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Energy Cost Risk: What NZ Boards Should Ask Now

Energy cost risk has moved from the operations report to the boardroom. In a survey of business leaders published by ASB in October 2026, 73 percent named energy costs as a concern, second only to general economic uncertainty. About a third had already raised prices because of energy, and about a fifth had cut production, hours or output. The figure that should stop a director, though, is this one: of the businesses that identified energy as a risk, 28 percent had no plan to deal with it.

If your organisation uses meaningful amounts of electricity or gas, this is now a board question. Here is why, and what to ask.

Why this is a governance issue, not a facilities one

For most of the last two decades, energy was a line in the budget that moved with inflation and occasionally spiked in a dry winter. Management handled it. Boards noticed it only when margins did.

Three things have changed that.

• Domestic gas supply is declining. Producers' own forecasts show domestic gas production falling by more than half over the next decade, gas prices have risen over the past five years as supply has tightened, and average contract terms have shortened. If your processes rely on reticulated gas, your cost base and your continuity both rest on a shrinking resource.
• Electricity prices are volatile and contested. Wholesale prices swing with hydro storage and the gas that backs it up. A business that switches from gas to electricity reduces one exposure and increases another.
• Global events reach the meter. Conflict and political uncertainty offshore now flow through to local fuel and energy prices faster than most budgets assume.

Taken together, energy is no longer a cost you forecast. It is a risk you govern: to margin, to continuity, to capital plans, and in some sectors to the business model itself. Under the Companies Act 1993, directors must exercise the care and diligence a reasonable director would in the circumstances. When roughly three quarters of the business leaders surveyed are worried about a risk, a board that has never discussed it will struggle to show it was paying attention.

The three exposures to separate

Boards get clearer answers when they split energy risk into its parts rather than asking "are we okay on energy?"

1. Cost exposure. How much of your cost base is energy, how much of that is contracted and for how long, and what happens to margin if prices rise 20 or 40 percent? Can you pass the increase on, and what does that do to demand?
2. Supply and continuity exposure. If your primary energy source is interrupted, how long can you keep operating? In the same survey, only 37 percent of businesses expected to keep running beyond three days. For a food processor, a cool store, an aged care facility or a hospitality site, the answer can be hours.
3. Transition exposure. If you depend on gas, what is the realistic path off it, what will it cost, and when does it need to start for the money and equipment to be in place before your contract or your supply runs out? Capital projects of this kind take years, not months.

What good oversight looks like

1. Energy risk is on the register, with an owner. Not folded into a general "input costs" line. It has its own entry, rated for likelihood and impact, with a named executive owner and a review date.
2. The board has seen the numbers. A one page view: energy as a share of costs, contract terms and expiry dates, and a simple sensitivity on margin at higher prices.
3. Continuity has been tested, not assumed. Management can say how long operations last without the primary source, and what the backup is.
4. Gas dependent organisations have a transition plan and a date. Including whether the business qualifies for the government backed loan scheme for moving off gas, and whether to use it.
5. Energy assumptions in the strategy are explicit. If the strategic plan assumes stable energy prices, the board knows it, and revisits the assumption when the facts move.
6. The board hears about changes between meetings. Contract renewals, supply notices and price shifts do not wait for the quarterly cycle.

Common failure modes

• Treating it as a budget variance. Energy shows up as an overspend after the fact, and the conversation is about the number rather than the exposure.
• The contract cliff. A favourable supply contract masks the real market price until the month it expires.
• Switching fuels without switching the risk lens. Moving from gas to electricity is often right, but it trades one exposure for another and needs its own assessment.
• No continuity test. Everyone assumes the backup works until the day it is needed.
• Silence in the strategy. A five year plan that never mentions energy is quietly assuming the next five years look like the last five.

Questions to put to management this quarter

• [ ] What share of our costs is energy, and how sensitive is our margin to a 20 or 40 percent rise?
• [ ] When do our energy supply contracts expire, and what are we likely to be offered?
• [ ] How long can we operate if our primary energy source is interrupted, and what is the backup?
• [ ] If we use gas, what is our transition plan, its cost, and its start date?
• [ ] Do we qualify for government support for moving off gas, and have we assessed it?
• [ ] Which assumptions in our strategy depend on energy prices or supply staying where they are?
• [ ] For climate reporting entities: is this consistent with what we disclose on transition risk?