Key Points on the GIC/Castalia gas networks report:

• The findings in this report don’t match up with reality and are in stark contrast to homes all around the country that have electrified and know getting off gas saves them money. It also flies in the face of research all around the world. The Australian Government Treasury just released modelling showing household electrification savings of $4,300 per year. 

• The report bases analysis and findings on assumptions that are deceptive and unrealistic. We think future electricity costs would be significantly lower if more realistic assumptions were used. For example:
  
  • Electric space and water heating is much more efficient than the report assumes.
  • Capital costs for upgrades and electric alternatives are over-estimated.
  • The report assumes no homes buy solar, which could save households around $1000 per year (taking account of full repayment of loans), and tens of thousands over the product's lifetime.
  • We include more details on these unrealistic assumptions below.

• This analysis should be updated by Government agencies using more accurate assumptions.  It is important that Government agencies sense check assumptions through the review process when working with an industry that has vested interests.

• There are significant health benefits for New Zealand households from getting off gas. While this report is focused on money, the health impacts are clear from EECA’s recent indoor combustion report. Gas stoves alone cost the country $3.3 billion in hospitalisations and lost productivity, but that’s certainly not included. 

More information about the unrealistic assumptions in the report

• Electric space and water heating is much more efficient than the report assumes and therefore swapping from gas to electric space heating will need a lot less electricity. This means the electricity costs reported should be significantly lower if accurate assumptions are used.

• A simple way to look at this is if a heat pump’s Coefficient of Power (COP) is 4.0 (EECA data), and a gas heater is 0.8 (Rinnai NZ), then quite simply the heat pump is about 5x more efficient than the gas heater, and therefore gas would have to be 5x cheaper than electricity for it to compete. It is not. Even in cold regions, let's say with a COP of 3.0, gas is still more expensive at producing heat (data on cold temp performance of heat pumps, even at -5C they are about 3x more efficient than gas, average NZ temps are not -5C).
  
  
• The report assumes (while misreferencing Rewiring’s electric homes report, page 24 table 2.2) the conversion from gas space heating to electric space heating happens at a ratio of 1:0.46, e.g. that electric options are roughly twice as efficient as gas. In reality heat pumps are 4-5 times as efficient as gas.
  
  
• The report justifies this on the basis of assuming only 60% of the gas heating is replaced with heat pumps, and the other 40% is replaced with electric resistive bar heaters. Yet it appears the capital cost is based on heat pumps (more on capital cost later). While homes do also have electric resistive heaters in some rooms, heat pumps often provide a “main” heating source, like the gas was providing previously. Therefore it is likely a much higher proportion of the gas use would be replaced by heat pumps, leading to much greater efficiency numbers, which would likely halve the space heating electricity use assumed in the report. Fixing this incorrect assumption would save thousands for the electric home over the appliance’s lifetime.

• Similar inaccurate assumptions are made with water heating. Gas water heaters can be slightly more efficient than gas space heaters, but often fall below their advertised rates. Heat pump water heaters sometimes have higher advertised COP of over 5.0 (Rheem NZ), but to be conservative even if we assume EECA’s reported space heating COP numbers of 4.0, hot water heat pumps are still 4x more efficient than assumed in this report. The report assumes conversion of gas water heating to electric water heating happens at a ratio of 1:1.02, that is electric water heating uses slightly more energy. This assumes people replace the gas water heating with almost all electric resistance water heaters. This basically ignores the existence of heat pump hot water heaters, which are now surging in popularity all around the world, and being subsidised in Australia by both state and federal government to replace gas because of how much more efficient they are. Australia currently installs about 100,000 HWHPs per year. Using heat pump water heaters would reduce the water heating energy use to a fraction of that in the report, likely dropping it by about 70%. Fixing this would save further thousands for the electric home over the lifetime of the water heater.

