Future Trading Conditions for Energy Market Becoming More Difficult

Articles

Future Trading Conditions for Energy Market Becoming More Difficult

Future Trading Conditions for Energy Market Becoming More Difficult

Until now, articles on the Total Utilities website have always been of direct relevance to the utility markets where we have operated since 1999. In this case, we have included Jonathan Eriksen’s latest quarterly investment commentary below because it puts in wider New Zealand and global context the macroeconomic trading conditions that impact directly and indirectly on the utility providers in New Zealand. I have an economics background and have known Jonathan since I emigrated to New Zealand 25 years ago. He is one of the leading actuaries in the country and his independent investment advice track record is second to none in my opinion. The relevance of this advice to future trading conditions in the local ‘energy’ sector is very clear cut. Global energy market trading conditions are becoming more difficult due to well-publicised political factors including but not limited to the ebbs and flows of the Donald Trump Presidency. The New Zealand dollar exchange is weakening versus the major currencies overseas. We have a small, remote niche economy which has nonetheless been consistently successful over the past 20 years. Focusing on the Liquid Petroleum Gas (LPG) side of ‘energy’, we have an energy source which is non-renewable but which is far ‘cleaner’ than other non-renewables like coal and diesel. Global demand for LPG is growing. There is a great opportunity for LPG to replace coal and diesel locally during the coming 30 year period. However the Government’s recent ill-advised (in my view) prohibition on all new offshore oil and gas exploration will inevitably constrain future local LPG supplies and hence force us to import more. This in turn will increase the proportion of imported LPG (particularly in winter) and hence increase our exposure to LPG price hikes driven by global political and economic forces in general and the Saudi Aramco Index in particular. Investment Returns The NZ Consumer Price Index rose to 1.5% for the one year to 30 June 2018. This was mainly driven by housing, construction, and food price increases. Inflation over the past ten years fell slightly to 1.6% p.a. A number of funds within the Aon Master Trust were added over the quarter, raising FUM by $45 million. Total Master Trust FUM increased by $280 million over the quarter. Funds with a higher proportion of growth style assets (eg shares and property) had the best investment returns for the year to 30 June 2018. The one year weighted average return for all Master Trust Growth funds was 10.6%; Balanced funds 8.1%; and Conservative funds 5.0%. Single Sector Aggressive funds returned 12.0% over the past year on a weighted average basis, while Defensive funds returned 1.8%. Economic Commentary The Trump administration demands to end all imports of Iranian oil have put pressure on prices as some key buyers, namely India, South Korea and Turkey look to source oil from elsewhere. The effects of the restricted supply pool are evident with oil prices still rising. However, it is unlikely that major importers will be able to switch suppliers entirely – at least by the proposed deadline of November. Here in New Zealand, we are seeing our dollar depreciate. International trade uncertainty is one catalyst of this. During times of uncertainty, demand for riskier assets diminishes and the Kiwi dollar is viewed as a relatively ‘risky’ currency compared