BUDGET 2014: Energy wastage offers tempting target
Every year, about $18 billion is spent on energy and the Energy Efficiency and Conservation Authority (EECA) estimates 20% of this is wasted.
That’s some $3.6 billion and if the economy were a business, accountants and efficiency experts would be targeting it for reduction.
While recent media attention has focused on cheap loans for domestic solar initiatives, the economic value of this is far from certain. Any government action should be focused on something with a greater certainty of payback.
The EECA estimates businesses and the government consume around 70% of total energy. This highlights the large energy efficiency potential, mostly within the largest 200 energy-using organisations.
This also provides an opportunity for the government. First, the barriers need to be addressed - the lack of information, lack of organisational capability and lack of available funding, even for fast payback projects.
The budget is an obvious starting point. The first target should be to increase funding and other assistance to help ensure the potential gains are realised for the largest 200 energy-using organisations.
Given the large number of small-to-medium enterprises, the government could also look at ways provide assistance to them to cut their energy use.
Renewable energy is another area where the government should consider action (as long as the economic value adds up).
In 2012, renewable energy made up 37% of total primary energy supply, which is high by international standards, the third highest in the OECD, against a global average of only 16%.
New Zealand is well ahead of the European Union, which is targeting 27% renewables by 2030.
The catch with renewables is that they’re a long-term investment and it takes time for their impact on the economy to be seen. Government incentives would help bridge the gap between the near-term investment cycle and the longer-term return.
As an example, the UK government has offered a price of £155 ($250) per megawatt hour for offshore wind energy, which is around three times the wholesale price of electricity.
Electricity demand in New Zealand is flat but the ever-strengthening economy will put pressure on this sector. When you consider that 20% of energy is wasted, any assistance on economically viable, renewable energy will pay strong dividends in both the near and far future.
Alastair Boult is national director, government advisory, at Grant Thornton New Zealand