What’s happening with New Zealand’s Natural Gas and Decarbonisation Markets?

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What's happening with New Zealand's Natural Gas and Decarbonisation Markets?

What's happening with New Zealand's Natural Gas and Decarbonisation Markets?

All businesses need electricity. All people in a modern society like ours need electricity. The trouble lies in finding balance between combatting climate change and generating enough electricity to sustain our population. We all know and understand the importance of decarbonizing given the ominous challenge posed to us by climate change globally. But, New Zealand is a small, remote country which only accounts for 1/15th of 1% of the world’s population of 7.5 billion. New Zealand’s electricity and natural gas markets are inextricably inter-linked. Electricity and gas compete as alternative energy sources, but rely on each other for production. Electricity generation is the second biggest user of natural gas after methanol production by Methanex. Gas is the second biggest source of electricity generation after hydroelectricity.  With this intricate dependence on one another, the effective management of our national energy strategy (including electricity and gas etc) is critically important to our continuing economic health and hence to the well-being of all 5 million kiwis. What impact does prohibiting natural gas exploration have on New Zealand's energy supply? The outright prohibition three years ago of all new offshore oil and gas exploration, is having a profoundly negative impact on the natural gas sector and hence on the health of the electricity sector.  No matter how well intentioned this original decision was, it was not thought through properly at the time. The recent apparent softening of the Government’s stance on the role of natural gas as a transition energy source on the road to 100% renewability is, however, to be commended.  Coal-based electricity generation in 2020 was the highest for a decade. It's unfortunate that, as a result of these policies, coal-based electricity generation in 2020 was the highest for a decade. This coincided with the lowest gas-based electricity generation for nine years. Given that coal emits +/- 1.9 times more CO2, on a gigajoule-for-gigajoule basis than natural gas, this is an environmental step backwards. In this regard, coal imports of +/- 1 million tonnes from Indonesia in 2020 are currently on course to triple in 2021 as we understand it. What other factors impact New Zealand's energy mix? The negative impacts of the above prohibition have unfortunately been compounded by various other negative electricity supply and demand factors since then. These factors have included: Rebounding electricity demand following the Global Financial Crisis in 2008.Back-to-back very dry summers in 2019/20 and 2020/21.The retirement of thermal powers stations like Otahuhu B and Southdown.The inability of new renewable power stations to meet the combined challenge posed by growing electricity demand and reduced thermal generation. Gas and geothermal energy supply in New Zealand is struggling Pohokura has been our biggest natural gas field for some years. During the past two years however, production has fallen sharply for unspecified technical reasons. This decline in gas production has reduced gas supplies available both for gas users and for electricity generation. The prohibition of all new offshore oil and gas exploration, has also meant that there will be no offshore oil rigs available in NZ waters until 2022, at the earliest, to identify let alone resolve the ongoing production problems at Pohokura. Other gas supply options have been constrained in the longer term by the non-renewal by the Government of existing offshore field permits for undeveloped fields, once their initial term had expired. Previously, successive Government’s lead by both major parties renewed these permits unless there was a compelling specific reason not to. Power companies are passing costs on to businesses Seriously damaged gas industry morale has also resulted in a combination of reduced/delayed/cancelled capex in existing gas fields. Competition has essentially collapsed at the big end of the gas market. The profound uncertainty surrounding the shorter term, let alone longer term, future of the natural gas industry has already resulted in Contact Energy vacating the time of use (TOU) part of the gas market as TOU agreements covering supply to larger customers expire. Two other gas retailers have also declined to quote for supply to various existing TOU customers. We are also well aware of other very large TOU gas users (not our clients) who have to use natural gas and have been forced onto punitive spot market-related gas pricing. Major electricity-users like Whakatane Board Mills have also had a huge question-mark over their future due to huge gas-related electricity price hikes. There is still some limited competition in the non-TOU part of the market (impacting smaller customers), albeit at much higher prices. To all intents and purposes, competition has essentially collapsed at the big end of the gas market. What would Total Utilities recommend? Looking to the future, New Zealand must formulate an integrated supply/demand energy strategy covering the transition period until 100% renewable energy is achieved in practice. Much like the cross-party Superannuation Accord in the 1990’s, we need a similar cross-party accord now in this vitally important area. As such, the Government should: Reverse its previous ill-advised decision not to extend existing gas field permits on undeveloped fields.Greatly extend the scope of the existing EECA GIDI Fund/ETA initiatives.Extend the separate Genesis Energy decarbonisation funding initiative to include Mercury and Meridian too. To conclude, the appetite for future investment in the gas infrastructure is key to improving certainty in the market. Not only does it send signals to the sellers of natural gas but also to major users who are often multinational organisations. If it becomes more apparent that investment will be very limited, these organisations could very well leave NZ prematurely, obviously impacting employment, business activity and tax revenue. Business and media enquiries can be made to Total Utilities.

