Key Components of Legal Framework

• 1. Ownership and access to geothermal resources

• 1.1 What are the rules on ownership of geothermal resources? Can private parties hold ownership of geothermal resources?

  In New Zealand, common law applies, which provides that geothermal resources are incapable of outright ownership until capture.  The taking and use of geothermal resources is governed by New Zealand's principle environmental management statute, the Resource Management Act 1991 (RMA).  Under the RMA, the sole right to tap and use geothermal resources, falling short of explicitly conferring ownership (due to the common law principle), is vested in the Crown.  However, the RMA provides that any person may take and use geothermal resources in which the Crown has an interest, without obtaining the consent of the Crown, provided that the take and use does not contravene the RMA or regulations.  

• 1.2 Who can grant access to geothermal resources, only state or also landowner?

  From a property rights perspective, a landowner is the only one able to grant access to geothermal resources on its land.  However, the RMA establishes an environmental consenting regime for natural resources, including geothermal resources, that is separate from any property rights.   Under the RMA, local government authorities can grant resource consent to take and use natural resources.  Even if resource consent is granted, approval from the landowner to access the geothermal resources will still be required.

  However, the Public Works Act 1981 provides the Crown with the statutory authority to compulsorily acquire land for a public work in certain circumstances in accordance with the Act. The Crown, local authorities, and certain network utility operators (which the Minister for the Environment has classified as a "requiring authority" under the RMA) are the only organisations who can use the Public Works Act. If the Crown, a local authority or a requiring authority intended to take or use geothermal resources for a public purpose, the Public Works Act could be employed in order to acquire or lease the necessary land.

• 1.3 Is exploration/exploitation open to foreign investment?

  Geothermal exploration and exploitation are not subject to industry-specific foreign investment controls in New Zealand.  However, all foreign investment into New Zealand is required to comply with the Overseas Investment Act 2005 (OIA), which regulates foreign investment in New Zealand.  The Overseas Investment Office (OIO) oversees the regime and is responsible for assessing applications from overseas investors who intend to make an overseas investment in New Zealand.

  The OIA requires overseas persons to obtain consent from the OIO prior to giving effect to an investment where those overseas persons acquire ownership or control (either directly or indirectly) of:

  • sensitive land; or
  • significant business assets.

  An investment in "sensitive land" occurs where an overseas person acquires a freehold interest, or a leasehold interest of three years or more (including any rights of renewal), in "sensitive land", or acquires 25% or more of the shares in a company where that company owns or controls (directly or indirectly) such an interest in "sensitive land".  A number of categories of land are classified as "sensitive land" under the OIA. These include parcels of land over a certain size that include or adjoin land of particular significance (being reserves, public parks, foreshore, seabed, lakebed, Maori land, islands, land of historical significance and land held for conservation purposes), or any non-urban land of more than 5 hectares.

  An investment in "significant business assets" is, in broad terms, the establishment or purchase of a business (or business assets) in New Zealand having a value in excess of NZ $100 million, or an acquisition of 25% or more of the shares in a company that owns New Zealand assets in excess of that value (or where the purchase price for the shares exceeds that value).

• 2. Involvement of administrative bodies

• 2.1 Which administrative bodies (ministry and/or governmental agencies) are involved in the licensing of geothermal resources, including licensing and developing?

  Geothermal resources are not managed through a specific licensing scheme in New Zealand.  Instead, they are managed under the RMA, and use is controlled through various planning documents and resource consent requirements.  These requirements are regulated by the territorial authorities responsible for each region.

• 2.2 Do administrative bodies assign any of their respective roles to a third party, including but not limited to a peer review, during the period of exploration, exploitation and/or production of geothermal resources?

  In considering and determining applications for resource consent, territorial authorities will commission independent experts to peer review technical reports and information submitted in support of an application.  

• 2.3 Is there a government policy in place concerning geothermal resources? If so, what is the object and to what end?

   There is no government policy in place in New Zealand.

• 3. Allowed Exploitation

• 3.1 Is exploitation of resources subject to licensing? Do landowners have the right to exploit recourses without a license? If yes, to what extent?

