in the previous section that outlined the current situation, New

Zealand has aspirations for its energy future, but the pathway to achieve this

vision is yet to be developed.

23

www.mfe.govt.nz/sites/default/files/media/Climate%20Change/final_greenhouse_gas_inventory_snaps

hot.pdf. Accessed October 2018.

http://www.mfe.govt.nz/climate-change/what-government-doing/emissions-reduction-targets/understanding-our-targets

http://www.mfe.govt.nz/sites/default/files/media/Climate%20Change/final_greenhouse_gas_inventory_snapshot.pdf

http://www.mfe.govt.nz/sites/default/files/media/Climate%20Change/final_greenhouse_gas_inventory_snapshot.pdf


“Some parts of government … have appreciated the need to

help fund investments in complementary infrastructure and to

support reforms of regulations to encourage low-emissions

innovation and new technologies. Yet the thinking and efforts

have been sporadic and not part of an overarching theme or

strategy for a transition to a low-emissions economy.” –

Productivity Commission

New Zealand’s approach to energy transition is

fragmented

Throughout New Zealand’s science and innovation system, and across the

private sector, a number of organisations are advancing initiatives and

projects with the objective of moving to a low-emissions future.

Much of this progress, however, is happening in a fragmented way, in

different organisations and different regions and places.

The Productivity Commission found that, across government, there is limited

strategic focus and that the low-emissions innovation happening in several

large science and innovation programmes is not well-aligned.24 The

Commission found that New Zealand’s strength in areas of energy research

is not strongly or systematically supported.25

Within New Zealand, there is no central hub responsible for looking across

the production, transmission, storage, distribution and use of all energy

24 Submissions to the Productivity Commission argued there should be much stronger strategic

alignment between Callaghan Innovation and the National Science Challenge in the investments they

are making in the deployment of low-emissions technologies and the transition to a low-emissions

forms, nor for identifying practical opportunities to integrate and use different

energy forms (for example blending other energy sources with natural gas).

No one central organisation is responsible for looking at the ‘big picture’ and

thinking about how to integrate disparate projects for even greater benefit, or

how to spot practical opportunities for new-energy development, or how to

use existing infrastructure and expertise differently.

The future regulatory environment will affect whether

new-energy solutions are feasible

The future regulatory environment for new-energy is uncertain – new

technologies are emerging quickly and, in a number of cases, the application

of those technologies in New Zealand may not have been contemplated yet.

This uncertainty could affect the commercialisation and potential viability of

new-energy technologies.

Future increases to the price of a New Zealand carbon unit would have an

impact on the economics of the energy sector, creating greater incentives to

invest in cleaner technology, and increasing the attractiveness of new-energy

investment that is currently marginal from a financial and economic point of

view.

economy. The New Zealand Venture Investment Fund, the government institution for improving flows

of risk capital to innovative start-ups, has no special focus on low-emissions technologies.



An acceleration of new-energy innovation is needed to achieve national and global emission

targets

In May 2017 the Government asked the Productivity Commission to

investigate how New Zealand could transition to a low-emissions economy.

The final report was released in August last year.26

The report found that innovation will be a key part of how we will meet our

emissions targets, and that there is not enough low-emission innovation

happening at the moment.

“Given the imperative to reduce emissions, the Government

should devote significantly more resources to low-emissions

innovation than the modest current allocation” – New Zealand

Productivity Commission


The report identified three shifts needed to achieve a low-emissions

economy, including the need to transition from fossil fuels, and six

immediate priorities for government. One of these priorities requires

significantly more resources to be devoted to low-emissions innovation, as

shown in the figure below.

Source: New Zealand Productivity Commission: Low-emissions economy: Final report, 2018.

The remainder of this section explores the obstacles to increasing new-energy

innovation in New Zealand. Where we use the term ‘innovation’ in the rest of

this section, we refer to it in a new-energy context, and apply its meaning in a

broad sense, encompassing research, commercialisation and market uptake

activities.


The level of investment in new-energy innovation is low

By OECD standards, the public and private resources devoted to research,

science and innovation in New Zealand are modest. Both New Zealand’s

public- and private-sector investment in research and development as a

share of GDP is well below the OECD average.

The proportion of research and development spending that is aimed at

climate change is low (less than 10% of our total research and development

spend).27 Investment in research to support new-energy innovation is even

less – despite energy contributing to 40% of New Zealand’s carbon profile.

In the private sector, investment in research and development is also low by

international standards. It makes up less than 40% of the total national

investment, compared to an OECD average of 70%.

The private sector faces very real challenges in

achieving new-energy innovation success

Commercial success depends on far more than a good idea. The ability to

develop and finance a solution to a problem requires complementary

expertise such as management, financial, logistical and marketing

capabilities.

The obstacles to getting something to market are many. They include, for

example: the costs of training in new skills; adjusting to new regulatory

frameworks; developing the supporting industries and a reliable supply

chain; demonstrating and communicating the safety and effectiveness of

new technologies to the community; and educating providers of debt and

equity about the technical and commercial dimensions of a new technology.

27 According to the 2016 R&D survey the proportion of total R&D in the broad category of ‘Environment’

is 10% (Stats NZ, 2017c). This category includes many areas other than climate-change mitigation.

New-energy technologies often face additional

complexity – they require significant upfront capital,

and access to infrastructure, engineering, and

commercial capability to bring solutions to market.

For established businesses, this represents a diversion of funds and

resources away from ‘business as usual’, to activities that have much more

uncertain outcomes and a longer-term investment horizon.

A lack of co-ordination and collaboration hampers

new-energy innovation success

Stakeholders provided a number of examples where they had to build their

base of knowledge and form networks from scratch, increasing the overall

cost and time of innovating and limiting their capacity for innovation or the

success of their innovation projects.

No central organisation to identify, connect and share

opportunities and knowledge

There is no central organisation responsible for scanning international

research and technologies, looking for new-energy opportunities, and

feeding that knowledge to the private sector. Although this may happen at

the level of individual businesses, generally New Zealand firms have low

levels of research and development capacity compared to other countries.28

There are limited events and forums to attract international speakers

specialising in new-energy. There is no central organisation that brings

28 The Institution of Professional Engineers New Zealand: Catalysing Economic Growth: Boosting

Innovation Expertise in the Private Sector, 2011.


together ideas, shares approaches, and encourages the collision of new-

energy ideas.

A number of government and private-sector stakeholders commented on the

difficulty they experienced trying to find the right highly specialised research

expertise to support their innovation, both from within New Zealand and

globally.

Difficulty getting access to the capability for

developing, testing and piloting new solutions

Often firms lack access to all of the physical infrastructure and capability that

they need in order to innovate. Firms need to assemble a critical mass of

personnel and build a test environment for developing prototypes. They then

need access to a production environment where they can pilot solutions.

Finding the right partners and negotiating access to infrastructure can be

expensive in both time and money. There is no established mechanism for

stakeholders in the industry to easily connect, work together and learn from

each other.

Limited access to investors for funding innovation

Although the energy industry in Taranaki has strong international

connections, there are limited mechanisms for identifying and attracting

international investors. Firms have to put significant time and effort into

finding potential funders and negotiating funding agreements. This often

requires specialist financial and intellectual property expertise that most

firms do not have in-house.

For businesses with a ‘start-up’ initiative, attracting investment can be even

more complicated. They may have agreements with existing investors that

restrict future funding opportunities. Provisional funding agreements may be

time-limited, making it more urgent to secure additional funding.

The private sector takes considerable innovation risk

but does not capture all of the benefits

For businesses, the rewards from new-energy innovation can be significant.

They may take the form of lower operating costs or higher revenue; more

efficient production; getting new products to market successfully; and

helping to maintain a social licence among the communities the businesses

operate in.

However, while these rewards can be large, the cost of the innovation

investment can still be disproportionate to the rewards, which are risky and

uncertain.

This is because successful innovation brings about other benefits that are

captured by the energy industry and the wider economy. The development

of new-energy technologies improves the resilience of the energy industry

and the level of productivity within the economy. New-energy advancements

reduce emissions, and this delivers benefits to communities and the

environment. New Zealand’s reputation on the global stage is enhanced,

being seen as a country that can meet its emissions goals and as a leader in

technology development.

Lack of innovation could prevent us leveraging our

competitive advantages to full effect

New Zealand starts the transition to new-energy with some strong

competitive advantages over our global counterparts. In the electricity

sector, for example, we have one of the highest penetration rates for smart

meters, very high levels of renewable energy generation, and a forward-

looking regulatory regime.

However, low rates of new-energy innovation mean that we risk making

smaller advancements than our overseas competitors, potentially losing

export opportunities and domestic competitiveness.


New Zealand needs Taranaki to seize the opportunity to be at the forefront of the transition to a low

emissions future

The transition to a new low-emissions future has already begun for Taranaki

and New Zealand.

Taranaki has the opportunity to be the national face of new-energy and

champion the region as the place to develop new-energy technologies.

Time is of the essence, particularly given the relatively short length of forecast

oil and gas reserves. 10–15 years (the estimate for gas reserves) is not long

given the significance of the economic transformation required.

The region must act quickly to build a strong platform for transition, and this will

require the NNEDC to play a key role, working collaboratively with communities

and all arms of government – local, regional and central.

This platform would help to lead the re-tooling of Taranaki’s energy industry

and its network of supply chain businesses. Otherwise there is a risk that

businesses will leave the region and skills will move on. Once these skills

have left the region and New Zealand, they will be very hard to attract back.


WHY WE NEED THE NNEDC

This section sets out the rationale and the need for

the NNEDC. It describes the benefits the new-

energy centre will deliver nationally, to the Taranaki

region, and globally. A separate section on page 36

explains why the NNEDC needs to be based in

Taranaki.

A new centre of national

significance

Taranaki’s NNEDC will establish itself as an organisation

of national significance – it will drive and support the

development of new-energy solutions to reduce national

and global emissions and it will place Taranaki at the

centre of a national energy transition with direct benefits

for the local economy.


1 A nationally significant organisation that contributes to achieving national and global emissions targets

A healthier planet for future generations

New-energy solutions are fundamental to making the transformation away

from carbon-intensive energy sources. The environmental benefits of this

shift – which will come about because of innovation – are truly global in

scope, and are also key to New Zealand’s future competitiveness and global

market access.

An institution of national significance that is focused

on growing new-energy innovation in New Zealand

New Zealand has clear aspirations for its energy future and an urgent need

to build the pathway to achieve this vision. The NNEDC will play a valuable

role in helping New Zealand to develop an overarching new-energy strategy

to transition to a low-emissions future.

Once this pathway is established, the NNEDC will be the strategic glue that

brings new-energy innovation together across different organisations and

locations within and across government, the research sector and the private

sector, drawing in the best ideas and technology from overseas.

Acting as the hub, the NNEDC will help achieve a more joined-up approach

to new-energy innovation and reduce the risk of duplication of that

innovation effort within New Zealand and with energy centres overseas.

Seamless energy teams and projects will work in partnership to provide an

engine for growth and catalyst for change through innovation at scale.

29 Source: K. Smith (2006); The Treasury (2008).

“Identification of innovation opportunities – opportunities are

rarely obvious and often emerge from a complex interplay

between government, businesses, financial systems and

research infrastructures. Exploiting opportunities is not usually

an automatic market process, but an action.”29

Adding value to New Zealand’s science and

innovation system

Organisations within New Zealand’s science and innovation system are

progressing different initiatives and projects with the objective of moving to a

low-emissions future. The NNEDC will work collaboratively with these

institutions – including Callaghan Innovation, universities and CRIs – filling a

niche role within the national science and innovation system that grows new-

energy innovation and leverages the strength of the Taranaki region to

develop, build and test new-energy solutions.

A focus on global new-energy solutions, as well as

national and regional solutions

New-energy innovation need not be limited to the New Zealand context.

While technological advancements in areas like tidal energy production may

not have an immediate application in New Zealand, they could contribute to

energy solutions for other countries.


Contributions to global new-energy innovation will help to cement New

Zealand’s international standing both as a technology developer and as an

international citizen that takes its environmental responsibilities seriously.

New-energy solutions that are developed in New Zealand for overseas

markets open up export opportunities and contribute to new engines of

growth for the national economy.

A source of trusted advice about new-energy

The NNEDC will provide a source of evidence-based, commercially impartial

advice to government and industry.

Working with these stakeholders, the NNEDC will help to ensure the

application of new-energy technology complies with regulatory requirements

and with best practice for health and safety.

The NNEDC can advise on how future new-energy technologies might be

applied in New Zealand. This will help identify potential regulatory issues

and shape future regulatory approaches, with the goal of reducing

uncertainty for innovators and barriers to innovation.

30 https://www.productivity.govt.nz/sites/default/files/At%20a%20glance_Low-

emissions%20economy_0.pdf. Accessed October 2018.

“While the form, timing and impact of innovation are highly

uncertain, a country’s policies and institutions significantly

affect its innovation performance. These policies and

institutions need to enable and encourage researchers and

businesses to both create and deploy new low-emissions

technologies.” – New Zealand Productivity Commission30

https://www.productivity.govt.nz/sites/default/files/At%20a%20glance_Low-emissions%20economy_0.pdf



Supporting a just transition for Taranaki and growing a more resilient region and economy

The NNEDC, as a key driver for the development of new-energy

technologies, will help to retain high-quality jobs in Taranaki and enhance

the attractiveness of the region for investment.

Helping to strengthen the resilience of the energy

industry by diversifying energy activity

New-energy innovation will enable New Zealand to develop new solutions

and adapt technology advancements from overseas to our local conditions.

These new solutions and technologies will help to diversify Taranaki’s – and

New Zealand’s – energy sector. This will open up further opportunities for

change and enable the industry to transition away from its reliance on

carbon-based energy.

Increasing the use of external knowledge for

commercial purposes

Arming key individuals, leadership and stakeholders with international

connections and experience would be critical to balance out New Zealand’s

relatively low levels of absorptive capacity – that is, the ability to recognise

the value of new information, assimilate it, and apply it commercially.

The NNEDC would help to achieve this by scanning international and

domestic research and advancements, and disseminating valuable

knowledge to its stakeholders. The NNEDC would help New Zealand



businesses understand how this information can be applied to new-energy

innovation and, ultimately, commercial ends.

“Innovation is core to the transition (and can lead to wider

productivity benefits)” – New Zealand Productivity

Commission31

A leading contributor to Taranaki’s transition to a low-

emissions future

The energy transition has already begun for Taranaki and New Zealand. The

NNEDC will work alongside communities and government to make a critical

contribution by helping to accelerate this transition. It will create

opportunities through innovation that will result in new types of activity for

the region’s energy businesses and the supply chain network.

For businesses that have historically relied on the oil and gas industry, the

new centre will provide a platform to retool, helping these firms to reinvent

what they do and pivot into new processes and products that continue to

make use of their assets.

Taranaki will be better placed to retain its existing expertise and attract new

talent to the region. The new centre will help support a critical mass of

diverse energy-related businesses in the region.




Showcasing Taranaki and New Zealand as a leader in the

development of new-energy

The NNEDC will showcase Taranaki and New Zealand on a global stage as

leaders in new-energy development. It will capture the story of a successful

energy transition.

By demonstrating how businesses are reinventing what they do to produce

and use energy differently, the NNEDC will help maintain a social licence

within the community. The new centre will also be a place where the

community and individuals can experience new technologies and learn

about the role that communities and the public can have in an energy

transition.

Helping the region identify and meet its skill needs

Taranaki has very strong apprenticeship, training and mentoring

programmes, and these maintain a highly skilled workforce across the

region. The NNEDC will work closely with industry to help shape future

apprenticeship and training programmes, drawing on the centre’s knowledge

about emerging new-energy technologies and what a new energy pathway

might look like.


