Energy costs sit low on the radar of NZ businesses

Energy costs sit low on the radar of NZ businesses

Rising energy costs sit low on the radar of New Zealand businesses, according to the latest Grant Thornton International Business Report survey of 3500 business leaders.

The survey showed that only 10% of New Zealand businesses expect rising energy costs to constrain business growth in 2014 compared with 35% of businesses globally. Only Norway (4%) and Finland (8%) were less concerned than New Zealand out of the 45 countries surveyed.

Alastair Boult, National Director, Government Advisory at Grant Thornton New Zealand Limited, said that while rising energy costs was the second largest concern for international companies, behind economic uncertainty, many New Zealand businesses do not seem to share the same concern towards energy savings.

“This is important in light of the recent media attention on cheap loans for domestic solar initiatives. New Zealand’s size, lack of scale and large number of small and medium-sized enterprises (SMEs) mean that our businesses are not as green in their actions compared with other countries, even though we may think we are,” said Boult.

“This complacency is a concern. Electricity demand at the moment may be flat, but the ever-strengthening economy will put pressure on this sector. Energy saving is all about protecting and enhancing the bottom line and any education or advice on ways that businesses can save money will be a boost to the economy as a whole.”

On a macro scale New Zealand spends about $18 billion per year on energy and 20% of that is wasted, according to estimates from the Energy Efficiency and Conservation Authority (EECA).

“This highlights the fact that New Zealand is nowhere near as energy efficient as it should be,” he said.

“However, we are already very strong on the renewable energy front. In 2012, renewable energy made up 37% of New Zealand’s Total Primary Energy Supply, which is high by international standards, the third highest in the OECD, compared with a global average of only 16%,” he said.

The survey highlighted that in the long-term, renewables have the potential to flatten energy costs for both businesses and consumers. However, in the short-term, renewable energy tends to be expensive and requires government subsidies to make it investible.

“A good example of this is how the UK Government has offered a price of £155 ($250) per megawatt hour for offshore wind energy which is around three times the current wholesale price of electricity.

“Energy costs account for significant and rising chunks of both household and business outlays. Understandably, consumers and companies are clamouring for lower prices now. But this acts as a major disincentive for governments to take the long-term perspective needed to support the move to greener energy sources.

“In Europe, the EU has recently announced a proposed 40% cut in emissions by 2030, which includes an EU-wide target of 27% renewables. At the moment it is not clear how this would be translated into national targets, potentially giving less willing nations room to manoeuvre around these proposed targets .

“The EU has also announced a target of 25% energy efficiency, but, significantly, this is described as non-binding, implying that it is harder not to use energy than to find new technologies to generate it. This seems counter-intuitive, to say the least.

“The global picture on energy costs is far from uniform.

“In Japan, where nuclear provided 30% of the electricity supply before the Fukushima disaster, four in five businesses are now worried about the rising cost of energy.

“By contrast, this is a concern for just one in seven businesses in the United States, where the shale revolution has actually lowered energy costs for many businesses. In Europe, it is telling that businesses in Germany (36%), where the government is phasing out nuclear, are much more concerned with rising energy costs than peers in the UK (22%), where new stations such as Hinkley Point are being commissioned, although politicians in the UK appear to fear the political fallout from rising costs just as much as their German counterparts.

“Equally interesting are the Nordics where just 4% of businesses in oil and hydro-rich Norway are worried about increased energy costs; while only 12% of businesses in Finland are, which has no fossil fuel resources but significant amounts of nuclear power, hydro and biomass.

“So what's the answer? Whether real or perceived, the barriers around the lack of information about opportunities, lack of organisational capability and lack of available funding within organisations, even for fast payback projects, need to be removed.

“And there should be an increase in funding and other assistance to help ensure the potential gains are realised, in the first instance, for the largest 200 energy-using organisations in New Zealand. But given the large number of SMEs in New Zealand, the Government should also continue to look at ways provide assistance to these smaller businesses,” said Boult.

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