  There is no specific licensing regime for the exploitation of geothermal resources in New Zealand (unlike mineral resources which have a separate licensing regime).  Rather, the environmental consenting regime for natural resources set out in the RMA governs the use of geothermal resources.  Under the RMA, the presumption is that no person can take, use, dam, or divert water (including geothermal water), heat or energy from geothermal water, or heat or energy from the material surrounding geothermal water, unless it is expressly allowed by a national, regional or district planning document, or a resource consent under the RMA has been obtained.  Currently there are no express allowances in any national planning documents so in the majority of cases the take and use of geothermal resources requires a resource consent.  Limited exceptions may apply when regional or district planning documents permit small takes of geothermal resources for purposes such as domestic use or scientific investigation.  Landowners are not exempt from needing to obtain resource consent. 

• 4. Role and voice of landowner or “project affected people” in the licensing procedure and land lease agreements

• 4.1 Does the landowner or any “project affected people” have a role in the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  New Zealand does not have a specific licensing regime for geothermal resources.  In terms of the resource consenting process, a consent authority must publicly notify an application for resource consent if the activity will have, or is likely to have, adverse effects on the environment that are more than minor.  Where an application is not publicly notified, the consent authority must give limited notification of the application to any "affected person." If an application is publicly or limited notified, then a landowner or other affected person may lodge a submission and be heard on the application.

  Property rights are a separate issue from resource consenting.  Before a resource consent holder is able to do any physical works on private land, the consent holder must reach an agreement with the landowner regarding access to the land. For the avoidance of doubt, no exploration or exploitation of resources on private land is possible in the absence of approval from the landowner.

• 4.2 Will an opposition of a landowner or any “project affected people” have a bearing on the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  As above, landowners and affected persons who lodge submissions in respect of an application for resource consent have a right to be heard on those submissions.  In this case, a hearing will be convened and the consent authority will consider the application and the submissions together.

• 4.3 Are the terms of land lease agreements regulated and if so, (i) what is a general timeframe of land lease agreements and (ii) what are the obligations for decommissioning at the end of the term?

  Usually the term of a lease and any obligations on a lessee to "decommission" the premises subject to a lease are commercial terms negotiated by the lessor and the lessee to the relevant lease.  While there are no limits on the length of the term of a lease, a lease of part of an allotment for a term of more than 35 years will be considered a subdivision and be subject to any consent requirements from the relevant territorial authority under the RMA.

  Some covenants are implied into leases by law but only where they are not expressly provided for in the governing lease document.  Relevantly, these implied covenants require a lessee to:

  • not make alterations to any building included in the grant of lease without the consent of the lessor; and
  • at the termination of the lease yield the premises up in the condition it was in at the commencement date of the lease (without being responsible for reasonable wear and tear or damage to the property due to fire, flood, explosion, lightning, storm, earthquake or volcanic activity or any risk for which the lessor has insured the premises)."

• 5. Criteria for granting of a license

• 5.1 Which documents need to be submitted and what is the criteria for obtaining a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  Although, New Zealand does not have a specific licensing regime for geothermal resources, there is an environmental consenting regime that requires certain documentation to be provided in support of an application for resource consent, which is discussed in more detail below. 

• 6. Duration of Licenses and Renewal

• 6.1 What is the maximum duration of a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  Under the environmental consenting regime under the RMA, consents for the take and use of geothermal water and any discharges can only be granted for a maximum term of up to 35 years.

• 7. Terms of License

• 7.2 Are exploration license holders granted pre-emptive rights with regards to exploitation or do exploration licenses automatically convert into exploitation licenses if the resource has been substantiated? If so, are there any conditions?

  As New Zealand does not have a specific licensing regime there are no pre-emptive rights.

• 7.3 Is an exploitation license included in a power plant license or are these licenses separate?

  Please see above.

• 7.4 Are there any encumbrances in place for the licence holder to keep a license, once granted?

  A resource consent will be granted for a specific term.  At or near the expiry of that term, a consent holder may seek to renew the consent, but there is no general protection in place to guarantee renewal.  

• 8. Termination and revision of licenses

• 8.1 What actions by the license holder would warrant revision of exploration-, exploitation- and power plant (generation) licenses?

  In relation to the environmental consenting regime, consent authorities have the ability to change or review conditions on resource consents.  When undertaking such a review, a consent authority can cancel an entire resource consent if there are significant adverse effects on the environment as a result of exercising the consent.  Where a consent authority finds that the conditions of the resource consent are being breached, the RMA provides for a range of enforcement powers and penalties. 

• 8.2 Does the license granting authority license have the power to revoke or terminate licenses? If yes, what actions of the license holder would warrant the termination of the license?
     (i) exploration license,
     (ii) exploitation license,
     (iii) power plant (generation license)?

  Please see above. 

