Investment Boost - Energy Boost.

The business case for new energy projects just got significantly better.

I missed what is likely the most significant piece of Budget 2025 from an energy infrastructure perspective.

Curiously underplayed by the government on budget day was the accelerated depreciation scheme called “Investment Boost”.

The nuts and bolts of the scheme is that businesses can deduct 20% of the cost of new assets in the year that they purchase the asset. They can claim both Investment Boost and a standard depreciation deduction in the year they purchase the asset.

What I didn’t appreciate at the time is that there are no limits to this scheme.

When I say no limits, as I understand it you could build a $300M geothermal power station for example and claim $60M depreciation in year one. From a tax liability perspective this is huge. There is no upper limit.

I expect that this may very well tip the business case for a few marginal wind and solar farms positive for FID (final investment decision).

The catch with all this however is that it also captures projects that would have proceeded anyway without this announcement which will have a material impact on crown revenue.

Bryce Edwards of the integrity institute has broken it down well in a piece over the weekend called Integrity Briefing: “Investment Boost” or “Corporate Welfare”?. I’d suggest in practice it will undoubtedly be a bit of both.

I hope this translates into increased investment in energy infrastructure. It is far more significant than the $200 million support for gas drilling, which I see as more symbolic than material.

From a gas supply perspective, which is an acute energy security issue for the country, it may accelerate some onshore drilling particularly in the Taranaki onshore fields which have scope for additional wells. I don’t expect it to result in new offshore fields as the lead time of these is too long.

Boards all around New Zealand will be meeting this week to look at what their capital expenditure budgets look like in light of Investment Boost.

From an energy security perspective, I see this as a positive development.

I would like to see an additional condition added to the package for energy infrastructure, which is to add an EROI test (Energy Return On energy Invested). To qualify for Investment Boost I would require the new infrastructure to improve the average EROI of NZ’s overall energy infrastructure. Reducing the EROI of our energy systems due to a narrow boundary economic analysis in the absence of a biophysical analysis will not result in long term growth.

Have a great evening.

Larry