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Energy Pricing is changing fast. How Total Utilities helps you adjust.

By 2050, the government has pledged to eliminate emissions of long-lived greenhouse gases, and to reduce biogenic methane emissions by between 24-47%. This means energy pricing is changing fast! While this is good news for the environment, it requires business to make some major adjustments.  Let's look at the impact of these changes and then the solutions that are available to you. Decline in gas production drives an increase in price New Zealand’s main gas field has been experiencing production issues since 2018. This year, their production is already down by 42%. This significant shortfall is having a heavy toll on electricity generation. By 2030, gas production is expected to be half of what it is now. Gas consumption by sector in New Zealand, 2020 Natural Gas Production Down and Energy Pricing Up Natural Gas or LPG fired boilers have lower emissions than their coal-fired counterparts. But we have seen oil and gas exploration companies already hand in their exploration permits because of New Zealand’s policy changes. Because of this, access to gas is becoming far more restricted. When production declines but the demand is still high, prices inevitably rise. Forecast Gas Production as Reported to MBIE 2020 This has led to an increase in using coal as a substitute. In the South Island, for example, where there is no natural gas, many boilers remain coal fired. Having said that, some are attached to reticulated LPG networks in Christchurch, Queenstown and Dunedin. But by 2022, a ban on new low and medium temperature coal-fired boilers will also be enforced, with a proposal to phase out any remaining coal boilers by 2037. This will severely undercut the feasibility of these coal-fired burners in the near future. How can industries respond to changing energy pricing? 52% of sustainable businesses have an energy strategy You need two action plans: Short-term plan: optimise what you have to get the best bang for your buck now.Long-term plan: understand your options, decide which route you’ll take, and plan how to get there. The good news is Total Utilities can help you now and well into the future. Plus, we’ll regularly review and track your progress. Short term energy pricing plan: optimise what you have For our large commercial and industrial gas customers, we are now seeing an increase of around 180% in cost as they come off contracts signed three years ago. Despite the increase, gas is still a cheaper source of fuel than electricity. But it is fast catching up. As gas supplies further decline, gas prices will only continue to increase. What’s more, the Emissions Trading Scheme (ETS) continues to pose further costs. The chart below shows the upward trend in total costs from raw gas pricing and the ETS scheme over the last three years: Total Utilities Retail Price Index of gas plus ETS costs - 2018-2021 We are helping clients by tracking the trends of retail gas prices and negotiating cost-effective gas contracts. We also help you save money by optimising what you have for the remaining lifespan of your current heating systems. Long term energy pricing plan: switch to sustainability Working closely with the specialists at New Zealand Energy Systems, we help you decarbonise and eventually replace your boiler. We do this by understanding the energy source, the technical options for replacement, and what triggers price changes. Moving from fossil fuels to electricity, or to another renewable energy source will reduce emissions and help New Zealand achieve its goal of being Net Zero by 2050. In some cases, existing coal-fired boilers with decades of life remaining can be converted to burning biomass instead of coal. However, in some regions, such as Canterbury, the supply of woody biomass residues falls short of the energy demand for process heat. Total Utilities considers these variables and complexities in your long-term plan. 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. Here for you now and into the future The team at Total Utilities can help you achieve energy efficiencies for the remaining lifespan of your current systems. We do this by conducting a low-cost study into your energy consumption and identify ways you can save money. Over the long-term, a switch to carbon reduction energy sources makes sense for the environment and your bottom line. That’s why, when you’re ready, the team at Total Utilities can guide you through the switch to solar and other renewable energy sources. Contact us today to turn cost-effective, environmentally friendly strategies into action.