• 8.3 Can the license granting authority set forth conditions into licenses which provide for (i) stricter terms and conditions of licensees or (ii) more lenient terms and conditions for licensees, when such terms and conditions (whether stricter or more lenient) are not otherwise provided for by law?

  There is no specific licensing regime for geothermal resources in New Zealand. For the environmental consenting regime under the RMA, a consent authority may impose conditions, provided that the applicant agrees to the condition or the condition is directly connected to an adverse effect on the environment and/or an applicable planning rule or the condition is necessary to enable the efficient implementation of the consent.

• 8.4 What remedies does the License granting authority have in order to enforce compliance to the terms and conditions of a license, other than by revoking the license?

  In relation to the environmental consenting regime, where a consent authority finds that the conditions of the resource consent are being breached, the RMA provides for a range of enforcement powers and penalties:

  • an abatement notice - this is an official warning that the RMA is being contravened;
  • an enforcement order - this is an order from the Environment Court that may demand compliance with the conditions of the consent, or change or cancel a resource consent; or
  • an infringement notice - where an instant fine is payable.

• 9. Regulatory and information obligation

• 9.1 Briefly outline the surveillance carried out by the regulatory authorities during the license period, e.g. with regards to reporting duties and/or on-site visits.

  Since New Zealand does not have a specific licensing regime for geothermal resources, the environmental consenting regime under the RMA does not include a statutory framework prescribing the frequency, extent, or type of surveillance or other information requirements of consented geothermal activities.  However, consent authorities will usually include monitoring and reporting conditions of consent that are specific to the activity the consent authorises. Such monitoring can be anything from monthly to annually depending on the activity.  

• 9.2 Which information is required to be submitted to regulatory authorities during the license period for the holder of a license for:
     (i) exploration,
     (ii) exploitation,
     (iii) power plant (generation license)?

  Resource consents will usually include monitoring and reporting conditions that are specific to the activity that the consent authorises.  These conditions impose obligations on the consent holder to periodically submit information to the consent authority, such as environmental monitoring and compliance reports.

• 10. Power purchase agreements

• 10.1 Are general terms and conditions, such as duration of Power Purchase Agreements regulated? If no, are there any soft law or general recommendations in place in your jurisdiction?

  Power Purchase Agreements are not subject to regulation in New Zealand.  The only requirement is set out in the Electricity Industry Participation Code 2010 (Code), which requires that any electricity generated over 10MW must be sold to the market, thus leading to contracts for difference to hedge the market price.

• 10.2 What is the permitted or general duration of PPA's?

  Power Purchase Agreements generally fall within one of two types: 

  • Where the project is procured on a project finance basis, linked to the term of the facility agreement, plus a tail; or
  • Shorter term arrangements with rights of renewal.

• 10.3 Are public and/or national regulatory authorities involved in any way in forming the terms of PPA's, either directly or indirectly?

  Although Power Purchase Agreements are not subject to regulation in New Zealand, they have regard to the provisions of the Code. The Code is developed, administered and enforced by the Electricity Authority and provides a set of rules that govern nearly every aspect of New Zealand’s electricity industry including generation, transmission, system operation, security of supply, market arrangements, metering, distribution and retail of electricity.  

• 11. Incentives

• 11.1 Is there any governmental support or funding available for exploration activities?

  application of geothermal resources via allocations to the Institute of Geological and Nuclear Science (GNS), a core-funded Crown Research Institute. One of the objectives of this research is to promote economic development by encouraging the sustainable exploration of New Zealand's natural energy resources.

  There are, however, currently no government subsidies or other financial incentives available for commercial geothermal exploration.

• 11.3 What requirements must the project fulfil in order to be eligible to receive such incentives?

  N/A

• 11.5 In the case of production of electricity from geothermal, are there any incentives/rewards for utilizing the geothermal energy for other than producing electricity, such as waste heat?

  New Zealand's Government or local authorities do not offer incentives or rewards for the utilization of geothermal waste products.    

• 12. Participation and authority of indigenous people

• 12.1 Are the rights of indigenous peoples in connection to geothermal resources regulated?

  One of the central documents in the establishment of New Zealand is the Treaty of Waitangi signed in 1840 between the British Crown and representatives of many of the indigenous Māori tribes.  In recent decades the Government has addressed restitution for past actions that were inconsistent with the spirit of the Treaty through a Treaty Settlements process.  Many settlements have been reached in relation to geothermal interests, as such resources are recognised as a taonga (treasure) over which Māori exercise rangatiratanga (chieftainship).  As part of settlements for Treaty of Waitangi breaches, lands with geothermal resources have been recommended to be returned to Māori.  Settlement has also involved geothermal statutory acknowledgements which recognise the “particular cultural, spiritual, historical, and traditional association with, and use of, the geothermal energy and geothermal water”.  In some circumstances, consent authorities must forward a summary of resource consent applications under the RMA concerning geothermal energy or geothermal water to the relevant Māori entity. 

