Renewable energy: Sources and methods

Renewable energy An energy monetary asset account is a balance sheet for an energy resource. The balance sheet shows a resource’s opening stocks at the beginning of a year, changes in its stock over a year, and closing stocks at the end of a year. The opening and closing stocks are calculated as the net present value (NPV) of anticipated resource rent. The difference between opening and closing stocks is a residual that implicitly accounts for other changes affecting asset levels and values, including changes in the capacity to use renewable energy resources. Definition of renewables A renewable resource, or ‘renewable’, is a resource that after being used, can return to previous stock levels by natural processes of growth. The SEEA central framework (United Nations, 2014b, p45) recognises the following renewable sources of energy. solar hydro wind wave and tidal geothermal other electricity and heat. The United Nations is developing the SEEA-Energy, an SEEA 'sub-system', to provide compilers and analysts with agreed concepts, definitions, classifications, tables, and accounts for energy and energy-related air-emission accounts. SEEA-Energy elaborates and expands the guidance on accounting included in the International Recommendations for Energy Statistics (IRES) and is fully coherent with the broader SEEA. According to IRES, heat from renewable resources is considered renewable but heat from chemical processes is considered non-renewable. Electricity data supplied by MBIE includes electricity generated from waste heat, which includes heat from chemical processes (eg, the fertiliser industry). For this reason, we exclude electricity generated from waste heat in the report. Method The resource rent from the electricity generation industry is first calculated: gross operating surplus less user cost of produced capital, all sourced from the national accounts. No appropriate taxes or subsidies on extraction are applicable to this industry, so nothing is added back to gross operating surplus. The resource rent from electricity generation using renewables is then calculated by applying the proportion of total electricity production from MBIE to the national accounts data. Quarterly MBIE data is converted to March years for consistency with the economic data. User cost and rate of return of produced capital User cost is derived using the method used in productivity statistics. This is computed as the price index of the asset multiplied by the sum of the rate of economic depreciation and rate of return, all multiplied by the productive capital stock (derived using the perpetual inventory method). Stats NZ adopted a 4 percent real rate of return for capital assets in the compilation of productive capital stock and productivity estimates for all industries and all years. See MacGibbon (2010) for more information on this approach to user cost. Asset lifespan For the asset value computations to work, we assume that the lifespan of the resource is infinite (ie, there will always be a minimum sufficient flow). The longevity of the fixed asset used to generate electricity (ie, the dams) are accounted for in calculating user cost. Discount rate The asset value for natural capital assets used for generating electricity is calculated as resource rent divided by the discount rate (due to the assumption of infinite lifespan). The Treasury publishes discount rates are for undertaking cost-benefit analyses and provides specific guidance on discount rates for Infrastructure and special purpose (single-use buildings) which includes water and energy assets (see current discount rates). Previously the rate was set at 6 percent, but an updated time series has been provided which has been implemented in the March 2023 release of Environmental-economic accounts: Data to 2021. This means that the discount rate varies from year to year in line with the guidance available to decision makers from The Treasury in that year. In setting the discount rate, we first considered the purpose for which it is needed. When considering the value of water for hydroelectric plants, a commercial rate is more appropriate than a lower social rate of time preference to ensure that the valuation is aligned to the general concept of market prices. For national accounting purposes, the focus is on average value to production in current uses rather than marginal value of choices between uses. It is necessary to assume that consenting conditions on hydro-generation internalise the externalities (including environmental) – although in practice that may be inconsistently done. The NPV approach invokes assumptions on the real rate of return and real discount rate (assumed to be constant at 4 percent and 5 percent, respectively). Annual distortions from these rates may lead to some bias in the trend, while systematic differences will affect the confidence in the level. Under the NPV approach, renewable monetary assets are estimates of the net discounted income stream from the resource. The estimate is not a measure, for example, of the value of the stock of water in dams at that particular point in time. In fact, a hydro dam may be dry at the time of the balance date but is still valued on the basis of the expected future availability of water. Coverage Industry coverage ANZSIC06 groups firms based on similar production functions (see table 19 for the structure of the electricity, gas, water, and waste services industry). The starting point for estimating the asset value of renewables used for electricity generation was the national accounts benchmarks for electricity generation and on-selling industries. To estimate resource rents from electricity generation, we excluded units engaged in on-selling electricity and electricity market operation. We used data from the AES to exclude these units from the national accounts totals. This provides the