Statement and response to comments

This statement is in response to feedback on the consumer, network, and emissions impacts outlined in our gas distribution network switch-off in New Zealand report.

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We appreciate the interest and discussion prompted by Castalia’s report “Switching off the gas distribution network: Consumer, network, and emissions impacts”, prepared for Gas Industry Company in consultation with MBIE and EECA. In particular, we appreciate the detailed engagement from Rewiring Aotearoa.
We agree with many who have commented that lower-cost transition to electrification would be a highly positive outcome for households, for emissions reductions, and for long-term system resilience. We share the hope that technology costs continue to decline and efficiency improvements accelerate.

Our report seeks to contribute to the debate by providing detailed modelling based on the best available information. We drew on current appliance costs and performance, electricity network pricing disclosures, LPG adoption rate and engaged closely with EECA to ensure assumptions reflected realistic conditions and their detailed databases. We rigorously tested these assumptions in consultation with EECA, MBIE and GIC, which is reflected in the report. Of course, these costs and efficiencies will evolve, and we welcome continued updates over time. However, hope should not be confused with evidence.

Importantly, we find that changes in transition costs (such as appliance prices or network upgrade requirements) have only a modest effect on the overall outcome. The key driver of whether consumers are better off are the future relative prices of electricity and gas. In locations such as Wellington, the outcome is finely balanced, and if electricity becomes significantly cheaper or gas significantly more expensive, or if appliance and other transition costs fall more, the economics of electrification improve.

Rewiring Aotearoa helpfully point to the Australian Treasury’s analysis as supporting faster electrification. While we use different methods, we see the results as broadly aligned. That study assumes falling electricity and rising end-user gas prices and does not fully integrate detailed household conversion costs. Our report quantifies how large the energy price shift would need to be for New Zealand households under a range of scenarios, including optimistic ones.
It’s also important to clarify that our analysis focuses on the overall cost of electricity. While some households may benefit from rooftop solar and batteries under current pricing structures, almost all will remain grid-connected, and the full system cost of electricity, including firm generation and network infrastructure, must be considered.
As long as New Zealand’s electricity system relies on gas-fired generation to firm renewable generation, electricity prices will remain linked to gas prices. This means that the 60-70 percent relative price change required to alter the conclusions of our analysis is unlikely to materialise while gas continues to set marginal prices in the wholesale electricity market.

We respect differing perspectives and share the goal of enabling a transition that is cost-effective, equitable, and emissions-reducing. But policy and investment decisions require careful assessment of real-world conditions and trade-offs. We hope our report helps inform that process by clearly setting out the factors that matter most.
Finally, developments this week such as the Government’s support for an LNG import terminal and Brookfield’s $2 billion acquisition of the gas transmission network and some of Clarus’ other assets suggest that many investors and policymakers continue to see a role for gas in New Zealand’s energy mix for the foreseeable future. These decisions, too, reflect a judgment about relative costs and system needs.

Castalia’s report and presentation to GIC is available here: https://www.gasindustry.co.nz/about-us/news-and-publications/analysis-and-research/

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