  The RMA also allows geothermal water to be taken and used without resource consent, provided such use is in accordance with Tikanga Māori (customary practices) for the communal benefit of the tangata whenua (indigenous people) of the area and there is no adverse effect on the environment.

• 12.2 To what extent are indigenous municipalities involved in the process of granting licenses?

  N/A

• 13. Alteration of law and regulation

• 13.1 What are the principles regarding retroactivity of laws and regulations, can changes in such rules affect license holders?

  There is a presumption at common law, confirmed in the Interpretation Act 1999, that enactments do not have retroactive effect.  For example, when the RMA was introduced, licenses that were in force under the previous Geothermal Energy Act 1953 were deemed to continue.

• 14. Taxation and capital controls

• 14.1 How does taxation in the sector affect license holders?

  In general, (subject to the specific rules relating to expenditure on geothermal wells, noted below), entities engaged in the exploration, exploitation or production of geothermal energy are taxed in the same manner as other legal entities in New Zealand under the Income Tax Act 2007 (ITA).  Companies are currently taxed at a rate of 28%.  

  There are specific rules in the ITA that allow depreciation deductions in relation to geothermal wells.  In general, geothermal wells that are capital assets and are available for use in deriving assessable income are depreciated over their useful life in the same way as other such depreciable assets.  However, specific rules permit deductions under the depreciation rules to be claimed during the proving period for a geothermal well, or in respect of failed geothermal wells, which might not otherwise be deductible applying ordinary principles.

• 14.2 Please describe and provide information on the applicable tax rate and resource tax.

  The applicable tax rate is dependent on the entity type used in the exploitation of geothermal resources.

  If the relevant entity is a company, profits earned by a company are taxed at the company tax rate of 28%.

  New Zealand does not currently have a resource tax.

• 14.3 Is the sale of energy subject to VAT?

  VAT in New Zealand is known as Goods and Services Tax (GST).  In general, GST is chargeable at the rate of 15% on supplies (including supplies of energy) made in New Zealand by GST registered persons in the course of their business (or other taxable activity). 

• 14.4 Is VAT refundable and what is the procedure for VAT refunding?

  refund, a GST registered person must file a GST return disclosing their GST output tax liability (in respect of supplies made by them), and the GST input credits (in respect of supplies made to them) or other deductions from output tax to which they are entitled, in the relevant period.  If the total input credits (or other deductions from output tax) exceed the GST output tax liability for the relevant period, the excess is refundable by Inland Revenue (the New Zealand government department responsible for administering taxes).

• 14.5 Is the flow of foreign capital restricted with capital controls? If so, briefly describe the nature of such controls.

  New Zealand does not currently have capital controls.

• 15. Environmental Impact Assessment

• 15.1 What demands are there regarding environmental impact assessment prior to exploration, exploitation and or production of geothermal energy?

  The RMA provides for a resource consenting regime.  Local planning documents confirm whether resource consent is required for a specific activity.  An application for resource consent must be made in the prescribed form and manner, and must include:

  • a description of the activity;
  • a description of the site at which the activity is to occur; 
  • the full name and address of each owner or occupier of the site; 
  • a description of any other activities that are part of the proposal to which the application relates; 
  • a description of any other resource consents required for the proposal to which the application relates;
  • an assessment of the activity against the matters set out in Part 2 of the RMA (being the sustainable management purpose of the RMA, matters of national importance, Treaty of Waitangi and other matters); 
  • an assessment of the activity against any relevant provisions of a national, regional or district planning document; and
  • an assessment of the activity's effects on the environment.

