Asset value of water resources used for hydroelectric generation in New Zealand

Resource rents: they reflect the surplus value accruing to the user of an environmental asset calculated after all costs and normal returns are taken into account. It is the current market value after accounting for both supply and demand factors, and reflects the immediate impacts of resource use on the economy.
Asset value: it represents the discounted future income stream of water resources used for hydroelectric generation, and the benefits to accrue to future, as well as current, generations.

The analysis was undertaken using economic data from the national accounts (Statistics NZ, 2015) and energy production data from the Ministry of Business, Innovation and Employment (MBIE, 2015) to derive the resource rent for water resources used for hydroelectric generation. The provider used a discount rate of 6 percent to derive the asset value, consistent with Treasury advice for undertaking cost-benefit analyses for water and energy assets

Note that under the net present value approach, renewable monetary estimates for water resources 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 used, but is still valued on the basis of the expected future availability of water.

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Water is an important source of energy that contributes to New Zealand’s energy supply and the economy. As the main source of renewable energy in New Zealand, the use of water supports the production of the electricity industry. Tracking the value of this water as a natural resource – along with land form, slope, and elevation, which all help to generate hydroelectricity – shows the economic benefits derived from water use for current and future generations. Changes in flow regimes and climate can affect these values.

The value of water resources for electricity generation is determined using the System of Environmental-Economic Accounting 2012 – Central Framework (SEEA). This is the United Nations’ standard framework for compiling asset accounts of natural resources. Asset accounts record the stocks and changes in environmental assets in both physical and monetary terms and show the role of natural resources in national wealth. Monetary asset values are calculated by discounting the resource rent of the environmental asset using the net present value approach.