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New Zealand Aluminium Smelters has struck a new deal with Meridian Energy which means the smelter will remain open until at least Decemeber 2024. We don’t yet know the prices that Rio Tinto has agreed with Meridian, but Forsyth Barr estimates that Rio will be paying a contract price of 3.5c/kWh. Compare that with large energy users across the country, who are paying over 11c/kWh. Last week, the news pushed already elevated ASX energy futures higher. Customers leaving contracts on or around a raw energy price of 8.5c/kWh struck 3 years ago are now facing, on average, raw contract pricing of 13-14c/kWh — an increase of 65% or more. Is pricing sustainable for large users? ASX Energy Futures climb higher and higher In July 2020, when the market was expecting a full exit from Tiwai by the end of 2021, pricing fell significantly. South Island consumers were especially fortunate — Total Utilities helped customers negotiate raw energy pricing around 6c/kWh. North Island pricing also fell from around 12c/kWh to 9c/kWh. New Zealand’s large commercial businesses are paying a premium for the smelters continued electricity supply in the current electricity market. And it’s not just electricity pricing that has increased, but gas too, with prices moving from around $5.50/GJ to over $9/GJ in the last three years. Transmission pricing hasn’t changed. Yet. But it is almost certain that Tiwai will see transmission costs reduce, while the rest of the country is left to pick up the upgrade bill when Manapouri gets connected to the Clutha Upper Waitaki network. Additional energy and gas costs cannot just be absorbed by consumers, particularly in the primary and food production/storage sectors where energy-intensive operations exist. The cost of living will continue to inflate, while income increases will struggle to keep up. Looking forward The government-commissioned review conducted by the Interim Climate Committee in 2019, recommended New Zealand transition its energy sector to 100% renewables while keeping pricing affordable. To quote: “To achieve these emissions reductions it is vital that electricity is affordable in order to encourage switching.”  Overcapacity of generation must be built between now and 2030, while an increase in gas-fired peaking plants is needed to ensure a secure supply.  Future path requires significant investment in new wind and solar generation In the current market, there is no incentive for an oversupply of energy production. Instead, due to basic supply and demand principles, constrained generation allows producers to make tremendous profits.  In large part, the Government has ignored the 2019 report and instead focused on the proposed pumped hydro scheme at Lake Onslow. This multi-billion-dollar project won’t be commissioned in the short-term and is located well away from high energy demand areas. The government would gain faster traction if they subsidised microgeneration and battery storage. Gas production is still a major and immediate concern, with New Zealand’s largest gas more or less 35% down on expected volumes. Remedial work and new drilling projects are unlikely to start until early 2022, so it'll be some time before gas supplies return to “normal” levels.  Generators have various projects to increase renewables-based generation. These will not likely come into service until after 2024, though. A lack of clear market strategy means timing and development have been poorly managed. The “just” transition to renewables is underway, but who exactly is it “just” for? A window into the future On 31st January, 2021 He Pou a Rangi/Climate Change Commission released a 2021 draft advice for consultation report. This report delivers more focused advice that the government would be wise to follow to stand a chance of reaching our country’s zero emissions target. The energy prices that businesses are paying now is a result of uncertainty and not having enough renewables-based generation to meet dry year demand when gas supplies are constrained. This is not sustainable. From page 81 of the report: “Future electricity prices are uncertain due to a range of factors, such as the weather, gas availability, future infrastructure requirements and pricing structures.” The report clearly shows that we need more energy generation, that we should accelerate and incentivise the move to electric vehicles, that we need to make the transition affordable and attractive to businesses and families, and that natural gas plays a role in helping us get there. And it asks if we should do what we can to retain and retrain the incredible talent that exists in the natural gas sector instead of losing them to offshore contracts. Building more wind and solar generators is money and time well spent, as this will increase energy supply, and translate to lower energy prices. That’s why new renewables-based generation needs to be built and fast, otherwise energy pricing will only remain high and increase further as we decarbonise the economy. As page 112 of the report so clearly puts it, “For consumers and industry to invest and convert to electrification, they need to have confidence that electricity will be available, affordable and reliable.” What can you do? The harsh reality is that the cost of energy is going up. Without significant new generation being commissioned and the ongoing gas supply issues, costs are unlikely to fall again in the next four years.  That’s why we recommend you review your pricing and go to market early, as prices are front end loaded. You could potentially get a better price well in advance of your contract end date and lock it in. Alternatively, having a second round is always an option closer to contract-end. We've given a considered view of where pricing is heading in this blog, but it could be conservative. In any case, budget for a serious increase in costs.  If you want to mitigate rising costs, the best thing you can do is reduce the amount of energy you consume from the grid. You can achieve this by understanding what you consume and optimising your consumption and generating your energy onsite (through solar panels or similar renewable sources).  With increased energy pricing on the cards, now’s the time that you get significantly more bang for your buck when you invest in energy and carbon reduction projects. That’s why the team at Total Utilities are here to help you achieve energy efficiencies and, when you’re ready, guide you through the switch to solar and other renewable sources. 