Enabling more new-energy

innovation, at a faster pace and

with less cost and risk

“Innovation comes in many forms and is unpredictable. Yet it is

the closest thing to a ‘silver bullet’ to enable humanity to meet

the challenge of avoiding damaging climate change. It also

provides an opportunity to combine the low-emissions

transition with improvements in national wellbeing.” – New

Zealand Productivity Commission32

Understanding the ‘big picture’ and using it to

encourage more innovation

The NNEDC will be a hub of knowledge, providing a ‘helicopter view’ of the

various new-energy projects, research programmes, and technology

advancements underway, both within New Zealand and overseas. The

NNEDC will apply this knowledge to:

• identify potential opportunities to adapt overseas technology to New

Zealand’s unique geographic, energy and regulatory contexts



• identify gaps in our progress toward a low-emissions future that need to

be filled by new-energy innovation

• connect different new-energy projects together, so that they can explore

new opportunities that integrate solutions and achieve greater benefits

• reduce the risk of duplication of effort on new-energy projects in New

Zealand and overseas

• connect stakeholders in the same ecosystem, enabling them to work

together to solve problems and develop solutions

• look across the production, transmission, distribution and use of all

energy forms for opportunities to integrate and use energy forms in

different ways.

Increasing collaboration and shared learning

The NNEDC will provide a central place – both in terms of a physical space

and a virtual location – for domestic and international expertise to come

together so that ideas, knowledge and lessons can be shared.

This ‘better together’ approach would leverage a mix of expertise – from

applied researchers, supply chain networks, energy businesses and

government. Successful innovation also requires expertise in management,

project planning, logistics, finance and marketing, and the NNEDC would

help ensure that that expertise is available.

The NNEDC will make it easier for new-energy projects to find the right type

of specialised expertise, either from within New Zealand or overseas. By

leveraging its networks, credibility and strong new-energy brand, the




NNEDC will enable a shared learning environment for:

• established institutions in New Zealand that are involved in new-energy

innovation

• the international new-energy industry, including energy centres in other

countries.

The NNEDC would work to break down industry silos and encourage the

collision of ideas. This would enable partnerships to form more quickly and

with less cost, meaning more resources can be focused directly on the

innovation activity.

Better access to infrastructure to develop solutions

Through its strong regional, national and international networks, the NNEDC

will facilitate the access to physical infrastructure that new-energy projects

need in order to develop, test and pilot new technologies. Quicker access to

infrastructure, as well as to supply chain capability, will reduce the time and

cost required for innovation.

This would also enable infrastructure providers to contribute directly to the

development of new-energy projects. The NNEDC would ensure that new

technologies are tested and deployed according to best-practice health and

safety standards.

A place to test solutions in the real world

The NNEDC would facilitate ready access to ‘real-world’ test environments

when projects are piloting new solutions, possibly including, for example,

access to groups of households in the local community. Projects will be

encouraged to club together to test solutions and increase the speed of

development. These ‘test-beds’ will enable multiple projects to demonstrate

seamless end-to-end solutions to industry and potential investors.

Greater access to funding

The NNEDC would increase the level of investment in new-energy

innovation by leveraging its credibility to build connections with potential

funders and co-ordinating access to existing funding mechanisms and

grants.

The NNEDC would:

• use its credibility and international connections to attract potential

foreign investors to new-energy projects in Taranaki and New Zealand

• provide government with increased assurance that applications for

public funding for new-energy projects are high-priority, have a high

chance of success, are strategically aligned with government priorities,

and will deliver national and regional benefits

• provide a central place for Taranaki- and New Zealand-based

institutions and businesses to club together and pool cash and in-kind

funding

• a place to showcase what is possible to domestic and internal

investors, and open doors to further opportunities.

The NNEDC will support businesses in accessing funding by helping them

prepare Business Cases and feasibility studies, and educating providers of

debt and equity about the technical and commercial dimensions of a new

technology.


Case study: What a typical energy project might look like

Based in New Plymouth, First Gas is New Zealand’s largest owner of gas

pieplines, with 2,504 kms of high pressure gas transmission pipes and

around 4,800 kms of gas distribution pipes in the North Island – serving

over 300,000 industrial, commercial and residential customers.

The company wants to explore how its existing gas network and

infrastructure could be used in a low emissions economy, examining

whether its network can be converted to transport hydrogen and/ or blends

of hydrogen and natural gas in the future.

There are many questions for First Gas to answer in order to understand

whether this is feasible. This assessment represents a major undertaking

for the company, requiring ring-fenced resources and a project-based

approach that would sit outside of its “business-as-usual” activities.

And it is exactly the type of energy project that the NNEDC would help to

deliver.

Working seamlessly with FirstGas, its supply chain, regulators and

technical expertise in New Zealand and overseas, the NNEDC would help

First Gas to answer:

• how the gas transmission and distribution infrastructure would cope

with hydrogen and what changes would be needed? Would pipes

corrode quicker, valves and pumps work properly, or gas meters need

adapting?

• what are the regulatory issues, including design codes and gas quality

specifications, and how do you prove the safety case for transporting

hydrogen to regulators and the community?

• what would any changes mean for the end-users of natural gas – will

household appliances and industrial plants that are powered by

natural gas continue to work effectively and safely?

The NNEDC would also “join the dots”, connecting this work with other

energy projects, and identifying the next-level opportunities that would

open up for New Zealand if the nation had access to infrastructure to

reliably transmit and distribute hydrogen.


CASE STUDY: How the NNEDC would enable start-ups to innovateNew digital models for energy management

In a new-energy future, increasing amounts of local supply will come from the

likes of solar panels and wind turbines and supply power to both the national

grid and local communities. Digital solutions will optimise how and when

energy is generated, stored and used at a ‘micro’, or household, level – for

example, intelligent systems will tell household batteries to charge up on windy

days and to draw their power on days that are cloudy and still.

A group in Taranaki, Auckland and Wellington is developing digital energy

models to optimise and automate this type of energy management. It is

complex and challenging work and the slow pace can be frustrating at times.

A viable solution requires input and buy-in from electricity generators, retailers

and consumers. Credibility is key for opening doors and building relationships,

and for getting access to third-party infrastructure and data to develop and test

solutions. The fast pace of technological change means it takes time to stay

connected with innovation underway elsewhere and to think about how these

future solutions could integrate and line up multiple parties or emergent

technologies in a single pilot or test bed. Funding is a constant challenge.

In the future, the NNEDC will support these types of projects to create an

environment where innovation will flourish and succeed. In preparing this

Business Case we worked with the project team that is developing the data

model to compare and contrast two scenarios – one where an NNEDC

supports and adds value to new-energy technology development, and another

scenario where the project team is left to innovate on its own.

How the NNEDC will add value

• Support to identify and access specialist expertise in government, and

across the research sector and private sector.

• A central place for domestic and international expertise in the same

ecosystem to come together, share ideas and knowledge, and learn from

each other. Ready access to real-world test environments to pilot

solutions (including households in the local community), where

multiple innovators can leverage each other’s resources and achieve

results faster.

• A collaborative environment for projects to develop and test solutions

together, providing opportunities to leverage project resources, learn

together and increase the speed of development.

• A central ‘helicopter view’ of the different new-energy projects underway,

to spot gaps and identify new opportunities, and connect with other

projects to integrate solutions and achieve further benefit.

• A place to showcase the possible to domestic and internal investors, and

open doors to further opportunities. Projects can club together to

demonstrate seamless end-to-end solutions.

The contrast with a scenario with no NNEDC

• New Zealand’s new-energy innovators have to spend more money than

overseas competitors and progress more slowly, potentially losing global

first-mover advantages and export opportunities. This squanders our

competitive advantage from our high smart meter penetration and

renewable energy generation, and our forward-looking regulatory regime.

• Individual projects work in isolation on their particular piece of the puzzle,

with limited opportunities for working together to leverage resources,

share findings, or integrate solutions for greater benefit.

• A lot more time, effort and cost is incurred getting individual projects up

and running, meaning fewer resources are available to dedicate to

innovation.

• Projects have to rely on their own connections, knowledge and resources

to find specialist expertise, negotiate access to equipment and

infrastructure, and set up their own test environment.

• Projects spend a lot of time looking for investors and lack credibility to

open doors to funding opportunities. There is a constant challenge in

having to sell an overall future vision of which their project is just one part.


WHY TARANAKI?

Is Taranaki the right place for the

NNEDC? What is Taranaki’s competitive

advantage? Why shouldn’t the energy

centre be in a different region?

The question ‘Why Taranaki?’ was frequently

canvassed during the development of this Business

Case. Answers were often framed around Taranaki’s

strengths, in particular those developed from the oil and

gas industry.

While those strengths are part of the answer, there is

much more to consider. This ‘bigger picture’ provides a

compelling case for locating the NNEDC in Taranaki

rather than other regions in New Zealand.

Figure 6. The case for locating the NNEDC in Taranaki


Taranaki’s strengths will help drive

new-energy innovation

Taranaki has a strong competitive advantage that should make it the

location of choice for new-energy innovation. While other regions can claim

to have some of these advantages, only Taranaki can claim them all.

Experience and acceptance

Taranaki has been in the energy game for a long time, with the first well

drilled next to the Moturoa oil seeps in 1865. Since then the energy industry

in Taranaki has grown significantly. The region is the only place in New

Zealand where there are producing wells.

The Taranaki community is positive, energetic, and pragmatic when it comes

to energy-based activity. Having lived with the oil and gas industry for over a

hundred years, and seeing first-hand the benefits and opportunities the

sector has provided, there is an understanding and a willingness within the

region that enables it to engage in energy-based activity.

Local and regional government has been responsible for ensuring that the

energy industry can operate effectively and responsibly in Taranaki. It

understands and has built up expertise around regulating and supporting the

energy sector.

The region is an active supporter of the energy sector, and the region’s

leaders are willing to be a test-bed for potential new-energy solutions.

The NNEDC has the support of the Tapuae Roa Regional Steering

Committee, which includes the New Plymouth District Council, South

33 There are three representatives from Ngā Iwi o Taranaki, recognising the three major waka that

arrived in Taranaki: Tokomaru, Kurahaupō and Aotea.

Taranaki District Council, Stratford District Council, Taranaki Regional

Council and Ngā Iwi o Taranaki.33

Established energy businesses

Taranaki is home to many companies that form both the potential customer

base for developing new technologies, the means for testing and

demonstrating new technologies, and the end users of the new

technologies.

As New Zealand’s largest exporter of energy overseas and a key player in

generating and distributing energy, Taranaki has strong businesses across

the energy value chain, both upstream and downstream. This includes:

• the energy production companies that explore for and operate oil and

gas fields

• the electricity generators and energy providers

• several high energy users, particularly of process heat

• engineering and construction activity directly connected to energy

production, transmission and export activities

• service and supply chain sectors, including freight and logistics,

fabrication, and professional services.

International connections in the energy sector

Many energy businesses in Taranaki, and their employees, have strong

energy connections around the world.

The NNEDC will leverage these strong business-to-business and peer-to-

peer connections, including with international centres who are leaders in


new-energy solutions – Scotland, the Netherlands, Denmark and Norway in

particular.

The NNEDC will also build on established networks with research

institutions and universities overseas. For example, Taranaki

smart/micro/grid experts have strong connections with Oxford University.

Human capital

Taranaki’s energy industry is skilled at developing, adopting and adapting

advanced technologies to improve its competitiveness.

Taranaki has the people with the skills and capability to support

development in new-energy technology and infrastructure. In particular, the

region has a highly skilled energy sector workforce, including:

• world-class engineering design and project management

• expertise in manufacturing, on- and off-shore fabrication, and

construction

• energy-focused professional services

• health and safety expertise, including experience of working safely with

hazardous materials, gases, drilling for oil and gas, and high voltage

power

• operations and maintenance skills that could be re-directed, retrained

and re-tooled for future new-energy industries

• significant capability in petrochemical and industrial chemical

manufacturing.

Taranaki also has very strong apprenticeship, training and mentoring

initiatives that support the sector and maintain its highly skilled workforce.

This includes through the Engineering Taranaki Consortium apprentice

scheme.

High-performing energy infrastructure

The region has established infrastructure for energy generation and

electricity and gas distribution.

Taranaki has the capability and infrastructure to extract, process and move

liquid fuels. This is both for export, through Port Taranaki, and within New

Zealand through the high-pressure transmission pipelines operated by

FirstGas.

High-quality, established infrastructure is available to develop and test new-

energy solutions. For example, existing pipes can be used for testing the

distribution of alternative energy forms.

Taranaki also has very good connections to the national electricity grid,

making the region a natural home for innovation that connects electrons and

molecules – the two basic forms of energy.

Exemplary safety record

Taranaki-based firms have significant health and safety expertise, backed by

many years of experience of working safely with hazardous materials,

gases, drilling for oil and gas, and high voltage power.

Be Safe Taranaki is an example of the region’s leadership and commitment

to raising safety standards in the wider work environment and community. A

collaboration involving oil and gas companies and the supply chain network,

this initiative is considered a ‘best in breed’ in New Zealand and has helped

make health and safety an integral component of the region’s industrial

DNA.

Ready access to gas

With its role in filling the gap in periods when energy demand is higher than

supply, and as a potential energy source contributing to new-energy


opportunities, gas can and will play a role both in the transition to, and in the

development of, clean energy projects.

Taranaki is the only region in New Zealand that has ready access to an

existing gas supply. Gas could potentially be shipped into New Zealand, but

there too Taranaki has a critical advantage: Taranaki would be the logical

place to import gas because of its the existing infrastructure, including the

port, while importing gas into other regions would require significant new

investment in infrastructure.

All of New Zealand’s oil and gas producing wells are located in Taranaki.

This provides the means to test new storage solutions to combat dry energy

periods and explore geothermal technologies.

The best location for connecting electrons and

molecules

The combination of Taranaki’s infrastructure connections – as the centre of

the country’s gas infrastructure and with its very good connections to the

national electricity grid – make it the best place in the country to explore

solutions that connect the two forms of energy, electrons and molecules.

Examples of this could include exploring hydrogen opportunities that use

electrons to make molecules.

Access to a range of natural resources to support

new-energy innovation

Taranaki is well known for its oil and gas resources, but is also rich in other

natural resources that can support and enable new-energy innovation.

34 https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10377659. Accessed November

2018.

Offshore, the region has a shallow ocean ridge that could provide a good

location for trialling marine and tidal energy solutions.

The region also has good wind, demonstrated by the planned Waverley wind

farm, located between Pātea and Waverley in South Taranaki. Advances in

geothermal technologies are opening up the possibility that abandoned oil

wells could generate electricity or provide a heat source for direct industrial

applications and geothermal heat pumps.34

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10377659


Leading Taranaki’s transition to a

low-emissions economy

The regional transition story is another important part of the answer to the

‘Why Taranaki?’ question. Already, businesses in the region have started

the transition to a low-emissions economy. Taranaki engineering expertise

has supported the Christchurch rebuild efforts. Supply chain firms with

excellent health and safety credentials are being commissioned to carry out

work around gas and electricity infrastructure in other parts of the country.

The NNEDC will make a critical contribution to accelerating this transition. It

will create opportunities that will result in new activity for businesses that

have historically relied on the oil and gas industry, and who are now looking

to reinvent what they do and pivot into new processes and products that

continue to utilise their assets, intellectual property and skilled labour.

Located regionally but highly connected

nationally and internationally

The NNEDC will also need to leverage the region’s digital and transport links

to enable strong partnerships with expertise across New Zealand and

internationally.

The NNEDC will be a hub for new-energy innovation activities underway

across the country, and it will support new-energy innovation in regions

outside of Taranaki. It will exchange knowledge and work with:

• established institutions in New Zealand that are involved in new-energy

innovation

• organisations with applied research capability around the country and

overseas

• the international new-energy industry, including energy centres in other

countries.

Taranaki has the connectivity – both digital and physical – to ensure that

these partnerships can flourish. The main centres in Taranaki have

broadband access and sufficient bandwidth to provide effective

communications.

New Plymouth has reliable regional air services that provide daily

connections to New Zealand’s main international hubs in Auckland,

Wellington and Christchurch, as well as to Nelson. These allow access to all

regions in New Zealand that have scheduled air services, as well as

international connections.

A BRIEF BACKGROUND: Just Transition

Just Transition is a framework initially developed by the union movement

in the 1990s. In the Taranaki context, it is a direct recognition of the

Government’s decisions on oil and gas exploration. It is a commitment to

work together with the region to manage these impacts in a just and

inclusive way.

The Just Transition will help develop pathways to a low-emissions

economy; identify, create and support new jobs, skills and investments;

and provide a better understanding of how the transition to a new-energy

future might impact different communities.


WHAT NEEDS TO HAPPEN TO ACHIEVE A SUCCESSFUL AND ENDURING NNEDC?