• Considering space heating and water heating make up the vast majority of residential gas usage, if you halved the space heating number, and dropped the water heating number by 70% or so, we think their charts on future electricity costs would be very, very different. Side note, the report also doesn't appear to use lower cost electricity for resistive water heaters, which is the case with ripple controlled lower cost electricity rates for many water heaters in New Zealand.

• The assumption that sixty percent of commercial demand is swapped to LPG instead of electricity seems high.  Much of the commercial heating demand in the sector is low temperature heat which could be met economically by heat pumps in many cases.

Capital costs of upgrades and and electric alternatives

The report references Rewiring’s Electric Homes Report (developed with EECA) for capital costs on most appliances, but unfortunately misuses that data in an inaccurate way.

It appears the analysis replaces one gas heater with two heat pumps or 15kW worth of heat pumps. In our model we replaced each ~7kW gas heater with one ~7KW heat pump. In the gas business-as-usual scenario the report assumes only one gas heater is replaced, but in the switch off gas scenario it is assumed a household buys two gas heaters worth of heat pumps - increasing the price for the electric scenario arbitrarily. Fixing this would change the outcome by a few thousand dollars.

For cooking the report appears to assume all stoves are replaced with induction, the most expensive (and new technology) cooktop type, but this is a choice not a requirement for homes. Ceramic electric cooktops are already cheaper than gas, easier to clean, and don’t produce the same harmful health impacts shown by EECA’s recent study. Fixing this stove assumption would save about a thousand or so for the electric home too.

The analysis assumes gas disconnect costs for each individual appliance, but these are often included in the replacement install cost already, so those switch off costs add more unrealistic and unfair capex. Disconnecting from gas should cost a total of about $200 (Genesis NZ) to cap the pipe at your property. Castalia has chosen to use a combined gas disconnection cost of $3000 - $4000 of additional appliance-based costs in addition to the install costs of the appliances. It is known that gas networks have been unfairly trying to charge large disconnection fees to discourage households from leaving the gas network. For example, the Australian Energy Regulator and the large gas-using state of Victoria have now capped the disconnection fees to a few hundred dollars to stop this behaviour and protect households. 

The report also assumes no homes buy solar, which could save households $1,000 per year, and tens of thousands over the solar system’s lifetime.  Businesses can also benefit from lower electricity prices through uptake of rooftop solar. 

Distribution upgrade costs likely lower. The report does not take account of the role of solar and batteries to offset distribution network costs. Investment in flexibility from batteries can provide a lower cost solution that can offset or negate network upgrades to meet growing peak demand. Eg: The report suggests switching off gas increases peak electricity demand by around 9 percent in Hamilton, Gisborne, and Wellington. The higher peak load requires upgrades in electricity distribution assets to cope, and some additional operational costs. The upgrades are estimated to add $152 million in costs for electricity distribution businesses in the three study regions. A home buying solar and a battery will not only save more money, but also largely remove any peak increase caused by electrifying their space heating and cooking. Likewise, electric hot water heating can be scheduled to utilise solar generation saving more money for the household.  

In addition to that, the ability of that battery to shift energy in time, as well as smart charging of electric vehicles, is likely to lead to higher utilisation of distribution networks (more electricity flowing on the same assets). If homes increase consumption from the network while not increasing their peak, it would actually lower the per unit costs for electricity on those networks because more units are flowing on the same assets when they have spare room (off peak).

Strategic consideration is needed. A well managed transition away from gas would likely involve a role for Government and a staged approach to turn off more and more parts of the distribution network that have limited utilisation over time. It would consider ongoing customer needs, including how to support hard to decarbonise industry. This type of staged approach may have lower consumer cost. A managed approach would reduce Government liability. For example, an unmanaged approach risks a gas distribution network becoming cashflow negative and choosing to turn off with gas customers still connected. Government would likely need to prop up the network, whilst it worked to urgently switch remaining gas network customers to alternative fuels and could risk industry closures. These factors should be considered in a strategic approach to the future of gas distribution networks.