Get your head in the cloud

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.

Articles

Richard steps down as our Managing Director as we welcome Jonathan into this role.

Posted 26 March 2021 by Chris Hargreaves

After over 20 years leading us, Richard Gardiner is handing over the reins to Jonathan Gardiner on 31st March 2021. Today we want to formally thank Richard, look back on how far Total Utilities has come under his watch, and welcome Jonathan as our new MD. Richard Gardiner, Founder of Total Utilities The story starts in 1983 when Richard was transferred by GEC Turbine Generators from Rugby in England to Johannesburg. He worked in South Africa for a decade, initially at GEC before moving to the BOC Gases Group. He studied for his MBA at the School of Business Leadership at The...
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Total Utilities’ sustainability pledge springs into action with Toitū Envirocare CarbonZero certification

Posted 26 March 2021 by Chris Hargreaves

We are delighted to announce that as of February 2021 we are Toitū carbonzero certified. This means our commitment to taking positive action on climate change has been officially recognised.  We walk the sustainability talk by managing and reducing our greenhouse gas emissions, wherever we can, and neutralising our unavoidable emissions. Who is Toitū and what is Toitū Envirocare Carbonzero? Enviro-Mark Solutions is now Toitū Envirocare. Toitū means “to sustain continually”. It asks us to work together continuously to care for our planet, people and communities....
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Tiwai and Meridian's deal: The aftermath of our large energy users and the future of energy in New Zealand

Posted 9 February 2021 by Chris Hargreaves

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...
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Sustainability. Implications for NZ in a Covid-19 World

Posted 17 August 2020 by Richard Gardiner

Back in the 1950’s when I was born, the global population was 2.75 billion and it had taken roughly 2 million years to reach this figure. During my lifetime, the world’s population has nearly tripled to 7.5 billion. This population explosion has helped to ruin pristine wilderness areas from the Amazon rain forest to Africa and Asia and triggered growing competition for resources, including water, to sustain our ever-growing numbers! Human beings and the animals we eat now dominate the planet’s landscape to an unprecedented degree. NZ may only have five million people, but we...
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Cost‐effective solar power system for your business

Posted 13 July 2020 by Chris Hargreaves

The deployment of grid‐connected photovoltaic (solar PV) systems continues to grow at an impressive rate. In 2018, there was a 30% increase in systems implemented and it continues to move forward. Most of this growth involves residential systems, which have an 80% share of the connected capacity in NZ. Where's the growth in commercial solar pv systems? Why are the industrial and commercial sectors lagging behind? The following article was written by Perry Hutchinson, who holds a Master of Engineering Studies in Renewable Energy Systems and has 30+ years of experience designing...
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Energy Savings in a Rising Market

Posted 8 July 2020 by Chris Hargreaves

The retail price of energy for large commercial customers in New Zealand will remain elevated in 2020-21. So what are you going to do about it? New Zealand’s large commercial market for electricity and natural gas has been on a roller coaster ride for the last 2 years, the likes of which have not been seen before. There are numerous drivers that influence market movements. Fundamentally though it comes down to the balance between availability of supply and user demand. Oil, gas, thermal and hydro The Government’s decision to ban future offshore oil and gas drilling put...
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Are You OK? COVID Confessions

Posted 14 June 2020 by David Spratt

Staying Sane When Locked Up This post follows on from Are you OK? which you might like to read as well. Covid-19 Confessions What has occurred to me is just how anxious so many of us have become during Covid-19 lockdown. Simple things like supermarket shopping and big things like keeping business and personal finances on track have all become causes for concern. A friend admitted to reading his young son’s online homework recently. It was a short essay on life in a bubble. “Dad is getting cross a lot” and “Mum’s acting weird sometimes” leapt off the page. He is a...
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