  The Assessment of Environmental Effects (AEE) must include the following information:

  • if it is likely that the activity will result in any significant adverse effect on the environment, a description of any possible alternative locations or methods for undertaking the activity;
  • an assessment of the actual or potential effect on the environment of the activity;
  • if the activity includes the use of hazardous substances and installations, an assessment of any risks to the environment that are likely to arise from such use;
  • if the activity includes the discharge of any contaminant, a description of the nature of the discharge and the sensitivity of the receiving environment to adverse effects; and any possible alternative methods of discharge, including discharge into any other receiving environment;
  • a description of the mitigation measures (including safeguards and contingency plans where relevant) to be undertaken to help prevent or reduce the actual or potential effect;
  • identification of the persons affected by the activity, any consultation undertaken, and any response to the views of any person consulted (however, this does not place an obligation on the applicant to consult);
  • if the scale and significance of the activity’s effects are such that monitoring is required, a description of how and by whom the effects will be monitored if the activity is approved; and
  • if the activity will, or is likely to, have adverse effects that are more than minor on the exercise of a protected customary right, a description of possible alternative locations or methods for the exercise of the activity (unless written approval for the activity is given by the protected customary rights group).

  An AEE must address the following matters:

  • any effect on those in the neighbourhood and, where relevant, the wider community, including any social, economic, or cultural effects;
  • any physical effect on the locality, including any landscape and visual effects;
  • any effect on ecosystems, including effects on plants or animals and any physical disturbance of habitats in the vicinity;
  • any effect on natural and physical resources having aesthetic, recreational, scientific, historical, spiritual, or cultural value, or other special value, for present or future generations;
  • any discharge of contaminants into the environment, including any unreasonable emission of noise, and options for the treatment and disposal of contaminants; and
  • any risk to the neighbourhood, the wider community, or the environment through natural hazards or the use of hazardous substances or hazardous installations.

• 16. Other regulatory requirements or permits needed

• 16.1 What other licenses are needed in order to commence exploration, exploitation and/or production with geothermal energy?

  There are a range of other possible consents and permits that may be required for the exploration, exploitation and/or production of geothermal energy, depending on the specific activity and its location.  Possible consents and permits include:

  • building consent to authorize construction of structures such as power plants;
  • heritage authorities to allow heritage (pre-1900) features to be modified or destroyed;
  • access agreements with landowners;
  • easements to allow for services over private land, such as electricity transmission; and
  • OIO approval to allow overseas companies to purchase or lease land.

• 16.2 Which other regulatory requirements are in place, including but not limited to the need to provide insurances or guarantees, in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy?

  All regulation in connection with geothermal energy is achieved through the resource consenting scheme under the RMA.  There are no additional requirements to provide insurances or guarantees.

• 17. Legislation

• 17.1 Have there been any recent amendments to the legislation for licensing, exploration and/or exploitation of geothermal energy in the last 15 years? If so, have these amendments made a noticeable impact on the increase or decrease of production of electricity from geothermal resources?

  The RMA is frequently reviewed and amended. However, as it is a general resource management statute (and not a specific regime for geothermal energy) such amendments rarely have a specific direct impact on the extent of geothermal energy production in New Zealand.

   Any impact is generally limited to the relative ease and expediency of obtaining resource consent, or in relation to the process for the development of the planning documents that set the framework for resource consent requirements. 

• 17.2 Have any other factors made a strong impact on the production of electricity from geothermal in the last 15 years? If so, for what reasons.

  There is a strong drive in New Zealand towards sustainable energy generation from renewable sources.  New Zealand is well placed to utilize geothermal energy as it is positioned astride two tectonic plates. This has seen an overall increase in geothermal energy production. However, there remain significant barriers to increasing geothermal energy production.  The upfront costs of commercial geothermal projects is considerable, and New Zealand has experienced some adverse effects as a result of its existing geothermal usage.  In particular, the construction of geothermal power plants can affect the stability of land and has caused subsidence in some locations, and some geothermal resources have become depleted, resulting in a visible decrease in geothermal activity.

• 17.3 Is there a specific legislation in place regarding geothermal extraction?

  No, geothermal extraction is governed by the RMA which is New Zealand's primary resource management statute.

• 18. Alternative or cascade use of resources

• 18.1 When applying for a licence, is it possible to apply for one license or authorization, which provides for multiple or cascade use of the resource, e.g. direct and indirect utilization (generation of electricity, district heating and cooling)?

  Under New Zealand's consenting scheme, a separate resource consent is required for each separate activity proposed in respect of the resource.

• 18.2 Could mineral extraction from geothermal fluid be included under such cascade usage clauses?

  N/A

• 19. Water rights

• 19.1 Once an exploitation license has been granted for the operation of a power plant, along with access to fresh water for power plant operation, can the licence allow for sales and distribution of fresh water to local communities?

  In New Zealand, water is not owned.  Resource consent is required to use water and, depending on the terms of the consent, this may allow for distribution.