New Zealand’s energy landscape is facing a perfect storm. With hydro storage at historic lows and natural gas production declining, energy prices are surging. As we turn to costly imported coal, the impact on electricity costs is significant. In the following article, Total Utilities Director Chris Hargreaves delves into these challenges and their implications for our energy future.
The New Zealand Electricity market relies heavily on hydroelectricity, which accounts for approximately 60% of total generation in most years. This is supplemented by other baseload generation sources that are available 24/7, including geothermal, natural gas and coal.
Despite New Zealand’s significant hydroelectric capacity, our water storage is limited, usually providing only six weeks of coverage, and often dropping below 30 days during winter. To address this, natural gas and coal are used to manage water storage and provide a top up to meet energy demand.
From a hydro storage perspective, May 2024 was the driest on record. And as of 22/07, total water storage has fallen to 31% of total capacity, which is around 55% of average levels for this time of year. In addition to this, our domestic production of natural gas has been steadily falling since 2018, meaning that natural gas is used less and less for electricity generation.
Why is this important? Because if natural gas is not available, we have to use coal. This carries a much higher marginal cost as we import coal from Indonesia, and costs associated with the emissions trading scheme are much higher than natural gas (for further insights on gas production and consumption and historical electricity risk curves check out Gas Industry Co and the Electricity Authority).
The Coal Cost Dilemma
While you might say, ‘great, we have an alternative fuel source to keep the lights on,’ the downside of using coal is that it sets the price of the electricity wholesale market and drives forward retail energy contract pricing higher for large commercial and industrial customers. Lower priced forms of electricity generation such as hydroelectricity then carry a scarcity premium as demand remains strong in a time when supply is extremely constrained.
The Electricity Authority has for several years stated that we have a competitive retail market environment. As of June 2024, there are 47 electricity trading companies in the New Zealand market. Most of these only supply residential customers or are extremely niche players supplying few electricity connections.
Big Four’s Influence: Market Control and Pricing
There are four major generators in New Zealand: Contact Energy, Genesis Energy, Mercury Energy and Meridian Energy (the big four). These four together produce about 90% of New Zealand’s electricity and supply around 80% of the retail market. They hold significant power( no pun intended!) in dictating terms to smaller independent retailers that do not have generation assets.
These independent retailers face challenges in securing competitive prices for upstream energy hedging to offer their customers. They must also meet substantial prudential cover requirements with the market, which increases with rising wholesale prices. This often means that when wholesale prices escalate, the independent generators are unable to quote pricing to customers as they cannot cover prudential requirements, or they are unable to buy upstream hedging. In essence, the big four can dictate how big the independent retailers get by the way that generation supply is managed.
Over the last 10 years, New Zealand’s baseload generation capacity has declined. Genesis has mothballed part of Huntly power station, which can run on either natural gas or coal. Contact has decommissioned the gas fired generator at Otahuhu B and is now using the gas-fired baseload component of Stratford very sparingly. Similarly, Mercury has decommissioned the gas-fired Southdown power station in Penrose.
New generation has been extremely slow to come into the market, with generators blaming the uncertainty surrounding Tiwai, which has resulted in systemic price increases. This has led to Transpower issuing warnings for the last three winters that electricity generation is struggling to meet demand. The result of this was a blackout in Hamilton during 2021 and a near miss, this year.
Although wind and solar projects are increasing, their intermittent nature fails to provide the continuous coverage needed during dry years, leaving a gap created by the reduced gas supply.
The infrastructure commission states that we have a major deficit and that to meet forecast demand, generation needs to more than double over the next 30 years. This is going to cost a significant amount of money when energy prices are at record highs which businesses are already struggling to absorb. Read ‘How is our infrastructure tracking,’ by the New Zealand Infrastructure Commission to find out more on this.
Coal will also be required in greater quantities and for much longer due to the forecast shortfall in gas production over the next 3 years.
MBIE markets manager Mike Hayward says,“New Zealand has used around 150 PJ of natural gas per year for the last two years. While New Zealand holds 8.7 years of natural gas in usable reserves, field operators only expect to extract up to 140 PJ each year for the next three years.” See this MBIE report for further details.
In 2017, we were procuring five-year fixed price contracts for large industrial customers at around $75/mWh (7.5c/kWh). Pricing obtained last week averaged $170/mWh for the period 01 Jan 2025 to 31 Dec 2029.
Investment Incentives: Why New Projects Are Stalled
However, with four major generator retailers controlling the delivery of significant new generation, there’s little incentive for them to invest in new projects. Instead, they continue to profit from long-paid-off assets.
Until competition emerges in the generation market, I struggle to see how the Electricity Authority can stand behind their claims of a competitive electricity sector.
Act Now: Contact Total Utilities
Navigate the changing energy landscape with confidence. Contact Total Utilities to explore customised solutions and implement an energy management plan today!
As New Zealand moves forward with phased increases in the waste disposal levy over the next three years, your business needs to prepare for significant changes in waste management practices.
