Cover Story: Power Plays – Who wins in the NZ energy game?

New series: Stories of NZ enterprise success
NZ Management presents major new series: Stories of NZ enterprise success. Starting in this issue, leading New Zealand business journalist Vicki Jayne conducts an eight-part sector-by-sector review of the underlying drivers of success in key parts of New Zealand’s economy.
She delves into the data gleaned from the past 10 years of the Deloitte/Management magazine Top 200 Awards to highlight significant trends and achievements. And she talks with market observers and key industry insiders to gain their perspective on what to expect in the next 10 years.
Sector-by-sector, she examines which ones will continue to hold promise, which ones are failing, and why.
For some sectors, success is being driven by the impact of leadership and governance. Others benefit from specific ownership structures, government policies, or the role and contribution of technology. Each sector carries learnings for others around export potential, talent and rewards, sustainability or profitability. What lessons can sector leaders gain from each other?
• Energy
• Manufacturing
• The primary sector
• Construction/engineering
• Finance
• Retail/wholesale
• Food & beverage
• Tourism & entertainment

From the tip of its wind-powered turbines to the bottom of its deepest offshore well, New Zealand’s energy sector functions as the beating heart of New Zealand’s economy. And from power plant to petrol pump it is also at the forefront of this country’s challenging navigation through one of the global economy’s greatest ever transitions – to low-carbon future.
How it fares is central to how the whole economy will cope. Will innovation rule? Can New Zealand leverage its expertise in clean technology (eg, geothermal generation) into export dollars? Can we wean ourselves away from our love affair with fossil-fuelled transport? And what will be the impact of the planned sell-off of powerhouses such as Meridian, Mighty River and Genesis?
This country’s energy sector could be seen as game of two halves: power generation/distribution/retail and fuel (oil, gas, coal etc) extraction/processing/retail.
The former, generally moving in sync with New Zealand’s economic activity, is responding to the push toward renewables by steadily diversifying its generation base and improving transmission infrastructure with focus on supply security and downstream energy efficiency.
The latter is in period of expansion, responding to offshore demand for oil/gas reserves and balancing on the pointy end of the often heated economic development/environmental protection debate.
New Zealand’s fairly extensive fossil-fuel resources represent an attractive investment, the current political/economic climate favours exploiting it and, as Energy Minister Phil Heatley told the recent Downstream energy conference, it represents healthy income stream (royalties and taxes plus extra jobs) that can be fed back into our aspirations for health, education and social spending.
As to scoping New Zealand’s overall energy sector contribution to our economy, Deloitte/Management magazine’s own Top 200 company figures help shed some light. Just sampling of those that regularly appear amongst this country’s top 50 revenue earners demonstrates solid and consistent performance. There are good reasons why markets favour utility investment – they are generally profitable and make good returns on assets.
Since 2001, for instance, Meridian Energy has largely listed amongst this country’s top 15 revenue earners lifting its contribution from $776 million in 2001 to $2.05 billion in 2011. In terms of profits, it has ranked as high as second placing (in 2006), overall totting up total profits (across 11 annual reporting periods) in excess of $2.5 billion.
Add to that the contributions of other top energy players such as Contact, Genesis, Mighty River, Vector, TrustPower and Transpower and you are talking total annual revenue contributions that in 2011 measured nearly $11 billion (and returned post-tax profits of around $800,000 million).
To put just that sampling of the larger energy companies into context – the total revenue of last year’s Top 200 companies – across all sectors – was $152 billion.
And that’s only fraction of the total energy market. Start adding in the fortunes of the petroleum, gas, refining and fossil fuel suppliers – including another SOE potentially up for grabs, Solid Energy – and you’re talking substantial chunk of New Zealand’s economy.
The energy sector also offers good employment opportunities. Our indicative sampling above collectively employed some 5500 people in 2011 and, unlike some sectors, their wages are apparently rising. Website Seek earlier this year noted that jump in salaries offered in the mining, resource and energy sectors underpinned five percent national increase in the average pay packet offered by employers using the site over the past year.
Seek noted that those sectors not only boosted the country’s highest average annual salary but there has been marked increase in available roles in the industry over 2011.
Which possibly highlights the reality that this is sector relatively impervious to the recessionary pressures affecting some parts of the economy – though energy use is good indicator both of activity and of underlying structural shifts in our economy. Improvements in New Zealand energy intensity (the amount of energy it takes to produce unit of GDP) tell story not just of growth or efficiency but change.
“Over the past couple of decades our economy has moved to become far more commercially focused, rather than industrial,” explains Bryan Field, acting manager energy information and modelling for the Ministry of Economic Development.
“The commercial sector is far less energy intensive than the industrial sector, which had large impact on energy intensity. In our reference scenario we see the historical rate of energy intensity improvement continue out past 2030.”
Energy intensity is just one aspect of the MED-produced Energy Outlook 2011 which sees renewable energy sources providing around 50 percent of this country’s primary energy supply by 2030, modest one percent per-annum growth in consumer energy demand over the next decade, +25 percent increase in electricity demand by 2030 (but associated emissions seven percent lower than in 2010), transport fleet remaining reliant on oil (with electrics and biofuels comprising just two percent of transport energy demand in 2030), and one percent lift in wholesale electricity prices above inflation rates to support investment in new generation.
Field cites major challenges facing the sector as:
• Dealing with climate change (including what other countries decide to do).
• Half of our energy sector greenhouse gas emissions are from transport. Reducing transport emissions will be key to New Zealand’s response to climate change.
• Meeting the Government’s target of 90 percent renewable electricity by 2025.
The Strategy, he says, paints similar picture. All nations are striving to improve energy security, reduce pressure on the environment, and reduce greenhouse gas (GHG) emissions. These will increasingly be factored into world markets; oil prices will rise and become more volatile while renewables become an ever bigger part of the mix.
Changes ahead also include technology advances – in energy production and electricity systems as well as energy management in buildings, industry and transport.
It’s an exciting world.
Advances like smart metering are already allowing power suppliers to offer mass market customers individual solutions to their energy needs. Technology also promises smarter grids – possibly ones that can monitor and repair themselves, more accurate demand forecasting, and more reliable service.
Innovation ranges from micro-generation options such as BASEPOWER (see box story “Innovation: Small is beautiful”) to the promise of widespread

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