New Zealand's gas crisis: why the government's support package doesn't add up
Part 1 of 3: The problem with low-interest loans, and what else is on offer
New Zealand's industrial sector is facing a genuine energy crisis — one that's been building for years and is now arriving faster than most businesses planned for. Gas fields are declining. Supply shortfalls have been experienced already, and now are forecast to increase in 2027 and 2028. And businesses that built their operations around natural gas are facing a future where that fuel is scarcer, more expensive, and increasingly hard to justify.
The government has recognised this, and that recognition is welcome. The recently announced low-interest loan scheme for businesses looking to switch away from gas is a signal that the problem is real and that support is needed. But when you look at what the scheme actually delivers to a business trying to make the switch, the numbers tell a sobering story.
What the loans actually deliver
Take a hotel-style operation consuming 1,200 GJ of gas per year for hot water heating — a common and relatively straightforward fuel-switching scenario. In this example, eliminating that gas dependency might require around $2.5 million in capital investment.
If the business installs a heat pump, the efficiency gain makes the economics reasonably attractive. At $40/GJ for gas and electricity at $140/MWh, ten-year energy costs roughly break even, with meaningful long-run savings ahead. Assume the government loan scheme reduces the interest rate by 2%. The benefit delivered over twenty years: a reduction in cumulative costs of around 3%.
Now consider a business using that same 1,200 GJ to generate steam — a more common industrial scenario.
An electric boiler offers no efficiency advantage over gas; you pay for every joule of heat, and then some. At the same capital cost, the economics are tighter. The government scheme's benefit in this case: roughly 1.5% of cumulative costs.
Is 1.5–3% the difference between a project proceeding or not? For a business that's already pushing against its debt ceiling, shaving a couple of percentage points off its financing cost might theoretically matter. But here's the problem: if a business is that financially constrained, escalating fuel costs — to the equivalent of $40/GJ and rising — are likely to push it into difficulty regardless. The scheme may benefit no businesses at all, or very few.
What else is available?
The loan programme doesn't exist in a vacuum. Let's take stock of what support is actually accessible to NZ businesses looking to move away from gas right now.
EECA's Business Energy Advice programme offers subsidised advisory support to help businesses understand their energy use and identify opportunities. It's a useful starting point, but it funds advice, not action — and most businesses already know what they need to do. The barrier isn't information; it's capital.
The GIDI Fund — the Government Investment in Decarbonising Industry programme — was the most direct and effective mechanism New Zealand had for supporting industrial fuel switching. Administered by EECA, it provided co-funding grants of up to 40% of project costs for businesses electrifying or switching to low-emissions fuels. By any measure, GIDI worked: it unlocked projects that would not otherwise have proceeded, and it did so at relatively low cost per tonne of emissions reduced. It was discontinued. Its absence is now being acutely felt.
The NZ Emissions Trading Scheme (ETS) provides a carbon price signal that, in theory, should motivate fuel switching. In practice, the NZ carbon price has been too volatile and too low to drive investment decisions of the scale required for large industrial conversions. A business is not going to commit $2.5 million based on a carbon price that has swung from $30 to $90 per tonne in recent years and could move in either direction before the project pays back.
Some regional councils offer targeted support for specific technologies or sectors, but coverage is patchy and the quantum of support is modest relative to project costs.
The honest assessment: outside of the new loan programme, the cupboard is largely bare. A business today looking to eliminate its gas exposure has access to advice it probably doesn't need, a carbon price that doesn't move the needle on large capex decisions, and now a loan scheme that reduces cumulative costs by less than 3%.
The real barrier isn't financing costs
Across our work with industrial clients, we see the same pattern repeatedly. Businesses aren't failing to switch because they can't access cheap enough capital. They're failing to switch because:
- The upfront capital requirement is substantial relative to the energy cost savings, particularly for processes where electrification offers no efficiency benefit
- Electricity infrastructure costs — transformer upgrades, connection works, line upgrades — can add hundreds of thousands of dollars to a project before a single piece of process equipment is purchased
- The future price of electricity is uncertain, making it difficult to build a robust business case
- The message from government about the actual future of gas has been inconsistent and confusing
That last point matters more than it might seem. We are still seeing businesses plan and approve new gas boiler installations. Not because they're reckless, but because one side of politics signals that more gas is coming while the other says it's gone entirely — and neither position gives a business the certainty it needs to invest with confidence in an alternative.
A low-interest loan that saves 1.5% on cumulative costs doesn't resolve any of these barriers. It addresses a problem — the cost of borrowing — that is not necessarily the primary constraint on investment.
So what would actually help?
The tools that would genuinely move the dial on industrial gas transition are not complicated, but they require real commitment. Part two of this series examines what an effective support package would look like — starting with what a reinstated and redesigned GIDI programme could deliver, and what it would take to actually remove the infrastructure and economic barriers that are holding businesses back.
DETA Consulting works with industrial businesses across New Zealand and Australia on energy strategy, fuel switching feasibility, and decarbonisation project delivery. Get in touch to discuss your gas exposure.
Next in this series — Part 2: What would actually work? The case for grants over loans, infrastructure reform, and giving business the price certainty it needs.