This section defines the investment objectives – a set of statements

that describe the desired outcomes for the proposed investment in

the NNEDC, and the critical elements for achieving a successful and

enduring NNEDC.

THE APPROACH TAKEN IN this section draws on:

• a large number of discussions and workshops with stakeholders

in Taranaki and across the energy sector

• reviews of overseas and New Zealand-based energy centres

and research institutes, including lessons learnt from the New

Zealand Clean Energy Centre in Taupō, the Otaki Clean

Technology Centre and Park, and Taranaki’s proposal to

establish a Regional Research Institute

• literature reviews about how best to support and encourage

innovation in an energy context.


Investment objectives – what does

success look like?

This Business Case specifies a set of investment objectives that set out the

desired outcomes for the proposed investment – what success looks like.

The investment objectives have been developed with significant input from

key stakeholders, including energy companies and supply chain companies,

central and local government and representatives from the research sector.

What is needed to achieve a successful

NNEDC in Taranaki

The following seven crucial elements must be in place in order to achieve

the two investment objectives. These elements are discussed in more detail

on the following pages.

Carve out a value-adding role for the NNEDC

Be clear about what the NNEDC’s functions are

Focus on new-energy projects that will deliver regional,

national and global benefits

Get key stakeholders on-board from Day One

Establish an enduring customer ecosystem

Ensure the NNEDC has sufficient government backing and is

financially sustainable

Create a strong new-energy brand

Investment objectives

Objective 1:

Establish a nationally significant institution that increases the rate of successful new-energy innovation in order to help achieve national and global emissions targets

Objective 2:

Utilise Taranaki’s skills, capability and infrastructure to help lead the region’s transition to a low-emissions economy

1

2

3

4

5

6

7


Carve out a value-adding role for the NNEDC

New Zealand’s science and innovation system is fundamental to

improving economic, environmental, social and cultural outcomes

in this country. OECD evidence shows that knowledge production

and innovation are key contributors to long-term economic growth

and social progress.35

The NNEDC – as a significant contributor to new-energy innovation

– has the opportunity to carve out an important value-adding role

within the national science and innovation system, working

collaboratively alongside government agencies, education and

research organisations, and commercial entities.

The NNEDC will need to avoid duplicating the roles of other

organisations within the science and innovation system, or

competing head-on with energy centres overseas. Rather, its role

will be to harness these pockets of expertise, ideas and skills, and

to convert these into scalable new-energy innovations.

The Economic Case (see page 59) will consider what the

purpose of the NNEDC should be. It will look at alternative

options for how the NNEDC could add value within the

science and innovation system. It makes the case that the new

centre’s primary role should be in the demonstration and

commercialisation phases, with some activity in the research

and market uptake phases.

35 https://www.mbie.govt.nz/info-services/science-innovation/research-and-data/pdf-library/2016-

science-and-innovation-system-performance-report.pdf. Accessed November 2018.

Be clear about what the NNEDC’s functions are

A hallmark of successful energy centres in other countries is a clear

service offering. Businesses, investors and other organisations know

exactly what the energy centre is “selling”, and how it can alleviate their

pain-points. They can see how they will benefit by being an active part of

the customer ecosystem.

In the case of the NNEDC, we have given careful thought as to how

stakeholders would benefit from a Taranaki-based energy centre, and the

functions that the NNEDC would need to deliver in order to give effect to

this.

A workshop was held with stakeholders from the energy sector and the

Taranaki region to identify possible functions, based on what would deliver

the highest value to those stakeholders. This information was

supplemented with analysis of the current issues identified, the functions of

energy centres in other countries and learnings from the earlier attempts to

set up energy centres in Taupō and Ōtaki.

The figure below sets out the main functions that were identified. In

the Economic Case, we explore this list further and develop a more

comprehensive list, taking into account scope and scale. We then

identify the optimal set of functions that the NNEDC should deliver.

2 1

https://www.mbie.govt.nz/info-services/science-innovation/research-and-data/pdf-library/2016-science-and-innovation-system-performance-report.pdf

https://www.mbie.govt.nz/info-services/science-innovation/research-and-data/pdf-library/2016-science-and-innovation-system-performance-report.pdf


Focus on new-energy projects that will deliver

regional, national and global benefits

At the moment, New Zealand’s future energy pathway is uncertain, and

technology advancements are moving at a fast pace. It is not possible to

predict what the predominant energy forms and types of technologies will

be in the future.

It is important that the NNEDC encourages a broad range of new-energy

innovation, allowing lots of different solutions to be explored, and does not

try to direct efforts too narrowly in any one particular area (although this

needs to be balanced against the risk that the centre tries to be everything

to everyone).

Governance and decision-making support

We recommend the NNEDC follows the lead of successful energy centres

overseas and establishes governance to set priority areas of focus and

guide decision-making.

A portfolio approach would support the decision-making by providing a

framework to optimise the mix of projects that the NNEDC would support

within the funding available and maximise the rate of successful

innovation.

In the Economic Case, we provide a ‘starter for 10’ to illustrate

what a possible portfolio approach might look like. We also

look at the types of energy projects that could make up the

centre’s initial focus.

Narrowing the focus over time as New Zealand’s energy

transition pathway becomes clearer

We expect that the NNEDC’s focus will change and evolve over time. New-

energy opportunities will emerge that will need to be investigated. Also, the

NNEDC is likely to gravitate towards those projects that it is good at,

building on successful results and forming deep pockets of expertise.

This, coupled with the inherent uncertainty involved with innovation, means

it is impossible to predict exactly what the NNEDC would support in the

future.

Get key strategic partners on-board from Day One

In 2007, a New Zealand Clean Energy Centre was established in Taupō

(there is a case study about this energy centre on page 98). One of the key

lessons learnt from this energy centre was the need to secure active

support from major stakeholders from Day 1.

3

4


This early support is needed to provide credibility and attract other

stakeholders to achieve a critical mass (the customer ecosystem) – similar

in concept to the role that an anchor tenant plays in a new commercial

property development.

In the case of the Taupō energy centre, a number of stakeholders actively

supported the centre from the outset, but several large, locally-based

organisations did not, including Mighty River Power, Contact Energy and

GNS. As a result, the energy centre struggled to gain a critical mass of

stakeholder support from the outset, and struggled to deliver on its

promised value proposition.

Establish an enduring customer ecosystem

A centre of gravity for the NNEDC – one of the single most critical things

for unleashing its success – will be the new centre’s ability to attract

stakeholders and maintain high levels of participation from them over time.

Each stakeholder will need to derive value from the NNEDC and, in return,

provide something of value back to the centre. The collective involvement

of all of the stakeholders in the NNEDC will create the customer ecosystem

and the NNEDC’s ‘reason for being’.

Research shows the make-up of customer ecosystems in energy centres

around the world tend to be relatively similar. However, the size and mix of

each ecosystem varies according to the purpose of the centre and the

functions it is tasked with delivering.

Generally, the customer ecosystem consists of a range of businesses

(including ‘big-energy’ professional services providers, supply chain

companies and start-ups), investors, research organisations and

government agencies. In the case of the NNEDC, the ecosystem will also

include local government and Māori stakeholders.

Another important point is that the customer ecosystem is not limited by

physical location. The participation of stakeholders from other New

Zealand regions and from overseas is needed to ensure an exchange of

technology and capability with the NNEDC. The new centre’s ecosystem

can also include its competitors – the NNEDC would support the

development of new-energy products and services through both

competition and cooperation.

Not surprisingly, the areas of greatest value to stakeholders are consistent

with international research findings. A Danish study, for example, found

that customers of clean-tech energy centres most valued the ability to

participate in development projects (the results of this study are

summarised in Appendix 3).

Table 1 lists the main stakeholder groups that would make up the

customer ecosystem and indicates how they would derive value from

the NNEDC. This table is based on information provided by

stakeholders engaged for the development of this Business Case,

from across the Taranaki region and from the energy industry and

government.

A number of stakeholders provided letters of support for establishing

the NNEDC, including from mature energy companies, crown

research institutes, organisations in the applied research sector, and

companies in the energy supply chain (refer Appendix 5 for the

letters of support that were received).

5


Table 1: Stakeholders in the customer ecosystem

Stakeholder group

The NNEDC would provide this customer group with…

In return the NNEDC would get… P

riv

ate

in

du

str

y

Big energy companies

This customer group needs innovation to solve problems

and socialise licence to operate in order to be profitable

and a good corporate citizen

• a mechanism to tackle difficult energy problems and

explore opportunities for commercial benefit at a

faster pace and with less cost and risk, to future

proof business activity, reduce emissions, or

increase profitability

• a means of co-operating on projects of mutual benefit

• an opportunity to gain early insight into new projects

and innovations, occurring in New Zealand and

overseas

• access to the latest market intelligence and research

in the new-energy space

• an avenue to demonstrate good corporate citizenship

and maintain social licence to operate

• secure positive brand alignment with the NNEDC and

its goals and aspirations

• a way to attract and retain capability in Taranaki, so that

there is continued access to expertise, high quality

infrastructure and a viable supply chain network

• credibility

• challenging problems that need to be solved (which

attract other stakeholders to the ecosystem)

• access to infrastructure for development, testing and

piloting

• funding and/ or in-kind support (access to capability

and infrastructure)

• commercial partners for taking products to market

• access to the international energy community to

identify, adapt and translate new technologies for

New Zealand and Taranaki

Supply chain

This customer group needs Business activity, Future

proof business In order to remain in NZ (international

shareholders) and increase turnover

• valuable opportunities to participate in the development,

testing and piloting of solutions

• increased access and exposure to big energy customers

• an opportunity to gain early insight into new projects and

innovations, occurring in New Zealand and overseas

• further opportunities to deploy and then maintain

solutions in the ‘production’ environment

• increased levels of business activity during a period of

transition and the ability to continue to build value in

their businesses

• a platform to retool and reinvent what they do and pivot

into new processes and products that continue to make

use of their assets

• access to the latest market intelligence and research in

the new-energy space

• highly skilled expertise with successful track records

operating safely in the energy industry

• access to infrastructure for development, testing and

piloting

• credibility


Stakeholder group


In return the NNEDC would get…

Pri

va

te i

nd

us

try

‘Start-up’ businesses

This customer group needs to develop and

commercialise in order to commercialise their products

and services

• connections to business partners and investors,

government and private sector in a seamless energy-

focused ecosystem

• de-risked process to get from concept through to

commercialisation

• access to suppliers, end users, and industry

• access to live prospects for funding and investment,

including credibility access to connect with international

investors

• access to infrastructure to develop, test and deploy

solutions

• access to the latest market intelligence and research in

the new-energy space



• credibility

• opportunities that will attract commercial partners to

the customer ecosystem

Res

ea

rch

org

an

isa

tio

ns

Tertiary education sector

This customer group needs visibility of process, direction

around needs, and alignment with research in order to

transfer knowledge and plan transitional training needs and

provide wrap-around training services

• direction on new-energy-related programme

development

• certainty around future investment need

• credibility

• specialist expertise, knowledge and capability from

within New Zealand and overseas to help solve new-

energy problems and enable innovation

• support to develop a knowledge base of national and

international new-energy research and projects

underway

• support to identify possible opportunities and

emerging areas of technology development

• access to the international research and innovation

community to identify, adapt and translate new

technologies for New Zealand and Taranaki

Applied research sector (domestic and

international)

This customer group needs challenging, fundable problems to solve in order to achieve their research

objectives and grow their knowledge

• connections to business partners and investors,

government and private sector in a seamless energy-

focused ecosystem

• fundable and challenging new-energy problems to work

on as part of a seamless energy team comprising

industry and government stakeholders

• access to live prospects for funding and investment




Stakeholder group


In return the NNEDC would get…

Go

ve

rnm

en

t Central government

This customer group needs a mechanism to increase

new-energy innovation in order to break the dependence

from the carbon dependent economy and meet emission

targets, and work in partnership with Taranaki to achieve a

‘just’ transition.

• connections to industry and research expertise in New

Zealand and overseas in a seamless energy-focused

ecosystem

• a mechanism to drive change through increased levels

of new-energy innovation

• national and globally derived solutions that increase

new-energy output and adoption

• co-ordination of new-energy innovation for regional,

national and global benefit

• impartial advice on the new-energy future, emerging

applications of new-energy technology and early

indication of potential regulatory barriers to innovation

• diversified energy industry

• credibility

• access to the world stage, including to foreign

investors and export partners

• funding and active support

Local government

This customer group needs to promote and enhance the

attractiveness of Taranaki as a test bed for new-energy

technologies for New Zealand and strengthen the resilience

of the region’s economy and communities.

• connections to industry and research expertise in

New Zealand and overseas in a seamless energy-

focused ecosystem

• connection with the innovation ecosystem in

Taranaki, including proposed innovation precinct

• tourism, branding, repositioning

• talent retention, retooling

• national flagship entity in Taranaki

• diversified energy industry

• credibility

• access to the world stage, including to foreign

investors and export partners

• funding and active support from Taranaki leaders


Ensure the NNEDC has sufficient government

backing and is financially sustainable

The NNEDC will need government backing in order for the centre to be

sustainable and effective. In addition to being a provider of funding, the

government also controls regulatory and other levers that can enable and

amplify the activities of the NNEDC.

Without this support, the NNEDC could never become an organisation of

national significance in any meaningful way, and Taranaki and New

Zealand would lose an opportunity to accelerate the transition to a new-

energy future.

A review of energy centres overseas shows that public funding makes up

most of their total funding requirements, providing capital investment for

services such as laboratories, as well as meeting the centres’ operating

costs. In some cases, public funding is available for energy centres to

make grants or loans to projects.

In return for its government backing, the NNEDC will deliver national and

regional benefits that justifies the level of public funding.

We expect that the NNEDC would also generate revenue from the private

sector, although much less than its public funding. The private sector might

provide this contribution in the form of cash or in-kind support.

Create a strong new-energy brand

A review of the “lessons learnt” by other energy centres reinforces the

importance of developing a strong national identity and international

presence.

In 2010, a Clean Energy Centre and Park was established in Ōtaki, north

of Wellington (Appendix 2 has a short case study about this energy

centre). Stakeholders involved with the centre assigned significant value to

the prospect of the centre having a high level of credibility, however it

struggled to achieve this over time. Without it, stakeholders found they

could not build high-quality networks or reduce barriers to getting markets

to adopt their products and services.

6 7


Intervention logic for establishing a NNEDC Figure 7 sets out the inputs to the NNEDC and the activities, outputs and outcomes that will be delivered.

Figure 7: Intervention logic


STRATEGIC ALIGNMENT

The NNEDC aligns with and contributes to

economic and social development

strategies at an international, national, and

regional level.

International alignment

The Paris Agreement’s central aim is to

strengthen the global response to the

threat of climate change by keeping the

global temperature rise this century less

than 2 degrees Celsius above pre-

industrial levels and to pursue efforts to

limit the temperature increase even further

to 1.5 degrees Celsius.

New Zealand has signed up to the Paris

Agreement.

36 https://www.beehive.govt.nz/release/megan-woods-petroleum-conference-speech. Accessed October

2018.

National alignment

The New Zealand government has signalled a clear intent to move New

Zealand more quickly to a lower emissions economy.

Emissions targets

The Government has a number of policy targets related to the energy sector,

including for electricity generation to be 100%-renewable by 2035 (in an

average hydrological year and as long as security of supply can be

maintained), and net zero carbon emissions by 2050.36

There are currently three greenhouse gas emissions targets:

• An unconditional 2020 target – to reach 5% below our 1990

greenhouse gas emissions levels (UN Framework Convention for

Climate Change)

• A 2030 target – New Zealand’s Nationally Determined Contribution

(NDC) under the Paris Accord to reduce greenhouse gas emissions by

30% below 2005 levels (Paris Agreement)

• A 2050 long-term target – to reduce greenhouse gas emissions to

50% below 1990 levels. This target will be revised as part of the

Government’s Zero Carbon Bill to net zero emissions by 2050, and is

likely to be the key target for New Zealand’s energy future.37

37 http://www.mfe.govt.nz/climate-change/what-government-doing/new-zealands-emissions-reduction-

targets/about-our-emissions#2050. Accessed October 2018.

https://www.beehive.govt.nz/release/megan-woods-petroleum-conference-speech

http://www.mfe.govt.nz/climate-change/what-government-doing/new-zealands-emissions-reduction-targets/about-our-emissions#2050

http://www.mfe.govt.nz/climate-change/what-government-doing/new-zealands-emissions-reduction-targets/about-our-emissions#2050


The Zero Carbon Bill is expected to: set a net zero carbon target in primary

legislation; establish a Climate Change Commission; and allow the

Government to set carbon budgets to help New Zealand reach its emissions

reduction targets.

