Mar 25, 2025
In partnership with ASB
Residential and rural electrification: latent demand, plenty of barriers, and a need for finance

Rewiring Aotearoa is working to speed up the transition to an ‘electrified’ future, with work showing that upgrading fossil fuel machines to electric equivalents can save New Zealanders money on their energy bills, decrease emissions and give communities the resilience to keep their lights on and homes warm. ASB and Rewiring Aotearoa partnered up in 2023 and conducted research to identify barriers to households and farms going electric, undertook thorough literature review and considered potential finance solutions to address these barriers. This report covers some of the high-level themes uncovered during that process.

AUTHORS: Jenny Sahng / Reuben Brady / Wallis Greenslade / Michelle Pawson / David Hall / Dave Karl

RESIDENTIAL

There is a need for electrification

People care about climate change and want to do more about it. Moreover, a number of households are struggling with the costs of the traditional electricity system. Many people report feeling cold in their homes as a direct result of trying to save money. Alongside cost of living savings, there is a need for electrification in order to reduce emissions, improve energy resilience and security, and mitigate hardship.

The electrification system is complex and confusing

The electrification system is not user-friendly. It is difficult to understand and interact with, which makes it difficult for households to electrify. Many people find it hard to understand and navigate the many different parts of the system required to electrify (e.g. installation, finance, insurance, regulation).

There is latent demand for electrification

Many people have strong intentions to electrify but perceive significant barriers to doing so (Frustrated Enthusiasts). At the other end of the spectrum, there are people that do not perceive any barriers to electrification, but have no intention to do so (Reluctant Movers). Combined, these groups present a significant amount of latent demand.

This demand can be activated

The most significant barriers to electrification are poor information and access to finance. There is currently a lack of diversity and sufficiency in electrification financial offerings. There are also particular barriers for renter and coowners (e.g. those of community houses and Māori land) to access finance.

Overcoming Barriers

Barriers can be addressed by providing new information, new financing options, and other support.

More specifically:

Information.

Access to reliable information is a critical factor in decision-making. Making data open, accessible, and intelligible can help people move more quickly to economically beneficial investments, and also to reduce the perceived risk of adopting new and unfamiliar technologies. For example, for Frustrated Enthusiasts, good information about the electrification system addresses a considerable barrier. For Reluctant Movers, the most likely leverage point is information that helps them understand how electrification is aligned with their interests or values.

Access to finance.

Although electrification is getting cheaper, solar, batteries, and electric vehicles remain a significant upfront capital investment (equivalent to paying multiple years worth of electricity and fuel costs upfront). Providing better access to finance through financial innovation to all types of households, including Māori, co-owners and renters, is a clear way to address this.

Action should be taken now

Given the country is at an electrification tipping point, there is an opportunity for banking sector leadership in electrification finance. Although there are some wider system constraints to sustainable finance, there is enough internal flexibility for banks to still realise this leadership opportunity.

Action should be innovative

As this is an emerging area of finance, there is opportunity to innovate and experiment. This approach can help achieve longevity and scalability. In particular, focusing on long-term opportunities as well as risks, and taking a more holistic approach to value that includes non-monetary risks and opportunities.

Action should be ambitious

The electrification system is still at an early stage of development and does not make it easy for people to electrify. There is currently no pace or scale to its development. This is partly because of a lack of money but it is also due to a lack of cohesion between its many parts (e.g. consumers, trades, smart energy providers, government). As such, there is opportunity for systemic change that brings about a cohesive and user-friendly electrification system.

Partnership is important, particularly with government

Effective engagement with government is a key part of system change. There are limits to what private finance can do within the constraints of capital requirements and fiduciary responsibilities. Consequently, a market-led transition risks improving access to technology and finance for well-off households, but not for the low-income households that stand to benefit most. Government needs to take a proactive role in electrification for those parts of society where the social investment benefits, as well as the risks of insolvency, are greatest.

International Research

Internationally, efforts to decarbonise households have focused on carbon markets, taxes, energy efficiency standards, and retrofitting insulation. Despite the increasing popularity of green mortgages and loans globally, green housing finance remains nascent. Aotearoa New Zealand could benefit from pilot projects and studies exploring diverse finance options for electrification. The motivation for green home upgrades appears driven by both environmental concerns and cost savings. Therefore, accessible finance options that facilitate household electrification, reduce emissions, and lower living costs present an opportunity to address these dual concerns. Access to finance is a significant barrier to household electrification globally, primarily due to high upfront costs. Research highlights that inequities exist in accessing such finance.

Other key barriers are information gaps and limitations for renters. The structure of the banking system plays a crucial role in fostering green economic transitions. Banks offering environmentally sustainable products may gain a competitive edge over others. In internationally comparable personal banking sectors, competition fosters financial innovation, which is essential for advancing green finance. In Aotearoa New Zealand, where banks currently offer similar green loans for home improvements and electrification, there is large potential for market leadership and differentiation.

Enabling Environment

A variety of actors can contribute to the enabling environment for home electrification, including business and civil society groups. However, the OECD notes [1] that “the public sector has a key role to play... [in] creating an enabling environment. A well-designed regulatory framework, information on climate risk and pricing externalities, and better aligned policies could help drive adequate investment” into climate-aligned projects and activities.