On May 31, 2024, the New Zealand government greenlit the second phase of waste disposal levy rate increases, paving the way for incremental changes over the next three years.
This strategic move aims to refine waste management practices and enhance environmental sustainability across the country.
Understanding the Waste Levy
The waste disposal levy, introduced under the Waste Minimisation Act 2008, is a fee imposed on waste sent to landfill. The primary goal of the levy is to provide a financial incentive to reduce the amount of waste being disposed of in landfills and to promote recycling and resource recovery efforts.
Revenue from the levy is used to support waste minimisation initiatives, including projects and programmes that improve recycling, composting, and waste reduction.
What You Need to Know
Total Utilities’ Sustainable Process Improvement Manager Pravind Singh explains, “The waste disposal levy is being expanded to cover a wider array of landfill types and waste categories. This includes significant adjustments to levy rates, encouraging businesses and households alike to reconsider their waste management strategies.”
Future Rates for the Waste Disposal Levy (per tonne)
Facility Class
Waste Types
Current
1 July 2024
1 July 2025
1 July 2026
1 July 2027
Municipal landfill (Class 1)
Mixed municipal wastes from residential, commercial, and industrial sources
$50
$60
$65
$70
$75
Construction and demolition fill (Class 2)
Accepts solid waste from construction and demolition activities, including rubble, plasterboard, timber, and other materials
$20
$30
$35
$40
$45
Managed or controlled fill facility (Class 3 and 4)
Contaminated but non-hazardous soils and other inert materials (e.g., rubble)
$10
$10
$15
$15
$20
Source: Ministry for the Environment, April 2021. All amounts expressed in dollars per tonne.
Impact on Businesses
“Businesses must prepare for increased operational costs associated with waste disposal as these levy rates escalate,” advises Pravind.
“Proactive planning and strategic adjustments will be essential to mitigate financial impacts and uphold compliance with evolving regulatory standards.”
Total Utilities: Your Strategic Partner
Total Utilities offers expert guidance and customised solutions to help businesses navigate these regulatory changes effectively. Whether you need assistance in waste audit and management or insights into optimising recycling practices, our team is here to support your sustainability goals.
Contact Us
For personalised advice on preparing for the waste disposal levy changes or to explore our comprehensive waste management services, contact Total Utilities today.
Is your current utility contract about to expire? Are you tempted to leave it until the last minute and see what the market has to offer? This could be a high-risk strategy for your business according to Total Utilities’ Director, Chris Hargreaves.
Chris explains, “Allowing your utility contract to expire or putting off securing a new contract until the last minute is not generally advisable, and can leave your business exposed to unnecessary risks and higher costs.”
The Risks of Waiting Too Long
“Waiting too long can lead to significantly higher utility pricing. Electricity prices are extremely volatile due to short-term issues such as hydro storage, so timing the negotiation of your contract plays a key role in the price that you get.
“Delaying until the last minute can leave you with fewer options and less favourable terms,” warns Chris.
“By acting early, you give yourself the best chance to negotiate terms that are advantageous for your business and to avoid any disruptions in service or unexpected cost increases.
“Waste contracts, in particular, are often very one-sided in favour of the supplier. If notice is not given within the applicable timeframes, rollover clauses could lock you into a new term with unfavourable conditions,” he adds.
Strategic planning and expert advice can help ensure you make the most informed decision for your utility procurement.
“I would suggest customers look at pricing around six months prior to their contract end date. That way, if a good offer is made, you can accept it. If not, you have time to review the market again before your contract ends. At the very least you will get a view on where prices are at, allowing you to budget accordingly,” explains Chris.
Choosing the Optimal Contract Term
The optimal term for your electricity, natural gas, LPG, and trade waste supply agreements depend on various factors, including market conditions and your business objectives.
“Longer-term contracts can provide price stability and potentially lower rates, while shorter-term agreements offer flexibility and the ability to adapt to changing market dynamics. However, these often come with higher costs and more risk that if market conditions don’t improve, you could pay more again in one or two years.”
Total Utilities procures a range of contract terms from suppliers and provides recommendations that weigh up short contract terms and long term price security with current market realities. Our goal is to ensure your utility contracts align with your business strategy and market conditions.
Shop Around
In addition to acting early, shopping around and comparing different offers is essential. “The utility market is competitive, and prices can vary significantly between providers,” Chris explains.
“By comparing offers, you can keep your current supplier honest and evaluate how their renewal offer stacks up in the market. At Total Utilities, we help our clients navigate this process to ensure they secure the most favourable deals.”
Proactive Procurement is Crucial
Total Utilities provides bundled procurement services with utility cost, consumption and carbon reporting. Even if you are currently in a fixed-term contract, becoming a Utility Insights client allows us to strike when opportunities arise in the market.
Total Utilities can assist you with:
– Proactive procurement: Timing is everything, and acting fast can mean better pricing.
– Identifying areas for potential savings: Regular tracking can reveal inefficiencies & opportunities for cost reduction.
– Predicting future utility needs: Accurate data helps in forecasting and planning.
