Summary

New Zealand households and businesses spend approximately $20 billion on fossil fuels every year, the majority of which are imported. Electrifying New Zealand households by replacing fossil fuel appliances and vehicles with electric alternatives, alongside the addition of rooftop solar and batteries, presents an opportunity to save thousands on the cost of living. This transition could save the nation around $10.7 billion per year by 2040. This shift allows the nation to improve its balance of trade and enhance resilience by reducing reliance on expensive imported fuels in favour of locally generated, low-cost electricity.

Introduction

Household electrification, encompassing both homes and their vehicles, represents a significant energy efficiency gain. This transition is expected to boost New Zealand’s energy productivity, help flatten rising energy bills, and reduce dependence on volatile fossil fuel imports. The analysis defines household energy as all uses within a residence, effectively coupling the residential, transportation, and electricity sectors.

How households use energy today

Current fossil fuel households have energy use dominated by vehicle fuels. Traditional efficiency measures, such as insulation and sealing, typically improve thermal efficiency by 15%, but because space heating only accounts for 10-15% of total energy use, this only reduces total household consumption by about 2%, from 85kWh per day to 83kWh per day. In contrast, electrification results in a 70% reduction in total energy use, bringing it down to 25kWh per day. This is primarily due to the efficiency of heat pumps, which have a Coefficient of Performance (COP) of approximately 4.0, providing four units of heat for every unit of electricity consumed.

Costs of energy for households

Historically, fossil fuels and grid electricity prices have risen at or above the rate of inflation. Over the last 20 years, these costs have outpaced the Consumer Price Index (CPI). Conversely, the cost of rooftop solar and batteries has fallen rapidly. Investing in solar allows households to fix their repayment costs for up to 30 years, effectively removing price volatility. While Australian households have high solar penetration (35%) with costs around AUD$1.20c/W, New Zealand’s penetration is only 2.7% with costs approximately double at NZD$2.00/W, suggesting significant room for cost reduction through industry scale and regulatory reform.

How households save money through electrification

Rewiring Aotearoa suggests the average household could save approximately $1,500 per year through electrification and solar investment. The most substantial savings occur at the petrol pump; powering a car via rooftop solar costs the equivalent of $0.31/Litre, while grid electricity costs $0.64/Litre. Additionally, removing gas and LPG appliances eliminates fixed connection costs, which averaged $689 per year in May 2024.

National savings from electrification

In 2023, New Zealand spent $19,840,677,911 on retail fossil fuel purchases. This included $7.72 billion on petrol, $7.81 billion on diesel, and $1.53 billion on natural gas. By adopting an aggressive electrification programme, New Zealand households could achieve cumulative savings of $95 billion by 2040. These savings are driven by the lower running costs of electric machines, which offset their higher upfront capital costs over time. By 2030, indicative aggregate savings of $3.2 billion per year are achievable.

Emissions

Electrification offers an immediate path to emissions reduction using existing technology. Following the proposed adoption curves would result in emissions reductions of 10 million tonnes annually by 2040. Cumulatively, this equates to 105 million tonnes by 2040 and 212 million tonnes by 2050. These reductions would also help New Zealand minimise the amount of offshore carbon credits required, keeping more capital within the local economy.

Why is it not happening rapidly already?

The primary barrier to rapid electrification is limited access to suitable finance. Electrification involves ‘swapping fuels for finance,’ where higher upfront costs lead to lower operational costs. Low-income households often face higher interest rates or lack access to credit entirely, despite standing to benefit most from reduced bills. Renters and landlords also face a dual incentive problem that may require regulatory intervention. Proposed mechanisms to address this include the ‘Electrify Everything Loan Scheme,’ involving deferred loans secured against property titles, and on-bill finance attached to electricity meters. Other options include rebates, tax incentives similar to the United States’ Inflation Reduction Act, and social impact bonds. Additionally, the workforce requires expansion, specifically for electricians and technicians, to meet the ten-fold increase required in supply chains for space heating and electric vehicles.

Conclusions

The research highlights that New Zealand cannot afford not to address climate change, as the cost of maintaining a fossil fuel economy is higher than the cost of electrification. This opportunity serves as both a cost-of-living solution and a strategic investment in the nation’s future energy independence and resilience.