Further, our research shows that Government responsibility for electrification and energy resilience is seen as key. There is strong support for policy and market settings that support consumer-owned energy assets. Consequently, the recommendations below are tilted toward levers that governments have unique capacity to influence, through their regulatory powers and capacity to shape and steer markets.

  • A strong, steady, predictable price on carbon.
  • Government support for disadvantaged households.
  • Public investment to drive down risks and shorten paybacks for households.
  • Fair pricing for solar exports.
  • Better data.
  • Bulk purchasing of energy technologies to drive down costs.
  • Industry upskilling and support for intermediaries.
  • Aligning capital risk requirements for electrification.

Other Supporting Measures

General information on the benefits of electrification, as well as information-based tools, plays an important role. However, peer effects – that is, the influence of decisions, actions, and beliefs of an individual’s peers – are also strongly influential.

Electrifying households involves a number of options, decisions, and parties. It takes a strongly committed household to pursue electrification on its own, and requires a significant investment of time, energy, and resources. Partnerships can play a critical role. Internationally, and even domestically, there are examples of successful partnerships with the likes of installers, one-stop-electrification shops, utilities, communities and government that emerged in order to reduce the number of parties and decision points that a household needs to directly interact with. In turn, this reduces transaction costs and increases uptake.

RURAL

There is latent demand for farm electrification

There is a significant amount of latent demand for farm electrification. Our research found two thirds (66%) of respondents fall within this category. This is higher than in research relating to residential respondents, which found latent demand of 48%.

Barriers to electrification can be overcome

The most significant barrier to electrification is the high upfront capital investment required for electric machinery, solar panels and batteries. This barrier includes people lacking access to knowledge about available finance, and attitudes towards debt.

Farm electrification has multiple, overlapping benefits

Many on-farm machines are already electric, including milking sheds, refrigeration, and a majority of water pumps. However, by self-generating electricity from solar panels and other sources, and then electrifying the remaining farm machines, there are multiple benefits. These include reduced emissions, lower energy costs, enhanced profitability, decreased noise levels, and increased energy resilience and security. Additionally, farm productivity can be improved by the adoption of new agricultural technologies, such as automated machinery and precision agriculture technology, which are often electric powered. These benefits are a potential source of strong rural support for electrification.

Sustainability-related trends are prioritising electrification for emissions reductions, but also shaping the development of new agricultural technologies

Electrification is an attractive option for farmers who are under pressure from markets to reduce the emissions intensity of their products. Moreover, these sustainability trends are also influencing the development of new agricultural technologies that enable precision agriculture and on-farm automation, much of which is powered by electricity. Consequently, there is an opportunity to combine farm productivity and efficiency by adopting new technologies, and generating one’s own electricity to deliver the cheapest source of energy.

On farm solar generation has significant potential for installed capacity

Solar generation from available roof and ground space would generate hundreds of megawatts of power per year per farm. It would also generate savings and export revenue of approximately $300k - over $1m across the 30 year lifetime of the panels (the median export revenue based on survey results was $615k for 500 m2 of roof space, and $308k for 250 m2 of ground space). The likely savings and export revenue more than makes up for the upfront cost, which has a median of $221k for rooftop solar and $111k for ground solar. Access to finance will be key to unlocking these savings.

Farm systems vary significantly, but solar and batteries are a common opportunity

Farm systems vary significantly – from dairying, to sheep and beef farming, horticulture, and viticulture. Consequently, there is significant diversity among the machines that these farms depend upon. If there is one common opportunity, however, it is solar and battery systems. This enables a resilient and flexible supply of low-cost electricity into the future, and unlocks the maximum value from the electrification of end-uses. Even if it is challenging to cater to the diverse electrification needs of farms, solar and battery systems are the common opportunity.

Role of Finance

Rural lending, cooperatives, and agribusiness finance have long been a cornerstone of rural finance architecture in Aotearoa New Zealand. Agricultural lending makes up 11% of aggregate bank lending in this country. However, our research shows that there is a gap in targeted financial mechanisms for farm electrification, and better access to finance plays a key role in addressing barriers to rural electrification uptake.

Our research identified the high upfront capital investment required for electric machinery and solar panels as a key barrier to farm electrification. We found many examples of public finance providing for electrification in the international literature, but fewer of these focus on farm electrification. In private finance, we found some lending for electrification but fewer for farm electrification. Further, we found that farms have varied and specific contexts, such as seasonal machinery usage and specific machinery needs. Financial instruments would be most effective if they specifically targeted these unique needs in order to maximise their utility to farmers.

Our research suggests that private finance cannot be solely relied upon for such transitions and that combined (public and private) finance can better leverage farm electrification. In the broader system, we identified the opportunity for greater policy direction and ambition from the government to crowd in private investment towards farm electrification. There are also opportunities for private finance to lead the way on financial innovation for rural electrification, including through innovations such as on-bill financing, contingent debt, and green bonds.

Other Supporting Measures

There are a number of supporting measures that could assist the energy transition to renewable energy in farms through finance products. These are summarised in this table:

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