Living energy freedom
EMT workshops undertaken in FY20, on climate-related risks and opportunities, produced a list of 13 covering all the TCFD risk types. A summary of the top five, their potential impacts, timelines, risk rating and how we intend to manage them is provided in the table below. Again, we have aligned these to the relevant TCFD categories for consistent reporting.
STRATEGY.
H TRANSITIONAL: POLICY &
H TRANSITIONAL: MARKET
M TRANSITIONAL: MARKET &
M TRANSITIONAL: MARKET RISK
M PHYSICAL RISK
S
S
M
S
L
LEGAL RISK
M
& TECHNOLOGY RISK
L
M
TECHNOLOGY OPPORTUNITY
L
Any increase in regulation and/or actions that do not consider management of New Zealand’s energy trilemma as a whole, (energy security, energy equity, and environmental sustainability of energy systems) could lead to negative impacts for New Zealand, our sector and our customers.
A decrease in demand due to de-industrialisation, increased use of batteries and an increase in de-centralised energy generation will impact on the electricity market and Mercury. Technologies already exist in many of these areas and additional new technologies will be developed Regulatory constraints may be placed on carbon to aid the transition to a low carbon future. It is important that we closely monitor future or electricity pricing, impacting on both markets technology developments, their costs and returns, and posing both reputational and financial as they are crucial considerations should we risks for Mercury. To manage this, we remain engaged with the regulatory processes around the consider investing in them. We have experience in grid-scale and domestic batteries and associated emissions trading scheme and forestry rules. solar technologies. As we develop large-scale We will continue to maintain engagement with wind generation we will broaden our knowledge government, regulators and media commentators and understanding of this technology which may and will maintain/lead the narrative on the have applications at a smaller scale in the future. positive contribution renewable energy makes to New Zealand’s climate change ambitions.
L
An increase in electricity demand from significant electrification of transport (light vehicles, trucking and air), industrial process heat conversions to electricity, data centres, export hydrogen production and New Zealand population growth provides the potential for increased revenues. Mercury has positioned itself to grow market share of generation in New Zealand through the development of the Turitea wind farm and has additional prospects in both wind and geothermal. We actively promote the electrification of transport, and will continue to work with industry to explore fossil fuel substitution, business models for green hydrogen and renewable electricity supply to data centres.
We will continue to make submissions on legislation, regulation and planning instruments relevant to climate change, renewable energy, carbon forestry and the energy trilemma to ensure the best outcomes for New Zealand’s low carbon future.
TIMELINE:
34
S
Short
M
Medium
L
Long term
RISK RATING:
H
High
M
Medium
& OPPORTUNITY
M
L
The physical impacts of climate change will have a direct impact on electricity demand. Warmer winters may reduce demand for heating, whilst hotter summers may well increase demand for cooling in the warmer months.
Physical climate impacts will arise over the long term due to extreme or acute weather events e.g. storms, droughts, increasing frequency of days with high temperatures. Longer-term or more chronic risks include increasing temperatures with impacts on inflows into the hydro catchment. Drier summers with extended periods of drought There are financial risks and opportunities could increase demand for water e.g. for irrigation. associated with these changes which may be both This has the potential to impact water availability direct (on our assets and operations) and indirect in the catchment and our ability to generate. (on markets and supply chains). Scenario analysis will enable us to to understand Increasing extremes of catchment inflows and these potential impacts on both energy and high temperature days presents the risk of water requirements. There are both risks and damage to our generation assets or impacts on opportunities around continued access to fuel our ability to generate. (water) through increasing demand for water Our assets are capable of managing high inflow use and/or storage decreasing. Changes in events and high temperature days. However, there demand due to physical changes will inevitably influence electricity market prices. We will closely remains a risk that some damage or interruption to operation may occur if extreme events increase monitor policy controls, statutory change and legal precedents that could impact our access to in frequency. This would have a negative impact on revenues water. We will continue to engage in the relevant and/or increase operating costs. Scenario Resource Management Act (RMA) processes, modelling to be undertaken in FY21 will form the monitor policy statements and continue to develop our water strategy, working with the many basis for the management of climate-related risks and inform generation operating plans, potential catchment stakeholders. changes required to resource consent conditions and high flow management plans.