to many larger economies with more liquidity in their currency market from more transactions. This month, Reserve Bank Governor Adrian Orr released a statement that the OCR would remain unchanged at 1.75%. Also given acceptable inflation and employment levels, we can expect growth-supportive monetary policy for some time. The effects of oil prices, petrol taxes and a weaker currency will flow through to domestic prices. CPI inflation is expected to rise to meet the target midpoint of 2%. However, escalating trade tensions between the US and China are beginning to give investors cause for concern as they could lead to even higher inflation disrupting the global economy. Energy market players are looking at rate hikes by the US Federal Reserve to quell this inflationary pressure. The ripple effect will eventually hit us, resulting in the RBNZ raising the OCR. The expectation of higher short-term interest rates is supported by the US 10-2 yield spread curve which is at its lowest point since the 2008 recession. Bond investors are becoming increasingly more comfortable accepting lower yields for longer-term bonds. Historically, significant troughs in the yield spread have been followed by an economic slowdown. This was the case in both 2001 and 2007 (although it is not always the case). The past does not always offer accurate predictions of the future, but there is some evidence in support of less optimistic economic forecasts going forward. The changes in investor sentiment and outlook over this calendar year are particularly relevant. Last year the world enjoyed synchronised growth, low inflation and stable low interest rates which supported economic expansion. Oil prices below $60 a barrel was considered sustainable and reasonable. This year the price of Brent Crude has reached $75 a barrel, interest rates in the US are projected to continue to rise steadily and inflation is starting to rise. This is worsened by the beginning of trade wars which can only increase consumers costs. They also raise geopolitical tensions and may derail global trade. In this current climate of low interest rates and weaker currency in Australia and New Zealand, overseas buyers have pushed up share prices. Our equity market offers attractive dividend yields at relatively lower price to earnings ratios. In other words, you get more bang for your buck. The inflow of foreign capital will help companies grow while people are buying. Conversely, it would be potentially harmful to equity markets should they sell their positions. However domestic inflows from the SGC (compulsory Super in Australia) and KiwiSaver are also supporting local markets. KiwiSaver Over the past few years funds with a higher proportion of shares and property have seen some stellar returns. This has led to a number of investors who are invested in the more conservatively invested funds to ask: why their returns are so much poorer in comparison; and whether they should switch to a more aggressive style fund to begin reaping these same rewards. Our response is this: hindsight is a wonderful thing! We suggest to investors who have invested more prudently over the past few years to avoid a switch to growth options now. There would be nothing worse than jumping into a fund with a riskier asset allocation profile, after years of investing cautiously, to find that the markets take a dive just as they make the switch. After 30 years of falling interest rates and almost a decade of rising stock markets a correction will certainly happen. The only question is whether it’s this year or next?

