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Concepts

This chapter presents the definitions of renewables used in this report. It explains what asset accounts are, including the concepts of resource rent and net present value which are essential to monetary asset valuation.

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, 2014, 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 excluded electricity generated from waste heat in this report.

Energy monetary asset account

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.

Resource rent

Asset value is calculated by discounting the resource rent from the environmental asset using the net present value (NPV) approach. The resource rent from an environmental asset is based on the concept of economic rent. Resource rent reflects the surplus value accruing to the extractor or user of an environmental asset calculated after all costs and normal returns are taken into account (United Nations, 2014, p140). It is the current value after accounting for both supply and demand factors. The amount of resource rent is always derived relative to the returns earned by other firms on average over time (ie normal returns) and may be positive or negative. Economics suggest that a resource rent should be positive in the long term. It reflects the gross return attributable to the environmental asset, or income generated by the use of such assets. The resource rent therefore, reflects the impacts of resource use on the economy. It provides the basis for computing the asset value using the NPV approach (see Net present value approach).

SEEA valuation of an environmental asset focuses on the benefits that accrue to the economic owners of the asset. This focus aligns with the measurement of economic assets in the System of National Accounts. Using consistent definitions and concepts, such as exchange value, makes comparison easier.

Natural resources (such as water) and managed fisheries are examples of extractable renewable resources that can generate resource rent. Water abstracted for hydroelectricity generation is discharged back into the hydrological system. However, one hydroelectricity power station in Southland returns water direct to the sea, which prevents others from reusing the fresh water. This could be defined as consumptive use. However, SEEA treats all discharges from hydroelectricity generation as non-consumptive abstraction, regardless of where in the environment or economy the water is discharged.

Net present value approach

NPV is the method used to estimate the ‘market value’ of natural resources that enable electricity production. SEEA recommends this approach, which is used internationally for valuating non-renewable energy resources.

The logic of the NPV approach requires estimating the stream of resource rents that are expected to be earned in the future, and then discounting these resource rents back to the present accounting period. This provides an estimate of the value of the asset at that point in time. The asset value represents the discounted future income stream of water resources used for hydroelectric generation, and therefore the benefits to accrue to future, as well as current, generations.

An asset valuation calculated using the NPV approach values only the natural resource currently being used for economic gain.

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.

The NPV approach requires:

  • output and user cost of produced capital to estimate resource rent
  • user costs of produced capital
  • a rate of return on produced capital
  • lifespan of the resource
  • a discount rate.
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