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Method

This chapter outlines how we calculated resource rents and asset values, which industries we covered, time-series considerations, comparisons with previously published energy monetary asset accounts, and data quality.

How resource rent is calculated

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 (see Industry coverage for the subgroups under the electricity generation industry). No appropriate taxes or subsidies on extraction are applicable to this industry, so nothing is added back to gross operating surplus. Table 3 shows the process for deriving resource rent.

Table 3

Deriving the resource rent from environmental assets 

Output

    - operating costs

 = gross operating surplus (SNA basis)

     - specific subsidies on extraction

     + specific taxes on extraction

 = gross operating surplus (for resource rent derivation)

     - user cost of produced assets

 = resource rent

Operating cost consists of intermediate consumption, compensation of employees, and other taxes and subsidies on production. The user cost of a produced asset includes consumption of fixed capital and a return to produced assets.

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 discount rate is 6 percent to be consistent with Treasury recommendations for undertaking cost-benefit analyses for water and energy assets (see current discount rates).

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 6 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.

Coverage

Industry coverage

The Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06) groups firms based on similar production functions (see table 4 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 Annual Enterprise Survey (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 in this report.

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) for the years 2007–15. 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 the 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 in order to present information for all types of renewables used in electricity generation.

Table 4

Industrial classification structure of the electricity, gas, water, and waste services industry
ANZSIC 2006
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.

Some gross mixed income may be captured in the resource rent, but this is likely to be small given that the electricity, gas, water, and waste services industry is a strongly capital-intensive industry.

Time-series consistency

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.

Timeliness

This report covers data until March 2015, consistent with the latest period available from the annual national accounts at the time we compiled this report.

National accounts data is provisional for 2015. Future updates of this report will incorporate 2015 revisions and any national accounts revisions to any year in the series.

Comparison with previous methods

The methods used in this report improve on those used in Energy Monetary Stock Account: 1987–2001 (Statistics NZ, 2005). Because of the differences, comparisons with the 2005 publication are not valid.

Key improvements include:

  • Estimates of user costs are fully incorporated rather than approximated by consumption of fixed capital and a rate of return. The user-cost method is aligned with international best practice as outlined in Measuring capital (OECD, 2009). The rate of return used in calculating user costs is now consistent with that used for producing economic statistics. The previous report used a rate of return of 8 percent.
  • The new industrial classification and AES data allowed firms in the electricity supply industry to be more easily identified, which replaced the use of fixed proportions (from the 1996 inter-industry study). The input-output proportions were only available for one year and therefore invoked an assumption of constant proportions which may not hold. We removed this limitation and potential uncertainty in the estimates.
  • The discount rate is consistent with domestic guidance, as opposed to international recommendations, thereby better reflecting the New Zealand situation. The previous report used a discount rate of 4 percent.
  • We included the asset value of wind and solar resources used for electricity generation. The previous energy account did not attempt to value these resources as they then accounted for a very small amount of electricity generation. However, the contribution of electricity derived from wind resources has steadily increased. Between 2000 and 2015, eight generating schemes that had a generating capacity of 10 megawatts or greater were commissioned. As a result of the increase in installed generating capacity, this report now includes estimates of the asset value of wind resources. Solar-generated electricity supplied by the electricity generation industry is still very small, but these estimates are available so are presented in this report.

Given these differences, comparisons between these estimates and those in Statistics NZ (2005) are not valid.

Quality declaration

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 in fact be higher for renewable assets given they are substantially carbon free.

Timeliness

Data is consistent with the latest available national accounts release.

Coherence/consistency

The methodology used here is consistent with guidance in the SEEA. Time-series consistency has been ensured.

Accessibility

All assumptions and explanations of the impact of these assumptions have been made. Data is available in CSV format with this report.

Interpretability

This 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.

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