Why cloud is crucial for a sustainable business, and how to choose the best option. The Covid-19 outbreak has reinforced two lessons for businesses – the importance of cloud-based services and the need to ensure their model is sustainable. Cloud platforms have really come into their own, providing accessibility for remote workers and customers, while providing the ultimate scalability for businesses facing an uncertain future. But in a world where both the economy and environment are facing unprecedented challenges, it is more vital than ever for business owners and CFOs to make informed business decisions. Choosing the right cloud option can be daunting, and a truly sustainable business needs a clear understanding of the financial and business case drivers to help make the right decisions. Review the business model Changes are happening at a rapid pace in today’s business environment, with many companies looking at downsizing and improving their remote working capabilities. Even beyond the extremes of a pandemic, acquisitions, new ventures, upturns and downturns all provide daily challenges for senior managers. Over the last few years, the focus of major decision-makers has moved away from in-house tech infrastructure and experts and towards more flexible and agile cloud models and platforms like Microsoft Azure that best fit their way of working. Before making any investment in IT infrastructure or platforms, ask whether they can adapt if your business needs change in the future. Nothing illustrates how quickly the business environment can change as the infographic below. The infographic shows the vast drop in consumption of electricity since Covid-19 hit New Zealand. Many businesses were unable to operate from their normal offices and stores. While most have adapted to working from home, the shutdown had a huge impact on commercial electricity consumption. While major industry consumes a third of all our energy, the wider commercial sectors consume a further quarter of New Zealand’s electricity demand. It is this quarter that we can reasonably assume to have almost completely evaporated when the lights went off. Although the future is opening up and consumption is starting to rebound, businesses are now focused on new ways of consuming energy or delivering services. Many CFOs and CIOs are trying to figure out this new way of working and how it affects their own businesses. The days of the road warrior salesperson may be coming to an end. How we engage with, incentivise and add value to our clients will look very different, as some may prefer a call from the office or a virtual meeting to a corporate lunch. Customers too will be feeling the impact, with online engagement becoming the predominant form of communication, and Microsoft Teams, Zoom, and Hangouts becoming an integrated part of working culture. In addition, Covid-19 has caused a large shift in the global economy and supply chain. Secure production and supply are increasingly of greater importance than the cheapest or most efficient options, which has led to a greater focus on in-house production, multiple suppliers or regional stockpiling. The result of all this is we can no longer trust the stability of the surrounding environment. While we may see some return to the old ways of working, some business processes will never be the same again. Business managers therefore need to be prepared to constantly review business models and consider whether their technology needs are still being met by their current system. This will help ensure their business remains sustainable in a world that can change drastically in what seems like a second. Plan for the rebound Businesses are now furiously planning ahead for the future. Many will need to start scaling up or down to stay on track with fluctuating demand. Working through the challenges including staffing, supply chain logistics, stock management and managing demand will impact most businesses, not to mention the increasing expectation they will reduce their environmental footprint. Kiwifruit producer Zespri is a classic example of how to approach this kind of situation. In 2010, it was dealing with the PSA Virus, which caused entire crops of kiwifruit to fail. The popular gold kiwifruit was the most affected variety, spurring Zespri scientists to research a resistant strain. They knew the situation could have gone either way – with the opportunity to double production if the new strain was successful or ultimately halve if the research failed. Zespri was concerned about having enough computing power to cover existing demand while preparing for both the best- and worst-case scenarios. With support from Total Utilities to assess its existing IT costs and consumption, Zespri was given a list of options that projected the business outcomes and costs for each. It could either continue managing and maintaining its own data centre, outsource its data to another local vendor, or switch to the public cloud so it could replicate the same platforms around the world. Zespri chose the latter, moving its infrastructure and associated platforms onto the Microsoft Azure Cloud. This decision helped Zespri cover a multitude of potential problems by removing the financial risk of investing in its own tech infrastructure, allowing rapid expansion of a global supply chain and delivering detailed cost control mechanisms. Providing Zespri with financial operations toolsets allowed it to efficiently manage costs and consumption, which was repaid as Zespri’s research gamble paid off and the business grew in scale. Measures such as “cost per tray of kiwifruit