Caution urged on New Zealand's 'gung-ho' climate change approach

Caution urged on New Zealand's 'gung-ho' climate change approach

This excellent article in Energy News says it all for me. A reality check which deserves to be published in the mass media! Unlike New Zealand politicians who are only interested in scientific research that validates their particular view of the world, this acclaimed Cambridge University academic knows what he is talking about and has no ideological axe to grind on Climate Change. - Richard Gardiner, Managing Director, Total Utilities. The following article was originally written by Gavin Evans and published on Energy News Michael Kelly has nothing against walkways and cycle paths. Public transport also has a lot of benefits, but none are great options for New Zealand to be looking at as emission reduction measures, the UK-based technologist says. There may be a lot of arguments for building a rail line from central Auckland to the city’s airport but it won’t do anything material for emissions, he told regulators and industry executives in Wellington last week. New Plymouth-born Kelly, Emeritus Prince Philip Professor of Technology at the University of Cambridge, is frustrated by the absence of intellectual rigour in the responses being proposed to climate change. The world does not have unlimited resources to throw at the problem and -- as an engineer -- he wants to see initiatives and options developed that deliver the biggest “bang for the buck.” What he sees instead - here and overseas - are wish lists. “There is so much of what I regard as a lack of engineering integrity in the debate, which really actually makes me angry and sad.” Real action on climate change Kelly wants to see action taken against climate change - but he believes the cost, the time-scales involved, and the uncertainty of some of the science - favours more of a focus on adaptation than mitigation. For New Zealand the Productivity Commission’s focus on afforestation of marginal farm land is compelling and should be the main focus of further studies, he says. The next priorities should be on research and development to reduce methane emissions from stock, and ways to increase exports of processed wood, thus extending the duration of emissions captured in timber. But many of the other recommendations of the commission, and most of those of the Royal Society of New Zealand in 2016, are “futile gestures” he says. They are either too costly, unworkable, or – in the case of increasing renewables in power generation or reducing domestic coal use –  already happening without much intervention. Promoting walking, cycling and use of public transport are all positive for other reasons, but the emission reductions are small and only make sense in very dense cities. Kelly estimates the cost of the carbon saved here from such measures at more than $500 a tonne. Kelly says people tend to look at the scale of China’s investment in renewables as some sort of “beacon of hope” without also recognising its on-going investment in coal, gas and nuclear. “So this idea that somehow around the corner we are going to be having a new age of renewable energy is just simply nonsense.” “Renewables do not come close to constituting a solution to the climate change problem for an industrialised world.” Kelly observes that about 40 per cent of the world’s emissions still come from the smoke stacks of coal-fired power generation. Currently that CO2 can be extracted at a cost of about USD $60 a tonne to USD $90 a tonne. By 2025 those figures could be down to USD $25 to USD $40. Promoting other options costing five to 10-times those figures is simply “burning money,” he says. But all these initiatives also come at a cost to energy productivity and Kelly is concerned people haven’t thought about the long-term consequences of that. Energy determines quality of life and intervention should only be pursued in the clearest of cases, he says. And the energy system accounts for about 9 per cent of the global economy. CO2 extraction reduces the efficiency of coal-fired plants by almost a fifth – taking their performance back to 1960 levels. But the impact of lower-returning renewables could be more stark. Productivity decline? Kelly cites studies of Spain’s investment programme in solar in the 2009-2012. Even assuming free panels, the projects over their lifetime will deliver only five-times the energy that was used to build and operate them. That’s in contrast to the 10-times return from a coal-fired plant, or 15-times for a gas-fired plant in the UK. Kelly says there is an established correlation between a community’s energy productivity and the health, education and cultural benefits it can provide. “The world is running on 11-1. We don’t notice this at the moment, but once solar energy becomes a large fraction of the total energy mix this is going to show up as a lack of productivity and nobody seems to discuss that.” Another factor that may temper the take-up of renewables is the expectation that more than half the world’s population could be living in dense megacities by 2050. In those communities, rooftop solar can’t deliver enough energy for all those dwelling in high-rises. Land surrounding cities like Beijing, Hong Kong, Singapore, Moscow, Rio de Janiero, London and Calcutta may also be too valuable for agriculture to give it up for solar arrays and wind turbines. Kelly is optimistic new food technologies – like aeroponics – will ensure that the world’s megacities are self-sufficient for at least basic food stuffs. They are also where the world should put its focus for emissions reduction, but he’s not sure renewables can play a big part in that. He believes nuclear energy and fossil fuels will remain the mainstay for them. Carbon capture and storage may be an option, but it does reduce generation efficiency, its development is slow and it remains unproven at scale. Given the impacts of climate change have not been as severe as some predictions during the past 20 years, Kelly says his “greatest hope” for the megacities, and the globe generally, lies in a demographic change underway for the past 40 years. Everywhere where there is universal primary education and more people live in towns and cities the local population is in decline – where the average number of children per family falls below 2.1. Kelly notes that in Italy the rate is down to 1.2 and in Germany 1.4. In Botswana and southern India the rates are nearing 2.2. The UN is picking the world population to reach nine billion by 2050. But the rate of growth is slowing and in some models the range of potential outcomes includes a decline soon after. “The chance is that in 2150 the population will be seven billion and going down - that is the answer. “The change in the world demographic now is going in our favour,” Kelly says. “It’s a matter of getting through the next 30, 40, 50 or 60 years.”