There is a significant body of wider legislation that impacts on the energy

sector. In addition to the Resource Management Act 199138 and the Energy

Efficiency and Conservation Act 2000, the Energy Innovation (Electric

Vehicles and Other Matters) Amendment Act 2017 seeks to improve energy

efficiency and address climate change in carbon-intensive sectors,

particularly in process heat and transport.

Exploration

An amendment to the Crown Minerals Act has been introduced into

Parliament to stop any further new offshore petroleum exploration permits

from being granted, and has limited onshore exploration to Taranaki.

Exploring alternative energy sources

On 23 October 2018, the Ministry of Business, Innovation and Employment

and Japan’s Ministry of Economy, Trade and Industry signed a

memorandum that signalled New Zealand’s interest in working in partnership

with Japan to develop hydrogen technology.

38 The Resource Management Act requires, among other things, that proposed electricity generation

plants must be granted a resource consent before they can be built.


Just transition

The Government has established a dedicated Just Transitions Unit within

MBIE to focus on an active partnership between central government,

councils, Māori, communities and business to develop plans for and manage

the transition to a low-emissions economy.

Productivity Commission inquiry

In May 2017 the Government asked the Productivity Commission to

investigate how New Zealand could transition to a low-emissions economy.

The final report was released in August last year.39

The report identifies three shifts that are necessary for achieving a low-

emissions economy.40

Figure 8. Three shifts to achieve a low-emissions economy

The report found the Government needs to prioritise the following actions to

achieve those three key shifts at the right scale and pace:

• Establish a comprehensive and durable climate change policy

framework, including separate legislated long-term targets for short-






and long-lived gases; a series of successive emissions budgets; and an

independent Climate Change Commission

• Reform the New Zealand Emissions Trading Scheme and apply some

form of emissions pricing to methane from agriculture and waste

• Devote significantly more resources to low-emissions innovation and

technology to account for the long timeframes involved in bringing

innovative ideas to fruition.

New Zealand’s science and innovation

landscape

The NNEDC – which is the focus of this Business Case – will have a role

within New Zealand’s science and innovation system, working alongside a

number of government agencies, research organisations and commercial

entities. The following are some of the main organisations in this system:

• Crown Research Institutes (CRIs) have a range of objectives that

include carrying applied research into ways to reduce or absorb

emissions and/or driving innovation and economic growth around

energy supply and demand.

• New Zealand’s universities carry out both ‘blue sky and targeted

research.

Universities will often partner with other organisations to undertake

research and commercialisation activities in fields that are relevant to

the NNEDC. These other institutions include the MacDiarmid Institute

for Advanced Materials and Nanotechnology, the Electric Power

Engineering Centre and the Product Accelerator.

Universities also have their own entities for commercialising innovations

and technology, such as Auckland University’s UniServices.

• Callaghan Innovation exists to accelerate the growth, scale, intensity,

and success of innovation in New Zealand, and to encourage firms to

invest in research and development and achieve export growth.

• Several organisations have a specific climate change and emissions

focus in other industries, such as agricultural and forestry. The New

Zealand Agricultural Greenhouse Gas Research Centre (NZAGRC)

and the Pastoral Greenhouse Gas Research Consortium (PGgRc)

research ways to curb agricultural greenhouse gases. Motu Economic

and Public Policy Research is a non-government trust that has a

programme of research on climate-change impacts and mitigation,

including forestry, agriculture and emissions pricing.

• Regional Research Institutes are independently governed private or

not-for-profit organisations that seek to benefit regions outside the main

population centres and enhance regional advantages by stimulating

leading-edge, industrially exploitable and commercially focused

research.

• In addition, education and research institutes have formed various

organisations to advance research and development objectives. A

prominent new-energy example is the National Energy Research

Institute (NERI), which aims to stimulate, promote and co-ordinate

high-quality energy research and education within New Zealand.

Investment in research and development

Research and Development funding

Most of the research carried out by research organisations is funded directly

or indirectly by government. In 2015, the New Zealand Government spent

$1.32 billion in 2015 on support for science and innovation. Government

funding broadly flows through two main channels.


• Research funding to tertiary education institutions – Administered

through the Tertiary Education Commission with policy advice from the

Ministry of Education.

• Support for public-good research and business – Recipients include

Crown Research Institutes, businesses, universities, and other private-

and public-sector researchers. This is administered through MBIE’s

Science and Innovation Directorate.

Investment funds

The government has several investment funds that are strategically aligned

with the NNEDC. Three of these – the Provincial Growth Fund, the Green

Investment Fund and the New Zealand Venture Investment Fund – are

summarised below.

• The Provincial Growth Fund is a central government commitment to

invest $1 billion each year for three years to lift productivity potential in

the provinces.

The Fund’s priorities are to enhance economic development

opportunities, create sustainable jobs, enable Māori to reach their full

potential, boost social inclusion and participation, build resilient

communities, and help meet New Zealand’s climate change targets.

• The Green Investment Fund is an independent fund that will receive a

$100 million capital injection from central government.

The Fund will work with businesses, infrastructure owners and investors

to co-invest in initiatives that reduce greenhouse gas emissions and

provide a financial return.

• The New Zealand Venture Investment Fund has $245 million of funds

that are invested into innovative New Zealand-origin start-up ventures

and high-growth potential companies.

Regional alignment

Taranaki has embarked on a journey to enable and support the region’s

stakeholders to identify and deliver on its economic development goals. The

National New-Energy Development Centre was identified through the

process as a key action to contribute to the realisation of the Tapuae Roa

strategy.

Tapuae Roa – The Taranaki Regional

Economic Development Strategy

The Taranaki region was included in the Government’s Regional Economic

Development Programme in late 2016. Tapuae Roa: Make Way for

Taranaki, the Taranaki Regional Economic Development Strategy, was

launched the following year, in August 2017.

The strategy was developed through a partnership

consisting of the region’s four councils, Ngā iwi o

Taranaki, Venture Taranaki, local business leaders

and central government.

The strategy set out the mission, vision and goals

for the regional economic development strategy,

and the values underpinning and driving

engagement. It identified the approach in relation to

the key enablers and growth sectors.

The strategy set out the objectives and frameworks

and provided the evidence base from which to

develop a set of actions. These actions were identified and refined through

the next phase of the strategy – the Action Plan.


Tapuae Roa Action Plan

The Tapuae Roa Action Plan was launched in April

2018. While the strategy analysed the issues, the

Action Plan refined the approach identified in the

strategy to better align activity, allowing actions to be

identified, stakeholders to be determined, and a lead

agency to be nominated to progress it.

In particular, the Action Plan revised the approach

into eight areas, grouped into Futures and

Foundations. It also set out the delivery mechanisms

in terms of leadership and oversight.

The four futures consists of three sectors with global

opportunities where Taranaki has a competitive advantage – energy, food

and tourism; and the Māori economy – where the eight iwi that whakapapa

to the Maunga are progressing their own economic aspirations, largely

within their rohe, which is mainly in Taranaki.

There are four foundations to these futures, shown in Figure 9.

Figure 9: Tapuae Roa – Make Way for Taranaki


The Action Plan identified key actions within each of these eight areas, but

also pulled together key players within each of these areas. These action

groups have worked together to refine their own opportunities and

challenges and develop their own action plans, guided by the vision and

frameworks of the Tapuae Roa strategy.

Energy futures

A group of key stakeholders, led by two members of

the Tapuae Roa Lead Team, collaborated around

Energy Futures and an Action Plan was released in

March 2018.

Energy Futures identifies ‘new-energy’ as central to

the region’s future prosperity, to allow Taranaki to

achieve its Energy Futures vision, which is that

“Taranaki is home to strong, secure,

sustainable energy and petrochemical

industries, and exporting renewable energy,

new-energy ideas, solutions and technologies.”

The focus of the Energy Futures Action Plan is to provide the pathway to a

sustainable energy, low-emissions future, building on existing regional

strengths.

The establishment of a National New-Energy Development Centre was

identified as a key recommendation in the Energy Futures component of the

Action Plan.


RISKS, CONSTRAINTS AND DEPENDENCIES

The following tables set out the risks, constraints and dependencies of a National New-Energy Development Centre. Impacts are described as either low,

medium or high. In this context, a ‘risk’ is the chance of something happening that will have an impact on achieving the NNEDC (see Table 2).

Table 2: Risks of investment

Risk Impact Likelihood

The NNEDC does not achieve sufficient direct and indirect support from government. There is a risk the NNEDC will not have

sufficient funding and backing from government to achieve its minimum efficient scale, meaning the new centre is unable to deliver

on its value proposition and is not enduring. There is also risk that the government’s broader policy settings are not fully aligned to

the purpose of the centre.

High Medium

The stakeholder ecosystem is not established or enduring. Historically, a number of large businesses that produce energy, or

use it as a feedstock, have had their own in-house research and development capabilities to facilitate innovation. There is risk these

stakeholders will not recognise the benefits of the NNEDC, and that their non-participation will negatively impact the attractiveness of

the NNEDC for other stakeholders (for example, the supply chain network).

High Medium

The NNEDC is unable to achieve the desired level of change. The NNEDC will have a very challenging role. It will need high

calibre governance, management and operational staff and achieve buy-in from a wide range of stakeholders to help lead the

transition to a low-emissions future. There is risk that stakeholders and projects continue to work in silos, losing one of the key

benefits of the centre.

High Medium


‘Constraints’ are limits within which the investment in a NNEDC must be delivered.

Constraints

The objectives of New Zealand’s science and innovation system, and the roles of the institutions within the system

The level of available funding, including from government and private sector sources

The demand for new-energy innovation (including the long-term pipeline of projects and activity)

‘Dependencies’ are any actions or developments required of others and outside the scope of this programme, and on which the success of the investment

proposal depends.

National dependencies

The collaborative approach with government and Taranaki to achieve a ‘just transition’ for the region

The full raft of measures that make up the national response to achieving New Zealand’s emissions targets

Regional dependencies

The Innovation ecosystem. Within the talent, enterprise and innovation action plan is a proposal to develop the region’s innovation ecosystem, which may include an

innovation precinct and future food hub. There are likely to be advantages to both of these initiatives from leveraging personnel and resources and exploring possible co-

location options.

Connection with other regional actions. The Māori Economy Action Plan has a strong focus on positioning Māori to participate in future-focused industries, particularly in

areas of science, technology, engineering, arts, mathematics, innovation and digital (STEAMID). While the NNEDC is focused on the energy industry, it relies on capability in

the STEAMID areas.

Food Futures Taranaki has several large food companies that are significant users of energy. There is a strong potential to align projects that will allow these companies to

test and apply solutions that would benefit their businesses and provide them with a new competitive advantage.


ECONOMIC CASE


INTRODUCTION

How we will make our argument

The Economic Case describes the process we followed to arrive at the

investment option of establishing an NNEDC. This involved building a long-

list of options based on key choices about the purpose, functions and focus

of the NNEDC.

The Economic Case sets out an assessment of the investment option

against a range of criteria, including the investment objectives and how the

option is expected to deliver the anticipated benefits – which would not be

realised under an option not to invest.

The economic case consists of three parts:

1 The long-list of options: The long-list describes the range of potential

options in terms of three primary dimensions of choice – the purpose of

the NNEDC, the functions it could carry out, and the types of new-

energy initiatives it could focus on. The ‘innovation chain’ formed the

framework for generating the range of potential options along each

dimension, ensuring the thinking was guided by where the NNEDC

would fit in relation to New Zealand’s science and innovation system, as

well as the elements of success identified in the Strategic Case, and

factors relevant to the NNEDC being located in Taranaki.

2 The investment option: We describe the development of the proposed

investment option and the rationale for decisions about the purpose,

functions and focus of the NNEDC. Decisions about the centre’s

purpose largely dictated the kind of functions the NNEDC would deliver,

while the changing context in which the NNEDC will operate meant that

decisions about the focus were as much about ensuring robust

decision-making processes as identifying specific areas of focus.

The Economic Case focuses on the decision whether or not to invest in the NNEDC

As we have developed the Business Case, it is has become clear that

the main choice is whether or not to invest in establishing a National

New-Energy Development Centre, rather than choosing among a

range of different scenarios for the NNEDC. As a result, the Economic

Case differs from a more traditional Business Case, where a wider

range of short-list options are assessed to determine the preferred

way forward.

The economic case presents two main options:

Option 1: No NNEDC

This option represents the status quo and provides a ‘base case’

against which to compare Option 2.

Option 2: The option to establish an NNEDC in

Taranaki

This is the main alternative option (referred to in this Economic Case

as the ‘investment option’). The NNEDC will develop new-energy

solutions to reduce national and global emissions and position

Taranaki at the centre of a national energy transition.

A variation on this option (called Option 2b) enables the NNEDC to

provide additional functionality.


How other energy centres have attempted to measure their economic benefit

We undertook a desk-based review to explore how overseas

energy centres measured their economic benefit, to see if we could

find a robust methodology that could be replicated to assess the

feasibility of establishing a NNEDC.

The Business Research Division at the Leeds School of Business

was commissioned to measure the economic benefit of the

National Renewable Energy Laboratory (NREL) for the United

States Department of Energy.

This analysis used a methodology that was previously developed

by a consortium of United States government-funded scientific

laboratories to measure an earlier commercialisation venture.

While this approach represented the most robust methodology that

we could find, it had significant limitations in terms of the types of

benefits that it measured.

The study used an economic input-output model to quantify the

regional- and national-level impacts from the NREL’s operating

expenditures, construction, off-site employee effects and

secondary effects.

What it did not capture however were the benefits associated with

the purpose of the centre – the innovation and the successful

energy projects that the centre enabled.

3 The assessment of the investment option: The complexity and

uncertainty around the NNEDC meant that a cost-benefit analysis did

not make sense for this Business Case. Instead, to ensure a thorough

assessment, a range of criteria were used to evaluate the investment

option: the investment objectives, critical success factors, the Provincial

Growth Fund strategic objectives, and the Government’s Budget 2019

wellbeing priorities. We also identified how the NNEDC would deliver on

the expected benefits summarised in the Strategic Case.

41 https://www.nrel.gov/about/assets/pdfs/nrel-economic-impact-report-may2015.pdf. Accessed

December 2018.

41

https://www.nrel.gov/about/assets/pdfs/nrel-economic-impact-report-may2015.pdf


THE LONG-LIST OF OPTIONS

What are the key choices?

The dimensions and framework

The long-list is a big menu of choice, summarising the full range of possible

options for the NNEDC. In the Business Case, this list demonstrates that all

options – good and bad – have been considered.

We have created the long-list of options from:

• stakeholder discussions

• reviews of overseas- and New Zealand-based energy centres and

research institutes

• reviews of research about how best to support product development

and commercialisation in an energy context.

The long-list of options is underpinned by three main dimensions of choice,

shown in the figure on the right. Decisions about the main choices open up a

further set of options about the NNEDC’s funding arrangements, its

approach to service delivery, and how quickly and in what order the centre’s

functions can be established.

We have applied frameworks to guide our thinking about different options,

including the innovation chain (shown on the next page).


We have used the concept of the innovation chain as a framework for

thinking about where the NNEDC would fit in relation to New Zealand’s

science and innovation system. The innovation chain is shown below and

used in the Economic Case to explore different options for what the NNEDC

could look like.

The long-list of options

Pages 64–66 set out the long-list of options according to the three main

dimensions of choice. The long-list is presented in a series of tables, where

the different cells in a given row of a table set out different options (so each

table should be read from left to right). Some options are mutually exclusive,

while some options can be combined together.


Research Development Demonstration Deployment Market accumulation Diffusion

The purpose of the NNEDC could be to undertake science and knowledge accumulation.

The purpose of the NNEDC could be to apply knowledge through pilot, demonstration and first commercial-scale projects.

The purpose of the NNEDC could be to sell technologies on the open market and compete with more mature products.


