New Zealand is a poster child for industrial electrification. Can Australia follow suit?

Wads of government cash, a gas crisis, and a culture of innovation has helped New Zealand to lead on the uptake of industrial heat pumps, an area where other countries (ahem, Australia) are lagging. 

The question now, as government support dries up, is can it keep up the pace – and are the pay-offs for industry of going electric worth it?

“In the last 10 years, I’d say, the government giving money through GIDI [Government Investment in Decarbonising Industry] has been a major factor which has pushed [industrial heat pumps forward],” says Patrick Dempsey, Genesis Energy’s commercial and industrial partnership manager. 

“On top of that we have a culture of being pretty good with refrigeration and more recently we have a gas crisis. So if you add all of those things up it creates a situation where heat pumps can thrive.”

Dempsey is at the forefront of the New Zealand gen-tailer push to shift industrial gas users into electrification – a shift that is eyed enviously by those Australians also keen on industrial electrification.

In a new study into what Australia can learn from its electric-forward cousins across the Tasman, the Institute for Energy Economics and Financial Analysis (IEEFA) says the stats are bearing out the benefits of switching away from gas: between 2019 and 2022 coal use within the food and beverage industry fell by 12 per cent and gas by 21 per cent, and electricity use rose by just 7 per cent. 

Government help needed

In Australia, industrial heat pumps could replace more than half of process heat needs, mainly in Victoria and Western Australia, says IEEFA Australia CEO Amandine Denis-Ryan.

But she estimates that “pretty much nothing” of the industrial heat pump market has been captured in Australia, save a few stand out case studies such as the Brimbank Aquatic Centre and the Hardwicks Meatworks, both in Victoria. 

In Victoria, which is also facing the very real possibility of gas shortages by 2026, converting boilers to heat pumps in the food and beverage sector alone could reduce gas demand by about 14PJ in the next 10 years, cutting the state’s industrial gas use by 36 per cent.

“If you look at the last 10 years, our report showed that gas prices had been increasing at about double the rate, compared to electricity prices,” Denis-Ryan told Renew Economy.

“That should be a pretty strong driver for businesses to explore electrification. One of the interesting things that the New Zealand study showed us is that heat pumps don’t have to be complex.”

The main lesson from New Zealand is that time-limited government support – almost entirely lacking in Australia today – is critical for getting the technology conversion off the ground.

“In Australia, ARENA has some funding for industrial decarbonisation, but it’s not really well suited for these types of projects. Typically they provide grants above $3-4 million, and in New Zealand what we saw was the projects were typically below $1 million, so they are really small,” Denis-Ryan says.

“It needs a different type of financial support.”

New Zealand started tinkering with wider applications of industrial heat pumps in 2013, under the then-National government. 

By 2018, it rolled out a 50 per cent co-funding program up to NZ$500,000 (~AU$450,000) for companies wanting to install an industrial heat pump, and later the GIDI program offered a 35 per cent co-funding option, ultimately backing about 26-30 industrial heat pump projects.

The trick, Denis-Ryan says, was to understand that not every company had to be completely redesigned to install a heat pump – some just swapped out a gas water heater for an electric one – and that incremental additions go a long way to cut costs.

“Heat pumps don’t need to be complex and scary. There are ways to implement them today that will help businesses reduce costs today without completely redesigning processes,” she says.

An old tech

Heat pump technology is old: it’s been used since the 1960s in places such as Europe and New Zealand. 

But it’s also very energy efficient, creating 4 gigajoules of heat from every gigajoule of energy put in. A gas boiler on the other hand creates 1 gigajoule of heat from every 1.18 gigajoule of energy put in.

In New Zealand, the technology was already being used in the country’s export industries which needed ways to cool dairy and meat products for shipping. Genesis Energy’s Dempsey visited a Hawkes Bay meatworks a decade ago whose heat pump was 10 years old at the time. 

In Europe, industrial-scale heat pumps are used to heat entire cities. Stockholm, in Sweden, has a 215 MW installation that is made up of seven heat pumps – two 40 MW and five 27 MW devices. Gothenburg in Germany has a 160 MW system made up of four units, two of which are a massive 50 MW each.

Gas shortage creates urgency

There are some elements of the New Zealand story relevant to Australia, and others which aren’t. 

For example, New Zealand was culturally ready to switch because the tech was pioneered in the dairy and meat export industries, which needed really good fridges to get the country’s main export products away from New Zealand’s extremely distant shores, Dempsey says.

But with government cash for conversions now finished, the next push is coming from a problem that will feel more familiar for Australian businesses: an awareness that the clock is now running out on last gas from New Zealand’s offshore fields. 

A year ago, the Ministry of Business, Innovation and Employment (MBIE) estimated New Zealand had just 8.5 years of gas reserves left, or 1,300 petajoules, at 2023 rates of consumption.

“[Our CEO] has publicly said we’re using the profits from our gas field to pay for… electrification projects,” Dempsey says. 

“What we also know is the gas position in New Zealand is only going to get worse. The writing is on the wall. We’re going to run out of gas eventually, so Genesis is looking at it proactively, rather than fighting it.

“What’s changed is we now have a gas crisis… the narrative has changed. Historically it was an economic thing [as to whether or not to switch to electric], but that narrative is changing to now it’s a security of supply issue. We are running out of gas, there will be a point in time where we simply cannot run our gas assets.”

Genesis Energy owns 46 per cent of the Kupe oil and gas field and has a contract for all of the offtake.

Gas shortages are looming in Victoria and east coast prices have been at minimum at global spot prices for years, but companies appear to have been reluctant to ditch the fuel in favour of something else.

Government support for what is seen as a radical change, as Denis-Ryan pointed out, is limited.

At one end, the Victoria government offered funding to help companies investigate the feasibility of electrification. By the end of 2024, 30 received between $19,000 and $66,000 to look at converting to heat pumps, but not to pay for the hard yards of actually doing it.

At the other end is New South Wales (NSW) which offers a small-scale technology certificates-like scheme for businesses that are buying the equipment, but this rebate doesn’t help with up front costs or planning. 

Business-friendly lobbies appear to be pushing governments to stick with fossil fuels, even in gas-constrained Victoria where the Victorian Chamber of Commerce has had little to say about heat pump conversions and much on urgently securing new gas supplies. 

Electricity price problems

But as with all new technologies, industrial heat pumps come with their own problems, too. 

In New Zealand, this comes in the form of soaring electricity prices which are providing a present day counterweight to the future threat of no gas.

In August 2024 wholesale prices in the New Zealand electricity market soared as high as $NZ1,000 per megawatt hour. Since then two pulp mills have closed, with the owners blaming high power prices. 

The new Fast-Track Approvals Act streamlines development applications for big projects, to handle the 6 gigawatts of large scale solar and batteries currently waiting for approvals and grid connections. 

But the country is still scrambling to build enough generation to meet demand, partly coming from successfully introducing electric vehicles to a country with virtually no rooftop solar.