baseline for computing the resource rent from electricity generation. Units engaged in electricity transmission, electricity distribution, water supply, sewerage, and drainage services are included in the electricity, gas, water, and waste services industry but are not included in the asset values. The resource rents for electricity generators used national accounts data at the working-industry level (electricity generation and on-selling combined). This level of information is considered to be robust. AES had complete coverage of firms in the electricity and gas supply industry (division level). This means sample errors are zero. The top-down approach we used involves using national accounting aggregates and supplementary information to estimate the resource rent from renewables. This contrasts with a bottom-up approach which would be based on firm-level data. We explored a bottom-up approach using firm-level data from AES, but classification issues at the ANZSIC level mean the validity of this approach could not be ensured. The top-down approach is also not subject to confidentiality issues – aside from excluding on-selling electricity and electricity market operation, it is based on publicly available data. However, using national aggregates affects the potential to produce disaggregated estimates, for example, by region. The use of supplementary information, in this case electricity production by generation type from MBIE, results in an assumption that resource rents will be similar for all electricity producers. This may not be the case for all producers, but due to the small number of large companies involved and their structure (ie, where a company may operate stations using several types of fuel) this assumption is necessary to present information for all types of renewables used in electricity generation. Table 19 Industrial classification structure of the electricity, gas, water, and waste services industry ANZSIC06 Subdivision Group Class Electricity supply Electricity generation Fossil fuel electricity generation Hydroelectricity generation Other electricity generation Electricity transmission Electricity distribution On-selling electricity and electricity market operation Gas supply Water supply, sewerage, and drainage services Water supply, sewerage, and drainage services Water supply Sewerage and drainage services Waste collection, treatment, and disposal services Waste collection services Solid waste collection services Other waste collection services Waste treatment, disposal, and remediation services Waste treatment and disposal services Waste remediation and materials recovery services Asset coverage The asset value of and resource rent from electricity generation reflects the role of land form in generating electricity. For example, the land’s slope under a river and the land used for operating a dam are essential to production. However, the role of land in generating hydroelectricity cannot be readily extracted from these estimates. Similarly, land that generates gross operating surplus may also be attributed to other renewable energy assets, such as an exposed or sunny position for wind and solar generation, respectively. Although we cannot separate the contribution from land form we expect its influence to be small. Data quality Stats NZ has taken all possible reasonable steps to ensure the quality of the data. An assessment against the six data-quality criteria for official statistics is presented below. Relevance The estimates include all significant natural capitals used in generating electricity at the national level. Accuracy Key sources of uncertainty are the use of a fixed discount rate and rate of return on produced assets. The use of generation proportions may not capture the relative value of carbon to non-carbon using assets. Resource rents may be higher for renewable assets given they are substantially carbon free. Timeliness Data are consistent with the latest available national accounts release. The report covers data until the year ended March consistent with the latest period available from the national accounts at the time we compiled the latest SEEA report. Future updates will incorporate any national accounts revisions to any year in the series. Coherence/consistency The methodology used here is consistent with guidance in the SEEA. Time-series consistency has been ensured. Data is available from 2007. National accounts data is available from 1987, but for user costs there is greater uncertainty in the earlier part of the time series given the use of constant price rather chain volume productive capital stock in the calculations. For future work we will endeavour to estimate values back to 1996 to enable comparability with the water physical stock account, and to balance these values against data quality. The resource rent and asset values are based on March years, so we recommend caution when comparing these with other environmental information, such as river flow or rainfall which may be in June or calendar years. Accessibility All assumptions and explanations of the impact of these assumptions have been made. Data is available in CSV format with the report. Interpretability The report contains the appropriate information to interpret these estimates. Interpretability can be enhanced by comparing these estimates with river flow and climate data. However, the lack of regional estimates affects the ability for these comparisons to be made. Renewable assets should be placed in context with non-renewable and other environmental assets to fully understand their relative value. References United Nations (2014b). System of Environmental-Economic Accounting 2012 – Central framework (PDF, 4.40MB). MacGibbon, N (2010). Exogenous versus endogenous rates of return: The user cost of capital in Statistics New Zealand’s multifactor productivity measures (Statistics NZ Working Paper No 10-03). en-NZ