Early research and technology development

Pathway to commercialisation Promoting market uptake

• Undertake research

• Fund research

• Identify opportunities that could be commercialised by looking across government, businesses, and the financial and research sectors

• Build the knowledge base of national and international ideas and technology (grow absorptive capacity)

• Fund product development and commercialisation

• Capability and/or facilities to develop solutions and pilot new technologies

• Systematise product design and development, and project management

• Expert advice around marketing, finance and management services

• Prepare feasibility and Business Cases for grant funding and to get investment ready

• Developing and owning intellectual property for commercial purposes

• Selling products in the market place

• Implement systems for standardisation, testing and certification

Connecting and completing the customer ecosystem

Opening doors to form domestic and international relationships between firms, investors, researchers and governments

• Connect the applied research sector (eg universities, CRIs and Product Accelerator) with new-energy challenges and opportunities

• Facilitate product development, demonstration and deployment by:

- connecting to domestic trial customers

- connecting with energy and engineering capability

- getting access to infrastructure



• Connect sources and opportunities for all stages of financing, from proof-of-concept funding through to post-commercialisation expansion, including foreign direct investment

• Facilitate national and international exchanges of knowledge and ideas, expertise and capability

• Co-location of stakeholders in the ecosystem through tenancy arrangements and/or shared space

• Education and community engagement, demonstrating what’s possible, and influencing consumer behaviours

Showcasing the opportunities

Demonstrating what is possible and promoting new-energy solutions through marketing, forums, events and conferences

• Promote Taranaki and New Zealand as places where new-energy solutions can be developed and commercialised

• Promote investment opportunities to lenders, investors and venture capitalists

• Promote export opportunities

• Promote and educate the community about energy innovations

Being a trusted advisor

Targeted, tailored advice at specific stages of the innovation chain

• Analysis and insights based on national and international sector data for those who need it

• Work with regulators and industry to identify best practice and ensure efficient, safe, and practical trialling and implementation of technologies, and standards development.

• Guide industry and training organisations to re-tool and/or refine technical capability, and help to identify the future capability requirements

• Independent advice to government to inform new-energy strategy and policy

• Advice on IP, funding and partnership arrangements (linked to incubator support as described above)

Making sure the NNEDC focuses on the right things

• Governance

• Investment criteria

• Evaluation and reporting


Forms of energy the NNEDC could focus on

Different ways to focus on a particular type or form of energy

Breadth of what the NNEDC supports

• Hydrogen

• Carbon (carbon capture, storage and use)

• Marine: tidal; offshore wind

• Electricity: demand response; smart grid; micro-grid

• Solar

• Wind

• Waste to energy

• Geothermal

• Bioenergy/ biofuel

• Extent to which technology:

- is created new

- adapted from international sources to a New Zealand context

- translated from one industry to another

• Stage of energy use

- Production (including process heat)

- Storage

- Distribution (eg moving new-energy around existing infrastructure)

- Direct use (including higher end-use)

• Lower energy emissions (eg synfuels, biofuels) versus energy replacement (eg electricity, hydrogen)

• Narrow and deep focus versus broad and wide support

• Number of initiatives (many versus few)

• Extent to which initiatives are:

- investigator-led (eg opportunities identified through new research)

- industry-led (led by companies in the industry)

- mission-led (addressing New Zealand’s energy challenge)

The Business Case focuses on these first three dimensions. Other dimensions of choice need to be informed by

consultation with stakeholders, which will be the next step in the development of the full Business Case. These

choices will strongly inform the Financial and Management Cases.

Service delivery approach Staging of establishment Operational funding for the NNEDC

For each function, there is choice about whether:

• it is delivered in-house with limited contracting out

• a mixed model, with in-house resources and services contracted out and/or delivered in partnership with other organisations

• the function is fully contracted out to a third party

For the NNEDC, there is choice about whether:

• phase by functions – limited functions are fulfilled at the beginning, with additional choice about function scale

• big bang – all functions are implemented at the same time

Economic characteristics of the NNEDC’s functions help to inform the mix of:

• government, versus

• private funding

Funding for initiatives that the NNEDC is supporting

Choice about whether this occurs by:

• administering grant funding

• directing or coordinating private or government funding

• a mix of both.


THE INVESTMENT OPTION

How was the investment option

developed?

The approach to identifying the investment option began with considering

the NNEDC’s purpose. It is critical that the NNEDC has a clearly identified,

unique role that adds value to New Zealand’s science and innovation

system. This decision about purpose strongly informs the choices about the

NNEDC’s functions.

The choice about the kind of new-energy initiatives the NNEDC would focus

on is largely independent of decisions about its purpose and functions. The

initiatives the NNEDC focuses on may change over time, so the Business

Case focuses on determining what kind of process would provide ongoing

support for robust decisions, as well as identifying some potential initial

areas of focus.

Decisions on each of the key choice dimensions were guided by the

investment objectives and critical success factors, the elements of success

identified in the Strategic Case, and factors relevant to the NNEDC being

located in Taranaki.

Purpose: Focusing the NNEDC on product

development, demonstration and deployment

There is a strong case for the NNEDC to focus on activities in the middle of

the innovation chain, as shown in Figure 10.

Figure 10: Purpose of the NNEDC in relation to the innovation chain

Why does it make sense for the NNEDC to focus on product

development, demonstration and deployment?

The NNEDC would play to Taranaki’s strengths, making use of the region’s

capability and expertise to build, test and deploy solutions to new-energy

problems.

There would be strong alignment between the objectives of the NNEDC and

the objectives of organisations within the public sector (including

universities, Callaghan Innovation and GNS). The NNEDC would also

complement other organisations that have strong innovation and


commercialisation objectives (these other organisations are often supported

by government funding). Examples include the Product Accelerator.

The NNEDC would play a lead role in connecting new-energy projects with

expertise in research institutions and private industry to enable new-energy

innovation.

The NNEDC would not seek to undertake new-energy research (the far left

of the innovation chain) because this capability and capacity is already

delivered through the national science and innovation system by universities

and CRIs. However, the NNEDC could have some involvement in this area,

through collaborating and co-ordinating with these organisations and

disseminating research throughout the NNEDC’s customer ecosystem, and

also through helping to influence which research gets done.

Likewise, the NNEDC would not focus on selling new-energy technologies in

the market (the far right of the innovation chain). At this stage of innovation,

it is expected that commercial partnerships would be introducing new

solutions into the market, and that these commercial partnerships would be

far more successful at this than the NNEDC.

Functions: Delivering on the purpose

The decision to focus on product development, demonstration and

deployment strongly informs the choices about which functions the NNEDC

would carry out.

There are five core functions the NNEDC needs to carry out if it is to

successfully deliver the activities in the middle of the innovation chain:

1 Early research and technology development: identify opportunities

that could be commercialised, and build the knowledge base of national

and international ideas and technology.

2 Connecting and completing the ecosystem: attracting and opening

doors to form domestic and international relationships between firms,

investors, researchers and governments.

3 Pathway to commercialisation: support product development and

commercialisation from the development of solutions to piloting of new

technologies to helping initiatives get ‘investment ready’.

4 Trusted advisor: targeted, tailored advice, largely on activities in the

innovation chain where the NNEDC is specialising.

5 Making sure NNEDC focuses on the right things: robust governance

to achieve strategic objectives and report and monitor on the NNEDC’s

performance.


Some further choice

There are additional functions the NNEDC could carry out under this

scenario which require a specialised built physical space.

This introduces a possible dependency with the Innovation Precinct project,

(described in the Strategic Case), with potential to co-locate with the

NNEDC.

Two of these additional functions build on the core functions listed above.

They are:

6 Connecting and completing the eco-system: in addition to the core

functions, there could be co-location of industry stakeholders.

7 Pathway to commercialisation: in addition to other support provided

along the pathway to commercialisation, the NNEDC could provide a

laboratory space for developing and testing new-energy solutions.

And introducing a third, new function:

8 Showcasing the opportunities: providing a space for the NNEDC to

engage with the community and hold events and conferences.

New-energy initiatives: a portfolio approach

As highlighted in the Strategic Case, the future energy pathway is uncertain

and the pace of technological change is fast. Some of the technologies that

will enable a low emissions future are yet to be invented – we therefore

expect the NNEDC to focus on different types of energy projects over time.

The Business Case focuses on describing a robust method for assessing

options to support strategic decision making, and provides a view on what

some of the new-energy projects will be. This is instead of defining a specific

set of energy types and initiatives that the NNEDC must focus on.

The NNEDC would use a portfolio approach, to optimise where it focuses its

efforts. Figure 11 provides a ‘starter for 10’ to illustrate what a possible

portfolio approach might look like. It draws on approaches by other energy

centres and findings from the Productivity Commission report.

A later section of the Economic Case, on page 73, discusses the focus of

the NNEDC in more detail, looking at the types of energy projects that could

make up the centre’s initial focus.


Figure 11: A portfolio approach to determining which energy initiatives the NNEDC supports


So what does the investment option look like? This section provides an illustration of the investment option, building on the

description of the choices described above – the NNEDC’s purpose, its key

functions, and potential initial areas of focus for new-energy initiatives.

What is the NNEDC?

The NNEDC will focus on new-energy innovation that contributes to efforts

in New Zealand and globally to transition to a low-emissions future.

The centre will be a national

hub where major companies

and small and medium-

sized enterprises from

across industry and New

Zealand come together to

work in partnership with

government, research

expertise and leaders.

Diverse energy teams will

create change by unlocking

innovation at scale.

At the same time,

championing new-energy

innovation in Taranaki and

harnessing the region’s

capability, expertise and

knowledge to build, test and

deploy new-energy

solutions.

The NNEDC’s vision is:

A globally successful new-energy industry that leads New Zealand into


The NNEDC’s mission is:

An organisation of national significance that fosters a new-energy eco-

system to leverage national and global industry knowledge and

specialist expertise to reduce the time, cost, and risk associated with

developing new-energy technologies

The NNEDC’s unique selling point is:

The collaboration and partnership approach that leverages a powerful

ecosystem of new-energy leaders, mature companies, research

expertise and government to build, test and deploy new-energy

solutions.


What does the NNEDC do?

There are, at a minimum, five core functions the NNEDC will need to carry

out if the new centre is to successfully support the development,

demonstration and deployment of new-energy initiatives.

• Scanning new-energy research and emerging technologies, and

pushing information to stakeholders.

• Identifying new-energy opportunities that will deliver regional, national

and global benefits.

• Developing a knowledge base of accessible new-energy research and

technology.

• Identifying and facilitating access to the right type of specialist expertise

in the applied research sector (for example, universities and CRIs, and

the Energy Efficiency and Conservation Authority) to help solve new-

energy problems.

• Facilitating the development, testing and piloting of energy solutions by:

- Acting as a hub to exchange knowledge, expertise and capability with

other regions and countries

- Connecting new-energy projects that are underway within New

Zealand and overseas

- Identifying the right expertise in Taranaki’s supply chain

- Facilitating access to Taranaki’s energy infrastructure

- Connecting pilot projects with domestic trial customers

- Ensuring the highest safety standards are applied to

development and testing.

• Systematising elements of the commercialisation process and

project management.

• Connecting sources of funding and investment opportunities for all

stages of financing, from proof-of-concept funding through to pilot,

including foreign direct investment.

• Supporting apprenticeship and mentoring programmes, and training

organisations to identify the future capability requirements for the industry.

• Independent, commercially impartial advice to government to inform

thinking around new-energy strategy and policy.

• Working with regulators and industry to reduce potential regulatory

barriers to innovation and ensure best practice health and safety is

applied to the trialling and implementation of new-energy technologies.

• Facilitating tailored access to specialist services to support

commercialisation (including advisory services in marketing, finance and

management), and preparing feasibility and business cases for grant

funding and to help projects get investment-ready.

• Providing robust governance to achieve the NNEDC’s purpose and report

and monitor on the NNEDC’s performance to government and

stakeholders.


What else could the NNEDC do?

Depending on decisions relating to the Innovation Precinct project and the

availability of suitable physical space, the following are also possible

options:

• Co-location of industry stakeholders. This could be in the form of a

closed tenancy or subscription-based office space, or providing a

shared space for meetings and holding events. This service could

provide a source of revenue for the NNEDC.

• A dedicated laboratory space for developing and testing new-

energy solutions. Solutions are expected to be developed and tested

on-site at the premises of the supply chain businesses or other

organisations. However, this assumption needs to be tested as part of

the next stage of detailed planning. There is also a possibility for the

NNEDC to provide on-site laboratory facilities.

• A place to engage with the community. The NNEDC could have a

dedicated space for stakeholders – including businesses and new-

energy projects – to encourage and facilitate networking (the

importance of this function was a key learning from the Ōtaki Clean

Energy Centre). The facility would also showcase new-energy solutions

and demonstrate how they are working towards a low emissions future.

What will the NNEDC focus on?

The NNEDC will focus on innovation that contributes

to efforts in New Zealand and globally to transition to


We have gained valuable insight into the types of energy projects that the

NNEDC will support through our engagement with stakeholders in the

development of the Business Case, combined with an understanding of

some of the unique challenges New Zealand will face on its journey to a low-

emissions future.

It is likely that the majority of the energy projects in the NNEDC’s portfolio

will involve a combination of energy forms and consider multiple ways that

energy infrastructure can be used within the context of the New Zealand and

global energy systems.

We also anticipate the majority of the NNEDC’s focus will be on energy

projects that involve collaboration and partnerships with mature companies

and their supply chain network, rather than new start-up ventures.

The case study on page 34 illustrates an example of what we expect will be

a ‘typical’ energy project supported by the NNEDC.

It is important to note that, notwithstanding the comments above, the

NNEDC’s portfolio approach will also give priority to projects that may be

more narrow in focus, for example on a particular energy type or application

of use. There will also be space in the portfolio for start-up ideas that need a

strong incubator focus.

Appendix 4 contains a summary of information that may help to inform the

future areas of focus for the NNEDC.


ASSESSMENT OF THE INVESTMENT OPTIONWhat are the criteria for assessing the

investment option?

Recommendation is based on an assessment against

a range of criteria

A cost benefit analysis is traditionally used to assess the short-list options

and identify the preferred approach. However, this investment proposal

involves a high level of uncertainty. There is no way to know for sure what

success would look like and how to quantify the benefits of the proposal.

This is a similar problem to what the government faced when it was

considering whether or not to invest in the Regional Research Institute

initiative. To address this, we have used a criteria-based approach to

consider and assess the merits of investing in the NNEDC in Taranaki.

We have considered the case for the NNEDC against a range of different

criteria, as set out below.

Ability to achieve investment objectives

The investment objectives were identified in the Strategic Case and are

restated below:

Criteria

Investment objective

Objective 1: Establish a nationally significant institution that increases the rate of successful new-energy innovation to help achieve New Zealand’s emissions targets

Objective 2: Utilise Taranaki’s skills, capability and infrastructure to help lead the region’s transition to a low-emissions economy

Assessment against critical success factors

The critical success factors were developed using the BBC guidelines and

then tailored to the specifics of the NNEDC investment proposal. The critical

success factors are summarised in the table below.

A relative weighting was applied to each of the critical success factors.

‘Strategic fit and business needs’ was seen as the most important, followed

by ‘potential achievability’, ‘potential affordability’ and ‘potential value for

money’. It is expected the NNEDC would have limited need for services from

third-party providers, and therefore supplier capacity and capability is a less

important critical success factor.

Critical success

factors Proposal-specific critical success factors

Strategic fit and

business needs

How well the investment option meets the needs of Taranaki,

government and stakeholders, and helps to protect the environment.

Potential value

for money

How well the option delivers value for money (that is, generates the

optimal mix of potential benefits, costs and associated risks).

Supplier capacity

and capability

How well the option matches the ability of potential suppliers to deliver

the required services.

Potential

affordability

How far the investment option can access public funding to enable

new-energy innovation.

How far the operating costs can be met from likely available funding.

Potential

achievability

How well the option:

• is able to increase new-energy innovation for global, national and

regional benefit

• is able to attract and maintain stakeholders in its innovation

ecosystem

• matches the level of available skills required for successful delivery.


Assessment against Provincial Growth Fund criteria

We used the Provincial Growth Fund criteria to assess the alignment of the

investment option with the Government’s priorities for provincial investment

more generally.