shipped” have become an important way of tracking success. Zespri has used subscription cloud services as an effective way to manage, analyse and contain its costs ever since. Not only does that mean Zespri is able to adapt its model to any scenario, not having a data centre on site reduces both energy consumption and space. The business is therefore more sustainable in every sense of the word – something consumers around the world increasingly expect. Microsoft itself has committed to removing all carbon it has ever emitted directly or by energy consumption from the environment by 2050, reinforced by its pledge to support New Zealand’s sustainability goals through its new datacentre investment. As every organisation on the planet is challenged to review its impact on the environment, choosing greener IT options is a great way to minimise your footprint. As the adage goes, the only certainty in life is change. While an upfront investment during downturns can be daunting, the best way for any business to safeguard its sustainability long-term is to invest in an IT system that doesn’t become obsolete, that meets modern expectations around environmental impacts and which allows workers the greatest accessibility in an era when many of us are now working remotely. And that means embracing the cloud. Ensure resilience A resilient network and good technical support are essential to every modern business. There is an expectation for email, purchasing or sales automation to be working around the clock. Software updates, testing or hardware failures are no longer an excuse for disrupted services, which can instantly see customers go elsewhere. Just five years ago, businesses were put off moving their platforms and operations to the cloud because they weren’t sure about achieving the level of compliance and technical competence they needed to operate the systems. Every business we consulted felt the skills to manage cloud migration were a barrier to digitising their operations, and that only in-house experts could provide the support needed. That figure is now just 40 per cent. Trust in the cloud and cloud providers to manage their businesses and tailor their services to their needs has skyrocketed. Likewise, secure and reliable connections are more available than ever. While some thought the demand put on the internet during this period of working from home wouldn’t hold up, the Covid-19 lockdown has proven how resilient the internet can be. It is a credit to our network providers, whether fibre, copper or mobile data-based, that these services have remained largely in place as millions of people have suddenly put tremendous demand on capacity. This shows that network availability is no longer a constraint holding back businesses from placing their operations and services in the cloud. Those organisations using public cloud services are also better placed to combat the predatory players who sought to take advantage of the situation via scams and cyber-attacks, with regular security upgrades not available to those using an outdated server in the back office. No longer can you place your trust in simply ‘doing it yourself’. Instead, managed cloud-based services can prove more secure and reliable. Security and connectivity is complex to establish and even more challenging to maintain, especially when scarce, skilled resources are in high demand. Establish good financial governance Whichever cloud service you use, make sure to choose a partner or platform that can provide real-time analysis and reporting so you can see exactly how it’s working for your business and change your plan if you need to. Governance, cost control and resource efficiency have always been top priorities for businesses. Now more than ever, businesses are focused on getting the best value for money from their technological solutions while growing a sustainable business. One thing cloud-based platforms do very well, thanks to their sheer accessibility and ease of use, is enable workers to use a huge range of resources and implement their own changes and updates. However, if unconstrained, this can result in wastage and bill-shock. While governance and budget setting have provided the framework for cost control and planning for decades, moving to the cloud requires a new level of collaboration between Finance and IT. Ensuring these two teams remain communicative through the cloud integration process is vital to ensuring it runs smoothly and efficiently, that the right functionality is baked in from the beginning and there are no budget surprises.  As well as close co-operation, the key to ensuring total visibility and that cloud services are providing the best value, is using a monitoring service to provide real-time data on how cloud is being consumed across the business. The best services can illustrate exactly how resources are being used – either energy or data – and enable CFOs and other decision-makers to rapidly change to new plans that are better for the environment and the bottom line. Clear and regular reporting is essential and takes a great deal of time and effort out of maintaining good governance. Cloud is the future of many businesses and in a time of so much change and uncertainty, it is important to know your business has a model it can rely on to save costs and make governance far less onerous. To know that your business is making most of out your cloud service, make sure you have reporting in place so you can accurately reflect usage in real time, limit your expenses and energy consumption and create a business model that’s truly sustainable for many years to come.