IT Security for New Zealand Businesses – The threat within

Data protection is the process of safeguarding important information from corruption, compromise or loss. Many of us will have watched with some concern the ongoing reports of hacking, ransomware (where a hacker locks or encrypts your company data and demands a ransom before releasing it) and data theft by outside agencies. IT Security Threats Pose New Risks for Owners and Directors As owners and Directors of businesses in this country, we cannot ignore the real risks presented to our companies by theft or destruction of company data. Stricter laws governing Director’s responsibility make risk management and mitigation very personal. Henri Elliot, Founder and CEO of Board Dynamics commented to me recently, “It is essential Directors take a strong position on all forms of risk. Risk should be on the Board’s agenda each month and should be appropriately categorised. For example – is a staff member taking a list of clients a company policy issue? An HR issue? An IT security issue? In truth, it is all of the above and Directors need to take a holistic approach.” Security Risks Are Mainly Internal The scary thing when we consider the risks around IT is that it is not the sneaky Russians or the depraved teenage geeks who represent the real threat to most businesses. In fact, it’s often quiet Jane from Finance or good old reliable Mac from Sales who represent the real and present danger. If you think I am being a bit dramatic (and my wife would agree with you) think again. Here are a few things that should give you food for thought. Nearly two-thirds of employees surveyed, who leave an organisation voluntarily or involuntarily, say they take sensitive data with them. That is a real wake-up call when you consider that your staff will almost inevitably have access to sales and customer records, design secrets and new product plans. Nine out of ten Information Technology (IT) staff surveyed indicated that if they lost their jobs whether through redundancy or by firing would take sensitive company data with them. Techies are extra smart, often socially inept and prone to impulsive behaviour when stressed. Just because Jason the geek is a bit dishevelled in the morning doesn’t mean he is not capable of revenge served cold. So how does Jane, Mac or Jason walk out the door with your most valuable secrets? In truth, they probably don’t. Your worst enemy is email. Over a quarter of data, thefts have been as simple as attaching a file to an email and sending it home or to a friend. Next on the IT security threat list for most small to medium businesses is that convenient friend, the USB stick. In many cases, these data downloads start quite innocently with your trusted person downloading files, so they can work from home.  It’s only when they are preparing to leave that the true value of the customer list they downloaded becomes clear. I can dwell on ways you can lose your company data, but in truth, this only serves to make you overly fearful. Instead, let’s look at a couple of the signals that your data may be at risk. Signals Your Data Might Be at Risk  Negative Work Events Laying off or firing staff, whatever the reason should be a signal that your data is at risk. A huge proportion of internal IT security failures come from a desire for revenge. If you are planning to terminate a staff member it is important that you monitor that person’s behaviour. A surge in large data files being downloaded or emails to an unusual address should be a huge red flag. Complacency In many cases, data security failures are just a case of staff members, managers, or owners who just don’t get it. Data is valuable only if you see it that way. The signals of complacency are often clear. You should be troubled by people violating simple IT security policies like keeping passwords protected. It is the company who will pay and the staff who end up with their jobs at risk if you ignore the knowingly irresponsible behaviour. Next month I will run through the key things you can do to reduce the risk of insider security threats without treating your much-loved people as if they are criminals.  

Solar in a Renewable Based Energy Market

It is well known that in New Zealand, energy generation is largely renewable. Around 65% of generation is hydro-based mainly in the South Island and around 15% is geothermal based through the central to the eastern side of the North Island. In the following series of articles, we will look at the pros and cons of commercial solar installations in the New Zealand market. During the last National-led Government, there was little emphasis placed on increasing the uptake of large-scale Solar (with the current Labour-led Government this may change) as it was seen merely as converting from one form of mostly renewable generation to another with little overall benefit to New Zealand’s energy generation emissions. This is because the vast bulk of our thermal based load is only utilised during times of long-term dry weather (mostly during Winter periods) or intermittently when other generators are out for short-term planned or unplanned maintenance. While Solar energy generation has been around for well over 30 years, it has only recently that economies of scale in efficiency and cost have meant that generating energy for photovoltaic panels is a realistic option for some businesses to reduce their reliance on the main transmission and local distribution grids. A recent study published by Statistics NZ and the Ministry for the Environment concluded that sunshine hours are increasing in most areas across the country. However, there are areas throughout the country that have a more natural fit for installing Solar due to a combination of sunshine hours and the costs of energy and transmission and distribution energy pricing. The recently announced ban on offshore oil drilling and gas exploration will have a major impact on the energy requirements of the country. From the generation perspective, Genesis’ Huntly power station will be most affected. While the original Rankine units are expected to be operated through to around December 2022, the newer 400MW combined cycle generator may have an uncertain future. From an end user perspective, food manufacturing will be most greatly impacted by a lack of gas supply or higher costs due to imports which is most likely lead to manufacturing moving offshore or higher prices for consumers. However, I digress, although the above will most likely have a positive impact on the feasibility of distributed generation. Regulatory change and reform have always had a large impact on New Zealand’s primary sectors, and since deregulation of the energy system in 1999, successive governments have used the market for political capital by consistently tinkering and influencing the market. With the upcoming wide-ranging government inquiry into power pricing in New Zealand, the newly created Climate Change Commission and the Transmission Pricing Methodology Proposal one thing is for certain is the constant potential for change.

