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IPW: New Zealand examines costs of local government, global fall in price of renewables

18 July 2022

In this week’s Infrastructure Policy Watch, New Zealand looks at local infrastructure delivery cost efficiency, while IRENA finds dramatic fall in renewable energy prices. 

IPW: New Zealand examines costs of local government, global fall in price of renewables
New Zealand's report looks at how it can get more bang for its buck. Image credit: Shutterstock

New Zealand Infrastructure Commission explores local government cost efficiency

The New Zealand Infrastructure Commission has published a report looking at how the size and structure of local government affects the cost efficiency of infrastructure delivery and performance.

New Zealand faces significant infrastructure investment needs, including at local government level, but is less efficient with its infrastructure spending than other high-income countries.

Building, operating, and maintaining infrastructure more cost-effectively is a major challenge that the New Zealand Infrastructure Commission identified recently.

The report comes off the back of the recent New Zealand Infrastructure Strategy, which set out the need to review the structure of local government to ensure that it provides infrastructure in an efficient and well-coordinated way.

The report identifies that New Zealand has the lowest local government proportion of public investment in the OECD.

Twenty-six percent of total public capital investment in New Zealand is carried out by subnational governments, compared with the OECD average of 49%.

It concludes that countries where local governments play a larger role in infrastructure provision tend to provide that infrastructure more efficiently.

The report also finds that there’s little evidence that local government size in New Zealand affects cost efficiencies.

In addition, there’s a need instead to develop local government structures that can coordinate regional infrastructure and planning.

This is important in growing urban areas that are spilling over existing council boundaries.

ICE’s view

The report explores how New Zealand could get more bang for its buck for infrastructure at a local level.

The challenges it highlights may sound familiar to those who know about local infrastructure delivery in the UK.

ICE’s 2021 paper on subnational action to meet net zero explored what local leaders needed to provide infrastructure to meet their local and regional objectives.

This issue was also discussed at our recent Presidential Roundtable on levelling up.

The participants agreed that more decisions should be taken based on local needs and interests, rather than central government imposing one-size-fits all models..

Some forms of national infrastructure will always need centralised decision-making.

But strengthening the ability for the infrastructure planning and prioritisation system to get it ‘right first time’ is imperative.

A stronger role for subnational actors is essential to achieve this.

International agency confirms that renewable power costs continue to fall

The International Renewable Energy Agency (IRENA) has reported that the costs of renewables continued to tumble in 2021.

This is before supply chain challenges and rising commodity prices, made worse by Russia’s invasion of Ukraine, have yet to show their full impact on project costs.

The global cost of electricity from onshore wind fell by 15%, offshore wind by 13% and solar PV by 13% compared to 2020.

IRENA’s analysis of renewable power generation costs in 2021 shows that 163GW of newly installed renewable power in 2021 – almost two-thirds of the total – had lower costs than the world’s cheapest coal-fired option in the G20.

IRENA estimates that, given the current high fossil fuel prices, the renewable power capacity added in 2021 saves around US$55 billion from global energy generation costs in 2022.

ICE’s view

The current energy crisis is an opportunity for governments to accelerate the push towards low carbon energy systems. These would ensure long-term security of supply and deliver the emissions cuts needed to mitigate the impact of climate change.

The cost of fossil fuels is spiralling in price, while their future reliability is in doubt.

Until recently, the cost of low carbon energy was relatively expensive, but their increased deployment by governments globally has caused costs to tumble.

Most recently, the latest round of Contracts for Difference auctions in the UK allocated 11GW of new renewable power projects at prices four times lower than the current cost of gas. This is 70% cheaper than in the first auction in 2015.

In case you missed it...

Check back in a fortnight for the next edition of the ICE's Infrastructure Policy Watch. You can also sign up to ICE Informs to get a monthly digest of the latest policy activities from ICE, including calls for evidence to support our ongoing advice to policymakers.

  • David Hawkes, head of policy at ICE