Provincial Growth Fund strategic objectives

Creating jobs, leading to sustainable economic growth

Increasing social inclusion and participation

Enabling Māori to realise aspirations in all aspects of the economy

Encouraging environmental sustainability and helping New Zealand meet climate

change commitments alongside productive use of land, water and other resources

Improving resilience, particularly of critical infrastructure, and by diversifying our

economy

Wellbeing impacts

Budget 2019 is known as the Wellbeing Budget, broadening the focus

beyond economic and fiscal policy by using the Treasury's Living Standards

Framework to inform the Government's investment priorities and funding

decisions. We have considered how the investment option impacts on the

wellbeing domains, four capitals and how the NNEDC will build resilience

and mitigate risk.

Wellbeing domains

Civic engagement and governance Jobs and earnings

Cultural identity Knowledge and skills

Environment Health

Safety Social connections

Subjective wellbeing Income and consumption

Time-use Housing

Four capitals

Financial Human

Natural Social


What is the assessment of the

investment option?

Stakeholders have worked together closely to determine the practical

implications of establishing an NNEDC in Taranaki, and to analyse how the

NNEDC would benefit the Taranaki region and New Zealand and contribute

to global efforts to reduce emissions.

Ability to meet investment objectives

Through the process described above it was clear that the option to

establish a NNEDC in Taranaki meets the investment objectives.

The NNEDC would fill a niche role within New Zealand’s national science

and innovation system, acting as a hub and working collaboratively with

institutions and businesses here and overseas to grow new-energy

innovation in New Zealand.

By harnessing the region’s capability and expertise, the NNEDC will provide

a platform for the Taranaki region to retool and help businesses to reinvent

what they do and pivot into new processes and products.

Assessment against critical success factors

In terms of strategic fit and business needs, the NNEDC meets the

investment objectives, related businesses needs and demonstrates strong

alignment with national and regional objectives and strategies – from the

government’s objective for a low emissions future, the Productivity

Commission’s recommendations for more innovation, and Taranaki’s

Tapuae Roa Action Plan which identifies the need for an energy centre.

The investment option provides value for money, which is the mix of

potential benefits, costs and risks. A clear set of functions are identified that

will enable the NNEDC to deliver on its mission and vision. Additional

functions that may require significant capital investment, such as a purpose-

built laboratory, can be considered as a separate investment proposal at a

later stage.

The investment option is achievable. The NNEDC can be implemented in

such a way that it is not too big or overly ambitious at the beginning, and

scaled up over time as it achieves a successful track record, attracting new

stakeholders to its ecosystem and supporting an increasing number of

complex energy projects.

Assessment against Provincial Growth Fund

criteria

The investment option aligns to all five of the criteria of the Provincial Growth

Fund, with strong alignment to two of the criteria in particular.

At its heart, the NNEDC seeks to achieve environmental sustainability by

helping New Zealand to meet its climate change commitments, exploring

new-energy opportunities that, once realised, will allow us to use our

resources in new and better ways.

The NNEDC will strengthen the region’s resilience by helping to diversify the

energy industry beyond oil and gas, generating new business activity

through new-energy innovation, enabling opportunities to export new-energy

technology, and retool the supply chain network. The NNEDC will help

industry to shape its future apprenticeship and training programmes to

maintain a highly skilled and sought after workforce in the region.


Wellbeing analysis

Lifting knowledge and skills

Facilitating the exchange of knowledge and specialist expertise

The NNEDC’s core role is to facilitate the exchange of domestic and

international new-energy knowledge and specialist expertise within and

across industry. This will reduce the overall cost and time required for

innovating, and it will increase stakeholders’ capacity for innovation and the

success of their innovation projects. Individual firms will not have to build

knowledge bases and networks from scratch, nor struggle to access the

infrastructure needed to develop new technologies.

Growing the knowledge base

The NNEDC will increase firm-level engagement and investment, leading to

new knowledge and skills being created and dispersed in firms and across

sectors, for Taranaki and New Zealand.

Serving as a catalyst, the NNEDC will remove barriers to new-energy

innovation. It will facilitate access to investment funding for capital-intensive

activities, enable quicker and easier access to sophisticated research and

engineering acumen, and support the development and prototyping of new

solutions.

Attracting and retaining new knowledge, skills and investments

to Taranaki and New Zealand

The NNEDC will promote Taranaki as a place to achieve meaningful

innovations in new-energy technologies. The centre will share knowledge of

government’s investments, showcase local investments and technology

advancements, and enable access to innovation infrastructure and

networks.

Individuals and firms from across New Zealand and offshore will benefit from

their association with the NNEDC through energy projects and by becoming

directly involved in new business opportunities derived through the centre’s

activities. These same participants will also bring new knowledge and

opportunities into the region for others to exploit and benefit from.

For businesses that have historically relied on the oil and gas industry, the

new centre will provide a platform for retooling and continuing to make use

of their assets.

Directing the transfer of knowledge to other organisations and

regions in New Zealand

The NNEDC will pro-actively disperse new knowledge to participants and

regions in the New Zealand economy that are also investigating new-energy

developments.

The energy centre’s activities will also drive spill-over benefits. It will draw

connections between similar activities and attract national input for them. It

will also benefit local citizens living and working in proximity to the energy

centre by providing exposure to innovation and enterprise activities.

Growing jobs and earnings

The NNEDC will enable firms and their employees in Taranaki and across

New Zealand to avoid job and earnings losses by transitioning into new-

energy business opportunities.

The NNEDC will work closely with Taranaki’s strong apprenticeship, training

and mentoring programmes to help shape future skills development.

A healthier environment

Increased levels of successful new-energy innovation will enable New

Zealand to develop solutions and adapt overseas technology advancements

to New Zealand conditions. This will help diversify Taranaki’s – and the

country’s – energy industry, and enable the industry to transition away from

its reliance on carbon-based energy.


FINANCIAL CASE


COST OF RUNNING THE NNEDC

Distinguishing the cost of running the NNEDC from the cost

of energy projects

Most of the finance case is focused on the costs associated with

running the NNEDC, rather than the costs associated with delivering

energy projects. Given the uncertainty about what the future energy

projects might be, we have not attempted to provide any cost estimate

for these. In the section on potential funding arrangements, we do

identify some possible funding options for energy projects, as well as

outlining how the NNEDC could be funded.

Approach to estimating the running costs

The financial case estimates the cost of the NNEDC, using both top-down

and bottom-up analysis. The top-down analysis has compared the proposed

NNEDC to public-sector agencies that are similar in size and scale and to

overseas energy centres.

The bottom-up analysis used a purpose-built financial model that estimated

operating and capital cost over five years from 2019/20 to 2024/25 (the

period over which the NNEDC would be established and achieve a steady

state of operations).

The financial model is based on a number of assumptions, including the

NNEDC’s service delivery approach (for example, reflecting choice about

when the NNEDC would “buy in” services versus using its own staff), the

number and type of FTE employees needed to carry out the NNEDC’s

functions, and the type of administrative and support services that the

energy centre would use.

We have given careful thought to these assumptions, analysing the nature of

the NNEDC functions; examining various approaches to service delivery in

other organisations, and drawing on our own expertise in organisational

design.

Page 81 summarises the main assumptions that we have used to estimate

the cost of the NNEDC. The Management Case provides further detail about

these assumptions, including:

• the implementation plan (which informs the establishment cost)

• the governance arrangements for the NNEDC

• the number of personnel that would work for the NNEDC and the types

of job positions that would be needed.

Cost estimate 2019/20–2023/24

The following page sets out the estimate of the NNEDC’s running costs in

delivering the functions that are presented in the economic case for

Options 2 and 2b.

Over five years from 2019/20 to 2023/24, the total cost is estimated to be

between $35.2 and $43.6 million. The cost estimate is presented using a

range to reflect the level of uncertainty about the future cost, in particular in

the out years.

Most of the expenditure for Option 2 is expected to be operating cost to

establish and run the NNEDC, with some capital costs incurred to set up the

NNEDC’s office space. Most of the additional cost associated with Option 2b

is capital expenditure to provide a co-working environment for stakeholders

and set up a laboratory space, as well as some ongoing operating cost to

maintain and run the laboratory.


Figure 12: Total cost estimate 2019/20–2023/24

Table 3: Operating and capital cost estimate

Figure 13: Key cost items

lower range upper range lower range upper range lower range upper range lower range upper range lower range upper range lower range upper range

Operating expenses

Personnel costs 3.060 3.740 4.320 5.280 5.130 6.270 5.130 6.270 5.130 6.270

Staff salaries

ACC and superannuation

Operating costs 1.350 1.650 2.160 2.640 2.610 3.190 2.610 3.190 2.610 3.190

Recruitment

Training

Accommodation

HR, finance and legal services

Travel

Evaluation and monitoring

Commercialisation advice

Laboratory operations

Social media, networking and engagement

Depreciation - - 0.003 0.003 0.045 0.055 0.045 0.055 0.045 0.055

Total operating expenses 4.410 5.390 6.483 7.923 7.785 9.515 7.785 9.515 7.785 9.515 34.248 41.858

Capital investment

Leasehold improvements 0.036 0.044 0.540 0.660 - - - - - -

Laboratory set-up 0.388 1.076

Total capital investment 0.036 0.044 0.540 0.660 0.388 1.076 - - - - 0.964 1.780

TOTAL COST 4.446 5.434 7.023 8.583 8.173 10.591 7.785 9.515 7.785 9.515 35.211 43.639

Years 1-52020/21

Year 1

2019/20

Year 2 Year 5 and ongoing

2023/24

TOTALYear 3

2021/22

Year 4

2022/23


Modelling assumptions and notes

Level of certainty of cost estimates

The cost estimates presented in the Business Case are based on the most

up-to-date information available. They are likely to change over time as

further detail is developed about how the NNEDC will operate.

The Business Case takes this level of uncertainty into account by presenting

the cost estimate using an upper and lower range of +/- 10%.

The management case discusses the work the establishment group will do

to undertake further cost analysis and develop a detailed budget for the

NNEDC and organisational design (see page 88).

Personnel cost

• The personnel cost assumes a staffing complement from Year 3

onwards of 35 delivery staff and 9 management and administrative

staff. Staffing levels increase from Years 1 to 3, reflecting an expected

staff recruitment profile.

• The bottom-up analysis has identified approximately how many delivery

staff will be needed to carry out the energy centre’s functions and how

senior they will need to be. These roles are described in the

management case (see page 91).

• The number and type of management positions is based on initial

thinking about how the NNEDC might be organised to deliver its

functions. Detailed organisational design work will be done as part of

the transition phase for establishing the NNEDC.

• Roles are designed at relatively senior levels. This reflects the need for

leaders with high capability who can engage with a range of senior

stakeholders within New Zealand and overseas. It also reflects the

need to compete for high-calibre expertise with overseas energy

centres and the wider energy sector. The personnel cost is

benchmarked against other public-sector agencies and overseas

energy centres to make sure it is reasonable (see page 83).

Operating costs

• Recruitment cost is based on a percentage of salary cost for new staff

who join the NNEDC and an assumed level of annual turnover.

• Accommodation expenditure includes the cost of leasing building

space. The NNEDC would be housed in temporary accommodation in

Year 1.

In Year 2, the NNEDC would move into its permanent accommodation.

This lease cost is based on the upper end of the range of New

Plymouth’s commercial office market, reflecting the expected quality of

the NNEDC’s permanent accommodation. The leased space would be

bigger than the temporary accommodation, providing additional office

space for stakeholders to co-locate with the NNEDC and an open,

shared space for showcasing and holding events.

• HR, finance, legal and ICT costs are based on a per-FTE rate identified

in Treasury’s benchmarking of public-sector agencies.

• The NNEDC is assumed to have a higher than average travel

requirement. This is because it will have core networking and facilitating

functions and will be required to work closely with stakeholders from

across New Zealand and overseas.

• Training costs are set as a percentage of staff salary cost and are

comparable to other public-sector organisations.

• The NNEDC will purchase services from third parties to:

- evaluate and monitor how effectively it is delivering on its intended

purpose

- support the NNEDC in producing publications


- maintain a social media presence

- hold events and conferences

- provide energy projects with advice on commercialisation.

Leasehold improvement cost

The NNEDC’s temporary accommodation in Year 1 would require a small,

leasehold improvement.

In Year 2, the NNEDC would incur a more significant leasehold improvement

to prepare for its permanent accommodation. This cost is based on the

upper end of the range of office fit-out and improvement cost.

The portion of the leasehold cost (and the ongoing operating costs) that

relate to the shared, open space is co-funded by other building tenants who

would also use and benefit from the space.

Laboratory cost

In Year 3, the NNEDC would establish laboratory facilities. The capital

expenditure required to set-up the facility and the operational costs to

maintain it are based on the middle of the range for setting up and running

laboratory costs for academic facilities.


BENCHMARKING

We have compared the NNEDC against a group of public sector agencies

and overseas energy centres to put the NNEDC’s forecast expenditure and

staffing levels into perspective (see Table 4).

Table 4: Benchmarking

Comparator organisations Relevant factors

Public-sector organisations

Serious Fraud Office

Similar numbers of personnel to NNEDC Ministry for Pacific Peoples

Ministry for Women

Overseas energy centres

Australian Renewable Energy

Agency Overseas energy centres with a national focus and

functions similar to the NNEDC (see Appendix 1 for

a list of each centre’s functions), and where financial

information is publicly available

Ore Catapult (UK)

National Renewable Energy

Laboratory (US)

42 The figures that are used for the NNEDC reflect a scenario where the energy centre has been

established successfully and has reached a steady state of operations.

The NNEDC’s annual operating cost is forecast to be

comparable to public-sector agencies but well below

that of overseas energy centres

Figure 14 shows that the NNEDC’s annual operating expenditure is

comparable to the group of public-sector agencies, but that it is only a third

of ARENA’s and Ore Catapult’s operating cost, and 2% of that of the

National Renewable Energy Laboratory. The figures exclude any grant

funding given to energy projects.42

Figure 14: Benchmarking 2017 annual operating expenditure


The NNEDC is estimated to have fewer staff than

overseas energy centres

Figure 15 shows the NNEDC’s number of staff and average personnel cost

per staff member in relation to the comparator organisations. Only one of

those other organisations had a lower personnel cost per staff member.

Compared to the overseas energy centres, the NNEDC has significantly

fewer personnel: half that of ARENA, one third that of Ore Catapult, and only

3% of the National Renewable Energy Laboratory’s total staffing

complement.

Figure 15: Benchmarking personnel

43 This cohort consists of agencies with fewer than 500 FTEs and operating costs of more than $100

million.

The costs of the NNEDC’s administrative and support

services are expected to be comparable to other small

public-sector agencies

Figure 16 compares the NNEDC against the small agency cohort in

Treasury’s benchmarking of administrative and support services (BASS).43

Although this data is for the 2016/17 financial year (the most recent period

for which the benchmarking exercise was done), it provides a useful

comparison of the NNEDC’s non-personnel costs against other public-sector

agencies.

Figure 16 shows that the NNEDC’s administrative and support services

costs, as a percentage of its annual operating cost, is forecast to be

between the median and lower quartile of the cohort. This reflects the fact

that the NNEDC is smaller than other agencies in the cohort and it is more

difficult for it to achieve economies of scale compared to a larger

organisation in that cohort.


Figure 16: Benchmarking administrative and support services

Overseas energy centres have a high proportion of

government funding

Figure 17 shows that two of the three comparator energy centres are fully

funded by government. The third centre, Ore Catapult, is 85% funded by

government, with commercial revenue making up the balance.

Table 7 in Appendix 1 summarises funding information for a larger cohort of

energy centres. Although there is limited information publicly available,

government appears to be the largest funder for these other energy centres

too, and the amount of public funding appears to be significant.

Figure 17: Benchmarking proportion of government funding

The approach to funding energy projects varies

across different energy centres

Most energy centres help stakeholders access existing government funding

and connect projects with investors and industry funding, but do not directly

allocate public funding themselves.

The Australia Renewable Energy Agency (ARENA) is one example of an

energy centre that does allocate public funding for projects. ARENA’s grant

funding responsibilities are established by legislation, and the agency has

been delegated $2 billion to invest in renewable energy projects until 2022.

In 2018, ARENA allocated $176 million of this funding to energy projects.


