Basin review, Markets

Selling gas to New Zealand’s mass market

While natural gas accounts for around 29 per cent of New Zealand’s total primary energy usage, quite a low proportion of this is used by households, with the major users being electricity generators and petrochemical manufacturers.

In part, this is because the New Zealand electricity industry has been subject to major reform, moving away from a structure characterised by fragmented, localised distribution and retail entities (and a dominant state owned electricity generator) to a structure of fewer network companies with competitive generation and retailing markets. Legislative reform has required formerly integrated entities to separate their distribution networks from their retail and small scale private generation activities.

In addition, the New Zealand Government has opted not to promote gas above any fuel, which has made it hard to push gas ahead of other alternative fuels, such as solar which have strong Government support.

A study commissioned by Powerco, New Zealand’s second largest electricity and gas distributor, has confirmed this claim, and found that consumers are not likely to use gas because the fragmented and competitive nature of the retail market makes it hard for the prospective consumer to navigate a plethora of options. For example, consumers must decide what type of fuel to use (electricity, solar, LPG or natural gas) as well as find an appropriate supplier, then manage the purchase and installation of gas appliances.

Even when consumers choose natural gas, they are often deterred by the perceived high delivered price, which includes the line and variable charges. In New Zealand, the price of natural gas is approximately 60 per cent lower than electricity, however the additional line charge incurred by gas can cost the consumer approximately $500 per annum, on top of $350 per annum for the electricity line charges. This occurs before a consumer has even used any gas, making it uneconomic for small natural gas users. These charges have emerged because the major business driver of energy retailers is the acquisition of new customers through market churn. Very limited effort is applied to actively connecting new consumers, since the cost of acquisition is high and there is substantial risk that the consumer may switch energy retailer.

Additionally, the demand for qualified, registered craftsman gasfitters to install gas appliances has created a high price for these trade services. The withdrawal of the New Zealand Government’s apprenticeship programs some years ago has resulted in a void of qualified, registered craftsman gasfitters which are depleting in numbers with limited apprentices entering into the trade. The impact is therefore that the costs of connecting to natural gas are not as competitive with other energy forms, such as electricity, or solar energy.

Despite the fragmented nature of the retail gas sector in New Zealand, Powerco is well positioned to improve residential accessibility to natural gas. In New Zealand, the company distributes natural gas to over 103,000 households, businesses and industries in the lower North Island. With a network of over 5,330 km, Powerco transports and distributes gas in the Taranaki, Manawatu, Horowhenua, Hutt Valley, Porirua, Wellington City, and Hawke’s Bay regions. The gas is drawn from the transmission system owned and operated by Vector.

As part of the GetGas campaign, Powerco commissioned a study to understand the needs of both the consumer and industry stakeholders, such as gasfitters, builders, specifiers and architects. By evaluating the needs of these market segments, it established customer centric processes and sales channels that make it easy to connect to natural gas for the consumer “” in addition to developing a campaign to promote the benefits of using natural gas directly for heating, hot water and cooking.

The GetGas campaign was conceived in an attempt to generate awareness, provide accurate natural gas information and simplify the connection process. This served to address these gaps in the market by creating brand and product awareness through outdoor signage in new residential areas, vehicle branding, advertising, in-store collateral and posters.

Powerco also developed customer centric processes to proactively manage the consumer’s connection installation, including a website, and free helpline, which have simplified the connection process.

The second major prong has involved building relationships with service providers, including staging trade shows with appliance suppliers to demonstrate the ease of conversion as well as forging strong relationships with gasfitters and builders to influence natural gas connection installations on Powerco’s gas network.

The result has been a strong and positive market response to the GetGas campaign since it was implemented in May 2006 with approximately 65 per cent of connections now coming directly through the GetGas channels. The customer-centric processes implemented have been recognised as contributing success factors to GetGas now identified as seamless and easy, removing the highly complex process to connect. Additionally, New Zealanders’ experience of using natural gas in the home is relatively high, with growth in new connections generated from new residential development areas.

In order to solidify natural gas as a major choice for households in New Zealand, the next major push should be on the retail pricing of gas for consumers. However, the gas prices are set by energy retailers, making it difficult for gas distributor Powerco to manage consumer retention across its networks, although many industry analysts believe that wholesale gas price is likely to reduce. With the flurry of investment in exploration and development in the Taranaki fields and beyond, as well as the New Zealand Energy Strategy policy placing a moratorium on construction of any new gas fired generation and the push to use renewable energy (wind and hydro) for electricity generation, a surplus of gas is anticipated.

The final major influence on the gas sector is likely to arise from the impact of the Commerce Commission’s pending regulation of two major gas network businesses in New Zealand. The extent of the impact on opportunities to invest into growth has been hard to predict during this uncertainty. However, Powerco is maintaining the GetGas campaign, introducing a 40 m main to meter campaign and working with industry members to develop a generic gas strategy that can be implemented nationally, in an attempt to make gas a preferred energy choice for New Zealand households.

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