New Branding and New Services

Intelligence without ambition is a bird without wings. Drawing is the honesty of the art. Salvador Dali Today Total Utilities announces its new branding. Over the last 18 years we have worked hard to assist companies in controlling consumption and cost. It's an exciting day for us and we are proud to share this with you. From today you'll see a change in the way we look, including our new ribbon logo. The spherical shape represents the whole as we take a 360 degree approach to understanding our clients and their utility requirements, whether it be Energy, Waste and ICT or Insights, Strategy and Solutions. What doesn't change is our desire to create a sustainable future for New Zealand businesses and how they manage their utilities by continuing to deliver ongoing value for our clients. We continue to work hard to provide new services to assist our clients such as Energy Monitoring and Targeting through wireless non-intrusive energy senors, Cloud Computing Analytics for consumption of computer services and qualitative and quantitative reporting aligned to overall financial strategy. Total Utiltities About Us Presentation We remain committed to delivering a personalised service and assisting our clients navigate a rapidly evolving commercial market place by underpinning strategic thinking. I would like to thank our existing clients for your continued loyalty and confidence in our company. To prospective clients, I hope that you will partner with us to discover real world solutions for sustainable utility consumption and cost optimisation.

Articles

Cost Savings Stack Up on Electric Vehicles

Posted 12 June 2018 by David Spratt

In this fourth and final article evaluating whether electric vehicles are a fad or the future, I conclude they are indeed the future. I can feel the cold chill of the climate change deniers and petrol heads breathing down my collar as I write. I love a grunty V8 as much as the next Kiwi. But the words, “Show me the money”, aren’t restricted to a Tom Cruise movie. Yes, there are issues around the distance range, price and style options of electric vehicles (EVs). Yes, you will require a three-phase electricity supply if you want to charge your EV in less than eight hours....
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Plenty of power for electric cars in NZ

Posted 9 May 2018 by David Spratt

In this Part III examining whether electric vehicles (EVs) are a fad or really are the future, we consider the implications for the supply of electricity and more. What happens when New Zealand stops importing oil and substitutes it with hydro, geothermal, solar and wind energy to make our cars and trucks work? To start with, New Zealand would move from a current account deficit to a budget surplus. That’s good news all round. Save money on oil, save the planet, sleep easy at night. Except… There are 3.9 million registered cars and trucks in New Zealand. They consume $11.8...
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How energy data will transform your operations

Posted 9 May 2018 by Chris Hargreaves

Many businesses begin collecting energy data as a means of saving energy – and energy costs. While this remains one of the greatest benefits of energy data analysis, its appeal does not start nor end with direct financial considerations. In fact, focusing only on energy savings has led to an underestimation of the full value of data-backed energy management in global economies. Across all sectors – from manufacturing to retail to healthcare – organisations are harnessing the operational efficiency benefits that result from energy data like never before by: Assembling and...
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Driving Decisions on Buying Electric Vehicles

Posted 4 April 2018 by David Spratt

Last month’s article on electric vehicles elicited responses ranging from “hippy, coombyah, PC, Greenie horse poo” through to “Where can I get one of these gosh darn, new-fangled, electric buggies?”. Thanks to you all for your feedback. Rather than take sides in the debate about whether or not we should be buying electric vehicles, let’s examine the drivers that inform the decisions we will all make around which vehicles our companies buy. Price Electric vehicles are expensive. Buying electric vehicles today, we can expect to pay BMW prices for Corolla performance. As...
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Infusing New Operational Intelligence into Old Equipment

Posted 23 March 2018 by Jon Rabinowitz

A client of ours recently installed energy sensors across two areas of their facility. One area is significantly old using good practice equipment for the time, the other brand new and utilising advancements in equipment technology. Both areas are similarly sized and perform the same operation, however, measuring energy performance between the old and new will provide our client with real insights when making future strategic decisions. While our client operates a large portfolio of facilities around the North Island, they are using this specific site as a sandbox environment, a...
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Electric Vehicles – Future or Fad?

Posted 2 March 2018 by David Spratt

True story. An employee took the flash new company Electric Vehicle (EV) up North on a sales trip. On the way home, they realised that the battery charge was running out so stopped in a small town to find a charging point. There was, inevitably, no charging station for electric vehicles so they rang the tow company and got a ride home alongside a towie with bad breath and even worse body odour. Back at work, the boss pointed out the switch that turned the hybrid vehicle back to petrol power.   My point? Electric Vehicles (EV’s) are still a bit of a mystery both to their users...
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