POSSIBLE FUNDING ARRANGEMENTS FOR THE NNEDC AND ENERGY PROJECTS

This section summarises possible options for funding the NNEDC’s

operations and the energy projects that it supports.

Funding the NNEDC’s operations

In the NNEDC’s initial period of operations (Years 1–5), central government

is likely to fund most of the energy centre’s establishment and running costs,

through grant funding (for example, the Provincial Growth Fund) or a new

parliamentary appropriation.

Local government could contribute significant assets to help establish the

NNEDC, as well as a cash contribution toward ongoing costs. In the

management case, we set out a scenario where the council provides land to

a third-party developer in order to create a long-term accommodation

solution for the NNEDC.

Industry is also expected to provide some funding for the NNEDC. As well

as monetary support, this could include providing in-kind funding by

supplying personnel, allowing the use of facilities or other assets, and

delivering services or specific tasks.

Any short-term funding carries a risk that the NNEDC will be unable to enter

into long-term contracts (for example accommodation leases) or attract and

retain high-quality staff. To mitigate this risk, a key stakeholder such as local

government could underwrite the NNEDC.

Beyond Year 5, central government is still expected to be a major funder of

the NNEDC, but there would be increasing possibility for a greater

proportion of the funding to come from industry and other sources.

Funding energy projects

At this stage, the NNEDC’s role is not expected to include directly allocating

funding to energy projects – although this could become an objective for the

centre in the longer term.

Instead, energy projects will be funded from a variety of other sources.

Project sponsors and participants would provide cash contributions and in-

kind support. The nature of these funding arrangements would vary project

by project.

To supplement these contributions, the NNEDC would connect energy projects

with opportunities for funding and investment by government, industry and

international sources. Possible examples include:

• public funding from a Vote appropriation, grant funding from the

Provincial Growth Fund, or investments made by the New Zealand

Venture Investment Fund or the Green Investment Fund (see page 53

for information on these funds and their intended purpose)

• contributions from universities, public-good research organisations,

Crown Research Institutes, and other private- and public-sector

researchers – based here or overseas

• private investments made for commercial purposes by organisations or

individuals based in New Zealand or overseas.


MANAGEMENT CASE


ARRANGEMENTS TO ESTABLISH THE NNEDC

The NNEDC would be established using a project-based approach (in this

section we use the term “establishment project”).

Figure 18 summarises the proposed governance and delivery

arrangements for the project. The project owners would be the Venture

Taranaki Board of Trustees. They would provide public accountability for

the project and also the governance expertise needed to successfully

establish the NNEDC. The board would be accountable for establishing the

NNEDC successfully, and would:

• approve the establishment plan to operationalise the NNEDC

• approve key establishment decisions until the chairperson of the

NNEDC governance board is appointed

• facilitate the appointment of the chairperson to the NNEDC’s

governance board.

Venture Taranaki would be the contracting party for any funding

agreements to establish the NNEDC and with employees and suppliers

that the project needs to engage.

An advisory board would maintain oversight of the delivery of the project

and provide assurance to the board of trustees that the project is on track.

The stakeholder reference group would provide an open channel of

communication between NNEDC stakeholders and the establishment

project to make sure the project delivers on stakeholders’ expectations.

This group would also provide the “voice of the customer” to inform the

board of trustees’ decision-making.

A dedicated programme manager would carry out the bulk of the work to

establish the NNEDC, supported by a small establishment team.

The establishment project would conclude once the NNEDC is operational.

Figure 18: Transition arrangements


ESTABLISHMENT “NEXT STEPS”

The figure below summarises the key “next steps” to establish the NNEDC,

with further detail on each of the steps following the diagram. Step 1 would

commence once there is sufficient establishment funding and agreement

of ongoing funding arrangements.

Immediate next steps (eg 2–6 months)

1 NNEDC stakeholders, once there is agreement to proceed, sign a

memorandum of understanding that:

- identifies the members of the establishment project advisory

group, including the chair of the group

- identifies the members of the stakeholder advisory group

- sets the “go–live” date for the NNEDC

- confirms agreement in-principle to the proposed funding

arrangements (including cash and in-kind support).

2 The establishment project advisory group, the programme manager

(along with any project team members) and stakeholder advisory

group are appointed.

3 The programme manager develops an establishment plan that sets

out the detailed approach for operationalising the NNEDC, for

endorsement by the project advisory group and approval by the

Venture Taranaki board.

The establishment plan would be endorsed by the NNEDC

stakeholder reference group and approved by the Venture Taranaki

board of trustees.

Among other things, the establishment plan would include further

analysis and decision making on:

- the detailed transition budget

- a short-term funding plan, including in-kind and cash

contributions from government and industry stakeholders


- income and expenditure budgets for years 1–4

- milestone goals for the NNEDC for years 1–4

- benefits measurement plan

- approach to determining the NNEDC legal form

- expected employment arrangements for permanent NNEDC

personnel

- short-term accommodation arrangements

- a vision for longer-term accommodation needs and a plan to

achieve this

- provision of administrative support services.

4 The stakeholder advisory group develops the stakeholder

engagement plan to build a critical mass of active support for the

NNEDC. The engagement plan covers the period of the establishment

project and the early operations of the NNEDC.

Medium-term next steps (eg 6–12 months)

5 The establishment plan and the stakeholder engagement plans are

implemented.

6 The Venture Taranaki board of trustees works collaboratively with

stakeholders to identify nominees for the chairperson and members of

the NNEDC governance board. The legal entity for the NNEDC is

established and a chairperson appointed to the NNEDC governance

board.

7 Negotiate a five year funding agreement with the Crown and local

government.

8 Supported by the establishment project, the NNEDC board:

- determines the governance board arrangements in accordance

with best governance practice

- appoints a chief executive to the NNEDC

- develops an action plan for the first 90-days of the NNEDC’s

operations, to enable the NNEDC to “hit the ground running”

9 The chief executive confirms the NNEDC’s operating model and

undertakes organisational design, and starts recruiting for key roles.

10 The Venture Taranaki board of trustees and the NNEDC chairperson

agree a plan to hand over any remaining establishment activities to

the NNEDC.


PEOPLE AND GOVERNANCE

Governance

Once the NNEDC is operational, the governance board would set the

strategy and oversee the performance of the organisation, supported by a

number of board committees (shown in the figure below).

Energy project committee

The energy project committee would have an important role within the

NNEDC. Responsible for the strategy and process for prioritising and

selecting energy projects, its objective will be to ensure formal and

transparent arrangements are in place to achieve the optimal portfolio of

energy projects.

The committee would review the energy project pipeline and monitor the

progress of projects against KPIs and milestones. The committee would also

review lessons learnt from projects, both successful and unsuccessful ones.

This will ensure the NNEDC is actively learning how to grow its capabilities

so that it can enable successful innovation.

The role of NPDC in enabling possible accommodation options

The New Plymouth District Council (NPDC) understands the critical

role that local governments play in the success of overseas energy

centres; not only in terms of leadership but in practical ways that

assist in the establishment of the energy centre and enable its

ongoing success.

In New Plymouth, the NPDC sees the NNEDC becoming a flagship

facility in the city’s central business district, playing a key role in

revitalising the area.

To this end, and subject to formal approvals, the council would

consider leveraging some of its key central city landholdings and

assets so that the vision of a flagship facility can be realised.


NNEDC personnel

The success of the NNEDC will depend on the capability and

capacity of its personnel. They will need to demonstrate the value

of the NNEDC within a short period and establish a track record

of success, while working very closely with a wide range of

stakeholders.

The approach to identifying capability and capacity need

As noted in the financial case, a bottom-up analysis has identified

approximately how many staff will be needed to carry out the

NNEDC’s functions and how senior they should be. This analysis

was benchmarked against public-sector organisations and

overseas energy centres to check that it is reasonable. The

number and type of management positions was based on initial

thinking about how the NNEDC might be organised to deliver

those functions.

The figure on the right indicates the NNEDC’s personnel

requirements and the services the energy centre would purchase

from third parties.

Importantly, until further organisational design has been

completed this view is indicative only. It is expected that, in

practice, some of these personnel and services would be

provided by stakeholders as in-kind funding.


APPENDIX 1: COMPARISON OF ENERGY CENTRES FROM AROUND THE WORLD

Combining insights from stakeholders who have visited energy centres in other countries with our own desk-based research, we have explored other energy

centres. In the tables below, we highlight the key attributes of a small sample of seven successful energy centres, looking at:

• the purpose or mission statement of the energy centre

• the main functions that it delivers to its customers

• how the energy centre is funded, and whether it is responsible for allocating any grant

funding

• the main stakeholders that make up the customer eco-system.

Table 5 summarises the key features of each energy centre and their mission and vision statements.

Table 5: Comparison of energy centres: Purpose/ mission statement

Jurisdiction Key notes Mission statement

Australian Renewable Energy

Agency

https://arena.gov.au/about/

Australia Established on 1 July 2012 by The Australian Renewable

Energy Agency Act 2011, taking responsibility for a number of

programs and projects managed by the Australian Centre for

Renewable Energy, the Department of Resources, Energy and

Tourism, and the Australian Solar Institute

Mission: To enable more renewables and lower emissions by

driving innovation and commercialisation.

Purpose: To accelerate Australia’s shift affordable and reliable

renewable energy.

Provides funding for projects with demonstrated feasibility and

potential commercialisation, builds and supports networks, and

shares knowledge insights and data from funded projects.

ORE Catapult

https://ore.catapult.org.uk/about-us/

United Kingdom The Offshore Renewable Energy Catapult was established in

2013 by the UK Government and is one of a network of

Catapults set up by Innovate UK in high growth industries. It is

the UK’s leading innovation centre for offshore renewable

energy.

Vision: By 2023, we will be the world’s leading offshore renewable

energy technology centre.

Mission: To accelerate the creation and growth of UK companies in

the offshore renewable energy sector, with particular focus on

supporting:

• testing and validation

• research and innovation

• improving operation and performance.

https://arena.gov.au/about/

https://ore.catapult.org.uk/about-us/

https://www.gov.uk/government/organisations/innovate-uk


Jurisdiction Key notes Mission statement

New Energy Coalition

https://newenergycoalition.org/about-

us/

The Netherlands The New Energy Coalition is a knowledge and network

organisation for energy transition.

Located on a large university campus, the New Energy

Coalition shares office space in the Energy Transition Centre

alongside other energy focused organisations.

Mission: To provide a substantial contribution at national and

international level to the energy transition by accelerating the

energy transition by providing: 1. scientific breakthroughs 2.

breakthroughs in industrial applications, processes and products 3.

breakthroughs in people’s thinking and actions, and 4.

breakthroughs in the manner of innovation.

European Marine Energy Centre

http://www.emec.org.uk/about-us/

United Kingdom Provides developers of both wave and tidal energy

technologies.

Established in 2003, EMEC was set up by a grouping of public

sector organisations following a recommendation by the House

of Commons Science and Technology Committee in 2001.

Office space is shared on a university campus. The centre

runs a purpose-built, accredited open-sea testing facility that

connects up to 5 different marine or tidal pilots at one time.

Vision: A globally successful marine energy industry as part of a

clean energy system

Mission: Reducing the time, cost, and risk associated with the

development of marine energy technologies, maximising the use of

our bespoke facilities, industry knowledge, and unprecedented

experience.

ECN part of TNO

https://www.ecn.nl/home/

The Netherlands TNO and ECN have clustered their strengths in ECN part of

TNO.

TNO was founded by law in 1932 to enable business and

government to apply knowledge. They are an independent

organisation, separate from any part of government, university

or company.

Vision: Accelerate the energy transition together with knowledge

institutions, companies and the government so that in 2050 the

Netherlands will have an energy regime free of CO2 emissions. The

energy transition also offers the Dutch business community the

opportunity to lead the way and to export their innovative products

and thus contribute to the energy transition worldwide.

China National Renewable Energy

Centre

http://www.cnrec.org.cn/english

China China National Renewable Energy Centre (CNREC) is the

national institution for assisting China’s energy authorities in

renewable energy (RE) policy research, and industrial

management and coordination.

NREC’s establishment is an important part of the Sino-Danish

Renewable Energy Development Programme, a joint effort

between China and Denmark which aims a developing the RE

technology and the capability of the authorities to manage the

rapid development for renewable energy in China.

As a think tank and knowledge centre, CNREC will become a state-

level non-profit institute with high reputation in RE field through

development of excellent research tool and methodology; and as

the business supportive institute for the RE industry, CNREC

should, through capacity building activities, develop into a

comprehensive service force, creating collaboration among industry,

education and research in the field of RE, in order to push the

development of the national RE industry in a healthy and constant

manner.

National renewable energy

laboratory

https://www.nrel.gov/

USA The National Renewable Energy Laboratory (NREL) is the

U.S. Department of Energy’s (DOE’s) primary national

laboratory for renewable energy and energy efficiency

research.

The National Renewable Energy Laboratory is managed for

the U.S. Department of Energy's Office of Energy Efficiency

and Renewable Energy by the Alliance for Sustainable Energy,

LLC, a partnership between Battelle and MRIGlobal.

NREL advances the science and engineering of energy efficiency,

sustainable transportation, and renewable power technologies and

provides the knowledge to integrate and optimize energy systems.

https://newenergycoalition.org/about-us/

https://newenergycoalition.org/about-us/

http://www.emec.org.uk/about-us/

https://www.ecn.nl/home/

http://www.cnrec.org.cn/english

https://www.nrel.gov/


Table 6 provides a high level summary of the main functions that each energy centre delivers.

Table 6: Comparison of energy centres: Functions

Key functions

Policy support

to government

Connecting

stakeholders,

building

networks

Undertake

and/ or

disseminate

research

Enable

demonstration and

commercialisation

Promote market

uptake

Laboratory for

developing and

testing

Advisory services

(either

commercialisation

or technology

focussed)

Physical co- -

location with

stakeholders

Australian Renewable

Energy Agency ✓ ✓ ✓ ✓ ✓

ORE Catapult

✓ ✓ ✓ ✓ ✓ ✓


✓ ✓ Education

✓

European Marine Energy

Centre ✓ ✓ ✓ ✓ ✓

ECN part of TNO

✓ ✓ ✓ ✓

ECN undertakes

testing

✓ Strong consulting

aspect

China National Renewable

Energy Centre ✓ ✓ ✓ ✓


laboratory ✓ ✓ Education

✓ ✓ ✓


We attempted to identify the funding arrangements and determine whether or not the energy centres allocated any grant funding to energy projects, however

this was not possible to achieve by way of a desk-based exercise. Table 7 summarises the limited funding information that we could glean (noting that it does

not provide a full funding picture). What was clear in our research is that government contributes a significant proportion of total funding to these energy

centres, and that the amount of public funding provided is significant.

Table 7: Comparison of energy centres: Funding arrangements

Notes about funding arrangements

Australian Centre for Renewable

Energy

Jointly manages a $200 million Clean Energy Innovation Fund with the Clean Energy Finance Corporation (CEFC).

Part of a broader $2 billion government funding package over 9 years (to 2022). Investments guided by General Funding Strategy, approved by Minister,

with annual investment plans.

ORE Catapult Labs worth £250 million.

Innovate UK Core Funding £15.025 million and commercial income of £3.987 million.

New Energy Coalition The Energy Valley Foundation is financed on a project basis by a large group of strategic partners from the business community, knowledge institutions,

and the government.

European Marine Energy Centre To date, around £34 million of government funding has been invested in the Centre by the Scottish Government, Highlands and Islands Enterprise, The

Carbon Trust, UK Government, Scottish Enterprise, the European Union and Orkney Islands Council.

The centre comprises approximately 10-15 FTE staff.

The purpose-built, accredited open-sea testing facilities cost approximately £10 million to build.

ECN part of TNO Annual report in Dutch.


Energy Centre

No publically available information.


laboratory

More than 80% of NREL’s funding is through the Department of Energy’s Office of Energy Efficiency and Renewable Energy. Total funding information not

publically available.


Table 8 shows that the majority of energy centres take a broad approach to what they focus on.