– Improving operational processes: Reducing overhead expenses through better utility management.
– Preventing wastage: Avoid excessive utility usage.
– Establishing valuable metrics: Communicate utility usage effectively throughout your organisation.
– Making informed business decisions: Precise reporting supports strategic planning.
“Tracking these costs is not just about current savings but also about preparing for future needs and improving overall operational efficiency,” notes Chris.
Why Choose Total Utilities?
Total Utilities specialises in energy, gas, and waste procurement, leveraging over two decades of experience.
“We complete around 300 market reviews each year, closely monitoring market movements, government policies, and industry trends. This expertise allows us to provide informed and strategic advice tailored to your business needs,” says Chris.
“Our services are designed to help businesses like yours optimise their utility costs while ensuring reliable and efficient procurement. From contract negotiation to ongoing cost management, we offer comprehensive support,” he adds.
Find out more
– For personalised advice on your utility contracts or to explore our comprehensive utility management services, contact Total Utilities today.
Ready for cost-saving solutions? Hear directly from Joanne Gleeson, Office Support Manager at Rinnai NZ, as she shares how Total Utilities Management Group has streamlined contract negotiations and reduced costs for their utility needs since 2012.
‘Total Utilities has been assisting Rinnai NZ in negotiating our electricity/gas (both Natural and LPG) contracts since 2012.
Lately they have also assisted in re-negotiating our waste management contract and this is expected to greatly reduce costs going forward.
Service we receive from Chris Hargreaves, Linda MacIver, and all the team is efficient and professional. It simplifies the process of re-negotiating fresh contracts in an everchanging market. The fee structure Total Utilities offers has flexible options to suit.
The whole process is conducted in a most time manner, from the reminder of terminating contracts coming up, through to receiving the recommendations for renewal.
The contracts provided are clearly tabled and with detailed supporting narrative for us to consider and make the best decisions.
Total Utilities then liaises to assist in the changeover to the new provider and minimises any disruption to our business. The new contract signed by both parties is forwarded to me for reference.
I recommend their expertise to anyone looking to secure utilities contracts that offer the best fit for a company.’
Joanne Gleeson, Rinnai NZ
Rinnai is a market leader in New Zealand, supplying high-quality home heating, heat pumps, water heating, and commercial heating and cooling products.
Contact Total Utilities to find out how we can help your business cut utility costs and create a more sustainable future.
Total Utilities Director, Chris Hargreaves, offers a concise overview of the challenges facing New Zealand’s gas market, as well as practical advice for business customers.
For the past two years, our industry has been sounding the alarm bells about an impending gas supply crisis. However, it’s only recently that the media has begun to pay attention.
Gas plays a crucial role in various sectors, particularly electricity generation and food production. Dwindling domestic gas production has increased the need to import coal for electricity generation. This has pushed industrial and commercial pricing skywards, leaving many of our clients asking how to remain competitive with energy input costs going through the roof.
Securing Contracted Supply – The Urgency of Early Action
The Gas Industry Company is recommending that industrial and commercial customers must take proactive measures.
We agree and strongly advise clients to consider renewing contracts early, due to the likelihood of constrained gas supplies throughout the decade.
By re-contracting early, businesses can mitigate the risk of facing tight supply and demand conditions, which will significantly inflate prices.
Concerns Amplified by Reports
A recent report from the Gas Industry Company paints a concerning picture of gas production levels falling below previous forecasts. With production output falling faster than expected, gas availability will become constrained faster than expected.
Insufficient gas is available to meet contracted demand, raising valid concerns about future reliability. The upward trend in gas prices over the past five years only adds to these worries.
Impact on Consumers
Many businesses across the primary and food production sectors rely on natural gas as part of their production processes.
Moving to alternative energy sources is extremely difficult as biomass supplies in NZ are very tight, and local electricity grid operators don’t necessarily have enough spare capacity to electrify industrial plants.
This is leading some customers to look at large LPG installations as LPG is an import commodity. However, this also has its limits, as port terminal storage for LPG being imported is in short supply.
Our clients are asking us, ‘why have political decisions been made to wind down our gas industry when there are no realistic alternatives?’
Policy Uncertainty Adds Complexity
Policy uncertainty, particularly with the ban on offshore oil and gas exploration implemented in 2018, adds another layer of complexity.
While efforts are underway to reverse this ban, concerns persist over potential policy reversals and their implications for energy investments and supply reliability.
The ban also saw industry expertise move offshore and planned investment curtailed. It’s unclear whether revising the ban will kickstart the industry back into life, as gas producers need long guarantees to ensure they recoup exploration and drilling costs.
Heed Warnings & Weather the Storm
In the face of mounting challenges and uncertainties, the imperative for action cannot be overstated. It’s not merely about addressing immediate concerns but also about shaping a sustainable energy landscape for the future.
By heeding the insights provided and implementing proactive measures without delay, businesses can not only weather the storm but also emerge stronger and more resilient in the evolving energy market.
For personalised advice and insights on managing your utilities efficiently and effectively, Contact Total Utilities today.