Table 8: Comparison of energy centres: Main areas of focus

Wide focus,

with no area of

speciality

Narrow focus on a particular energy form

Hydrogen Oil and gas Marine/ tidal Electricity/ smart

grid/ micro grid

Solar Wind Waste to energy

Australian Centre for

Renewable Energy

✓ Priorities in any

given year set

through

Investment Plan

ORE Catapult

✓


European Marine Energy

Centre

✓

ECN

✓


Energy Centre

✓


laboratory

✓


APPENDIX 2: A HISTORY OF ENERGY CENTRES IN NEW ZEALAND

Case study: New Zealand Clean Energy Centre

After 7 years in the making, the New Zealand Clean Energy Centre opened in 2007,

at the northern gateway to Taupō on State Highway 1.

The purpose of the New Zealand Clean Energy Centre was to accelerate New

Zealand’s adoption of clean, renewable energy solutions by having innovative clean

energy businesses working alongside each other developing and creating

opportunities.

Run by the New Zealand Clean Energy Trust, the Centre had a strong focus on

innovation and delivered a number of functions:

• business development and incubation of energy-related businesses

• technical assistance to increase the uptake of renewable energy opportunities

in the region and nationally

• business cluster with tenants from the biomass, geothermal and solar sectors

• exhibition, conference and event centre

• ‘working laboratory’ showcase for clean energy technology in practice such as

biomass, geothermal, solar, wind and hydro solutions.

Key stakeholders included the Lake Taupō Development Company, Energy for

Industry, Fitzroy Engineering, Taupō District Council, iwi, Tūwharetoa Māori Trust

Board and Meridian.

The centre secured $8m funding, with government committing $2 million through

New Zealand Trade and Enterprise's Major Regional Initiative Fund, and industry

and local government providing the other $6 million. New Zealand Clean Energy

Trust employed three full-time staff – a chief executive, programme manager and

executive assistant.

The New Zealand Clean Energy Centre opened a purpose built $1.2 million

building on land provided by the Taupō District Council showcasing efficiency and

future-proofing. Rent from the tenants funded the Centre’s personnel and

operating expenditure.

Figure 19: New Zealand Clean Energy Centre in Taupō

Why Taupō? The Centre was a regional initiative with a national scope, leveraging

the area’s geothermal and bio-energy resources and capability.

Key lessons learnt:

• Get key partners on board from Day 1. Although a number of key

stakeholders were actively engaged with the Centre, several large local energy

organisations were not, including Mighty River Power, Contact and GNS (the

later supported the Centre, but had its own competing service offering).

• Ownership and governance is everything. After a couple of years of

operating successfully, a change in strategic direction meant that some

stakeholders drifted away from the Centre and, after a while, there was little

reason for the tenants to remain.

Although not a lesson learnt per se, there is a question about whether a new building

was the best way to start the Centre off. While it provided a high quality physical

space and attracted tenants and generated revenue, finding land and undertaking

the build took considerable effort – potentially taking focus away from getting major

partners on-board from Day 1, and using up precious funding.


Case study: Ōtaki Clean Energy Centre

The Clean Technology Centre was established in 2010 as a joint venture

between Wellingtons’ regional economic development agency, Grow

Wellington and the Kāpiti Coast District Council.

The Centre provided an environment for the commercialisation of clean

technology research, with a focus on cutting edge clean technologies such

as solar, biofuels, waste-to-energy and renewable power generation. The

Centre was established as the centre-piece of a Clean Technology Park and

was designed to provide:

• co-location of growing clean tech companies

• use of a light industrial area

• incubation services, and access to other innovation programmes in the

region

• links to research and skills development programmes

• relationships with research and tertiary institutions, the science

community and investors

• international linkages.

One of the centre's most high- profile projects was a $200,000 electric

rubbish truck, commissioned by Kāpiti Coast District Council, which was

assembled and tested at the centre.

Why Ōtaki? A lower cost option with physical space available, but still close

to main centres.

Key stakeholders included Grow Wellington, Kāpiti Coast District Council,

Energise Ōtaki, Ōtaki Energy and a number of clean technology companies,

including Blended Fuel Solutions Ltd, Nufuels Ltd, Green Earth/Emergency

Compost Toilet, RAWL and Starscopes.

The Centre was initially funded by Grow

Wellington, Kāpiti Coast District Council, and NZTE.

In 2014, Grow Wellington withdrew support for the

Centre, citing a failure to achieve results for

ratepayers. One of the resident companies, Blended

Fuel Solutions Ltd took over operation of the Centre

and moved to a new site within Ōtaki.

Key lessons learnt:

• Research and tertiary institutions need to be involved. Though

reportedly strong engagement by research groups and tertiary

institutions when the centre was announced, little traction was gained in

establishing relationships with research and tertiary institutions, the

science community over time.

• Make sure the services and facilities are aligned with target

customers. There was a mismatch between the Centre’s emphasis on

incubator services and the needs of “later-stage” firms that made up the

majority of the centre’s membership.

• Networking doesn’t happen by accident. Networking between

member companies was considered more incidental (passive) than a

matter of design, and companies wanted a more structured approach

beyond Centre membership, to include outside peers, potential

partners, investors, customers, institutions (tertiary and research),

regional and national ED economic development agencies and

professional service providers.


APPENDIX 3: WHAT DO CUSTOMERS VALUE?

In 2011, a Danish study44 examined

which types of functions were most

highly valued by customers of clean-

tech “cluster support organisations”.

This study provides a useful basis

for considering the relative merits of

the different types of functions that

the NNEDC could perform.

The figure on the right shows that

customers most valued the ability to

participate in development projects,

and that a one-stop source for

business information was given the

lowest priority.

44 “Cleantech – with the customer in focus – The Golden Egg of Danish economy 2011 – with inspiration

from seven cases”, Brøndum and Fliess, June 2011.


APPENDIX 4: WHAT THE NNEDC COULD FOCUS ON This section provides a high level summary of information to inform

possible opportunities for the NNEDC to focus on. It includes analysis from

the Energy Futures Action Plan and a large number of discussions with

stakeholders as part of the development of this Business Case.

For ease of reading, we have attempted to group opportunities according

to energy form, however it is important to note that many projects will

involve a combination of energy forms and ways in which energy is

produced, stored, transported or used. Opportunities may be global,

national or regional in focus.

It is also relevant to consider these opportunities in light of the current

energy context: the future energy pathway is uncertain; the pace of

technology advancement is quick; future technologies are yet to be

invented; New Zealand has some unique challenges to overcome in order

to increase its renewable energy levels; and, for these reasons, the focus

of the NNEDC needs to be broad and is expected to shift over time.

Energy form Opportunity

Synfuels, biofuels • Technologies that leverage existing infrastructure and vehicle

assets provide transitional solutions for both energy security and

a degree of net emission reduction.

• Mature alternative fuel solutions such as methanol. For example,

Methanex runs its entire vessel fleet on methanol to meet new

International Maritime Organisation fuel standards, which take

from 2020.

• Opportunities identified in Taranaki’s Action Plan.

Waste to energy • Waste to energy typically takes the form of generation, collection

and use of biogas (primarily a mixture of methane, carbon

dioxide and hydrogen sulphide); or thermal energy production.

• Area of opportunity identified in Taranaki’s Action Plan.


Electricity

• A significant amount of research and development is being

conducted globally.

• Submissions in the Productivity Commission report suggested

focussing innovation activity on generating and storing

electricity using small, grid-connected devices (distributed

energy), and improving demand response and developing the

smart grid. Submissions also focussed on digitisation (from

both an integration, and measurement and behavioural

change perspective) – relevant, but not limited to application in electricity network, and to integrate smart and micro grid

technologies.

• Taranaki’s Action Plan identified smart grid and micro-grid

technologies as an area of focus.

• A few examples of New Zealand investment include:

- PowerNet are developing a micro-grid remote area power

supply for South Island farming operation

- University of Canterbury has a 6-year research programme

studying the electricity network based on uptake of solar

panels and electric vehicles (Powerco was one of the major

co-funders).

Low carbon energy carriers: production, storage and distribution

• Low carbon energy carriers (eg “green” ammonia, hydrogen)

have the potential to provide true zero emission transport

solutions, large scale renewable energy storage (managing the

intermittency challenge), a major reduction of industrial GHG

emissions, and large scale renewable energy export potential.

• The core technology required to produce, store, and distribute

hydrogen has matured to the point where staged deployment

of ecosystems is accelerating globally. However, emerging

technologies such as liquid organic hydrogen carriers (LOHC),

methane cracking and photo-chemical hydrogen production

will warrant further development. “Green” ammonia requires

significantly more development to be economic.



Geothermal

energy

production

• The New Zealand Geothermal Association’s Geoheat Strategy

Action Plan identifies possible geothermal energy projects.

• Advances in geothermal technologies are opening up the

possibility that abandoned oil wells could generate electricity

or provide a heat source for direct industrial applications and

geothermal heat pumps.

• Productivity Commission report suggested this as an area of

focus.

Marine, tidal and off-shore wind energy generation


conducted globally.

• Area of opportunity identified in Taranaki’s Action Plan.

Taranaki has significant off-shore capability that can be

adapted to developing wave technology (eg expertise with

long-run loading buoys), and the southern ridge of Taranaki

coastline is relatively shallow water, which can be used to trial

solutions.

• Some examples of investment in New Zealand include:

- EHL Solutions in Taranaki designing wave energy

generator and has a working prototype developed from

research grants from the US Department of Energy to study

wave energy in Hawaii

- Government funded research in ‘offshore wave energy

converter feasibility in Taranaki’ to University of Auckland

- Between 2008-2012, Callaghan Innovation received

science funding of $3.02 million to investigate a technology

from harnessing the NZ ocean surface waves that surround

New Zealand.

Hydrogen • Hydrogen is typically produced from fossil fuels (dirty

hydrogen), but new technology and falling wind and solar

costs are making electrolysis from water a more viable option

(green hydrogen).


conducted globally.

• Examples of New Zealand opportunities include hydrogen as:

- a way to store renewable energy for use during dry months,

for example Transpower suggested using surplus power in


summer to make hydrogen, which could then be stored as

ammonia and burned during winter.

- a fuel to generate electricity, for example to power peaker plants during periods of high energy use

- a fuel blended with natural gas for household and industrial use

- a fuel for vehicles, particularly for the heavy vehicle fleet

- an export opportunity, using renewable energy to produce

and export green hydrogen

- a transition energy option, making ‘dirty’ hydrogen using

natural gas and storing the CO2 using carbon capture

technologies.

• Hydrogen may be able to be transported using existing high

pressure gas network.

• Government has indicated hydrogen could play a key role in

helping to meet low emissions goals. The government has

signed a memorandum with Japan to advance hydrogen

opportunities. Some examples of government investment

include:

- $0.9 million in Hiringa Energy and its partners develop zero

emission hydrogen transport fuel. A memorandum of

understanding has been signed with TIL Logistics

- $1 million in highly efficient solar-to-hydrogen energy

conversion based on innovative nanophotonic platforms

- between 2008-2012 Callaghan Innovation received science

funding of $3.0 million to investigate a stand-alone unit to

produce hydrogen using electrolysis technology.

• Commercial sector is exploring opportunities involving

hydrogen, for example:

- a collection of firms, including Hiringa Energy and majority

owner of the 112 MW Mokai geothermal power station

Tuaropaki Trust, are investigating the fuel’s commercial

potential

- a pilot hydrogen production plant is being built in Taupō,

with technology supplied by Japan's Obayashi Corp and

investment from Tuaropaki Trust.



Carbon-based

energy • A significant amount of research is being conducted globally

and in New Zealand on emission reduction technologies such

as carbon capture and storage, carbon capture and use, and

low/zero carbon alternatives for industrial processes.

• Submissions in the Productivity Commission report suggested

focussing innovation activity on replacing fossil-fuel process

heat with renewable sources in areas such as milk drying,

other food processing and cement, as well as decarbonising

the heavy transport fleet.

• Opportunities identified in Taranaki’s Action Plan focussed on

low emission industrial processes, and low carbon energy

carriers.

• Between 2012-2014 $2.5 million funding for research was

awarded to 3 research organisations on carbon capture and

storage.

Materials as a form for energy storage

• Area of focus suggested in the Productivity Commission

report.

Batteries and fuel cells

• Roll-out of EV infrastructure and light vehicle technology has accelerated in recent years with strong central government support.

• Existing battery technologies have limited practicality/commerciality for regional applications due to range, weight, and recharge time requirements.

• Taranaki’s Action Plan identified zero emission transport for

passenger vehicle fleet using batteries and fuel cells.


APPENDIX 5: LETTERS OF SUPPORT

A number of stakeholders provided letters of support for the establishment

of the NNEDC (refer Table 9), indicating how they expect to actively

engage with the energy centre in the future and the benefits that they see

the NNEDC providing to Taranaki and New Zealand. A copy of the letters

are included in the appendix.

Table 9: Stakeholders providing letters of support

Stakeholder group Stakeholder

Local government New Plymouth District Council, Office of the Mayor

http://www.newplymouthnz.com/

Big energy companies OMV https://www.omv.com/en

Methanex https://www.methanex.com/

PowerCo https://www.powerco.co.nz/

Balance https://ballance.co.nz/

Firstgas https://firstgas.co.nz/

Todd Energy https://toddenergy.co.nz/

Supply chain BTW Company https://www.btw.nz/

Energy and Industrial Group http://www.energyindustrial.co.nz/

Fitzroy Engineering http://www.fitzroyengineering.com/

BECCA https://www.beca.com/

Entec https://www.entec.co.nz/

Worley Parsons https://www.worleyparsons.com/

Engineering Taranaki Consortium (ETC)

http://engineeringtaranaki.co.nz/

Companies with new-

energy initiatives

underway

Hiringa Energy https://www.hiringa.co.nz/

EHL https://www.ehlsolutions.com/

Applied research

sector

New Energy Research Institute (NERI) https://www.neri.org.nz/

GNS Science https://www.gns.cri.nz/

The MacDiarmid Institute https://macdiarmid.ac.nz/

http://www.newplymouthnz.com/

https://www.omv.com/en

https://www.methanex.com/

https://www.powerco.co.nz/

https://ballance.co.nz/

https://firstgas.co.nz/

https://toddenergy.co.nz/

https://www.btw.nz/

http://www.energyindustrial.co.nz/

http://www.fitzroyengineering.com/

https://www.beca.com/

https://www.entec.co.nz/

https://www.worleyparsons.com/

http://engineeringtaranaki.co.nz/

https://www.hiringa.co.nz/

https://www.ehlsolutions.com/

https://www.neri.org.nz/

https://www.gns.cri.nz/

https://macdiarmid.ac.nz/


Copies of letters of support received

Local government

Mature energy companies







Supply chain companies





Companies with new-energy initiatives underway


Applied research sector


.



APPENDIX 6: LIST OF TABLES AND FIGURES

TABLES

Table 1: Stakeholders in the customer ecosystem 46

Table 2: Risks of investment 57

Table 3: Operating and capital cost estimate 80

Table 4: Benchmarking 83

Table 5: Comparison of energy centres: Purpose/ mission

statement 93

Table 6: Comparison of energy centres: Functions 95

Table 7: Comparison of energy centres: Funding

arrangements 96

Table 8: Comparison of energy centres: Main areas of focus 97

Table 9: Stakeholders providing letters of support 104

FIGURES

Figure 1: Global energy consumption 15

Figure 2: Global primary energy supply 15

Figure 3: Change in global energy supply 16

Figure 4: New Zealand’s carbon profile 17

Figure 5: New Zealand’s emissions and targets 21

Figure 6. The case for locating the NNEDC in Taranaki 36

Figure 7: Intervention logic 50

Figure 8. Three shifts to achieve a low-emissions economy 52

Figure 9: Tapuae Roa – Make Way for Taranaki 55

Figure 10: Purpose of the NNEDC in relation to the innovation chain 67

Figure 11: A portfolio approach to determining which energy initiatives

the NNEDC supports 70

Figure 12: Total cost estimate 2019/20–2023/24 80

Figure 13: Key cost items 80

Figure 14: Benchmarking 2017 annual operating expenditure 83

Figure 15: Benchmarking personnel 84

Figure 16: Benchmarking administrative and support services 85

Figure 17: Benchmarking proportion of government funding 85

Figure 18: Transition arrangements 88

Figure 19: New Zealand Clean Energy Centre in Taupō 98

Documents

FEASIBILITY OF ESTABLISHING A NATIONAL NEW-ENERGY ... · play in meeting those challenges and recommends establishing a national new-energy development centre (NNEDC) in Taranaki