Breakeven cost creep and its impact on Wellington business confidence

I recently wrote an article on the breakeven cost creep that we are experiencing as a business and how it forces us to put our prices up, with initially disastrous consequences.
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Comparison 2 weeks – Gross kWh consumption – HRV installation

Two weeks ago we installed an HRV system in the administration block at the motel manager flat. Based on the data we’ve collected since then, I have put together a comparison of the pre- and post-installation kWh consumption data to arrive at a (very rough) indication of return on investment for an HRV system.
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Post installation daily data (total kWH consumption)
Pre-installation daily data (total kWh consumption)
25.3
9.28
22.8
17.8
18.3
22.2
12.5
22.6
14.7
29.7
10.7
21.3
14.9
15.3
22.2
26.8
15.6
22.1
11.1
19
18.3
17.8
8.22
22.3
10.6
17.7
12.2
22.3
217.42
286.18
15.53
20.44
Now, obviously there are some assumptions. A motel business is always moving and changing, so no two sets of data collected from two different timeframes will be directly comparable. In this instance, I have compared the data from the two weeks before we installed the HRV system with the data from the two weeks directly after we installed the HRV system. The reasons this may not be sufficient data to give a realistic return on investment calculation are as follows:
a) The data set is very small, spanning only 4 weeks of total daily kWh consumption at our property
b) The data was collected from two different seasonal periods. We are currently at the very start of spring, days are growing longer and temperatures are getting gradually better. Therefore some of the daily kWh consumption savings may be attributable to changes in daily temperatures and light hours, rather than to the system itself
c) The period between the end of winter and the start of spring may be the period when the HRV system delivers its best savings. The reason for this is that there is now enough heat to heat the roof space to a higher temperature than the living space, whereas at other times of the year the difference between these two temperatures may not be that significant.
There are also reasons why this data would not be indicative of other households. It is a reflection of the consumption saving in our motel administration block only, because of the following:
a) Our administration block is a certain size, and the system may function differently based on the building design.
b) Having a system that circulates warm air from cavities in the roof into colder parts of the living area is all well and good, but unless that system encourages the people who occupy that space to make actual changes to the way they use electricity for heating, then there won’t be as pronounced a difference in the before and after data. (ie if you install an HRV system but then continue to run your electric heaters regardless, you won’t save any energy at all.)
c) The system itself has different settings, each of which use different levels of power and produce different results, which I have only begun to play around with.
d) We have already undertaken energy saving initiatives to reduce the heating bill. These will be unique to our motel administration block.
For all of those above reasons, the data I am reproducing here is indicative only and ought not to be considered a benchmark for other households installing an HRV system.
Based on the data above and the assumptions noted, I have drawn the following table of conclusions:
Average kWh Saving (Daily)
4.911
Current value in $ (ex GST)
$1.19
Current value in $ (inc GST)
$1.37
Gross annual saving (inc GST)
$500.96
Maintenance Cost (annual)
$115.00
Assumed net saving (inc GST)
$385.96
Return on Investment
11.35%
Note that I am applying our current kWh cost of $0.243 + GST per kWh, which we receive from Nova Energy.
The above table gives an indication of simple ROI, but does not allow for inflation. One of the main benefits of an HRV system is that if it functions well, it can reduce the number of kWh actually required to heat a home. This has a counter-inflationary effect, because the price per kWh tends to go up over time. I have it that based on the past 40 years of NZ retail electricity data, the price per kWh has gone up an average of 3.2% per annum. Extrapolating this out to the next 20 years, we can produce a more complex picture of return on investment over time.
Year
Cost per kWh inc GST
Net return from HRV system per year
Annual ROI from HRV system (%)
2018
$0.28
$385.92
11.35%
2019
$0.29
$401.95
11.82%
2020
$0.30
$418.49
12.31%
2021
$0.31
$435.56
12.81%
2022
$0.32
$453.18
13.33%
2023
$0.33
$471.36
13.86%
2024
$0.34
$490.13
14.42%
2025
$0.35
$509.49
14.98%
2026
$0.36
$529.47
15.57%
2027
$0.37
$550.10
16.18%
2028
$0.38
$571.38
16.81%
2029
$0.40
$593.34
17.45%
2030
$0.41
$616.01
18.12%
2031
$0.42
$639.40
18.81%
2032
$0.43
$663.54
19.52%
2033
$0.45
$688.46
20.25%
2034
$0.46
$714.17
21.00%
2035
$0.48
$740.70
21.79%
2035
$0.49
$768.08
22.59%
2035
$0.51
$796.34
23.42%
2035
$0.52
$825.50
24.28%
Sum of cashflows
$12,262.57
17.17%
Note in conclusion that this data is all very early, may have been collected at an optimal time of year for the system, and if later stages of the year show lower returns, it would distort the figures above significantly. However, despite one or two things, which I’ll cover in later articles, I am overall fairly pleased with the investment.

Generate Kiwisaver versus Simplicity Kiwisaver

Following on from my decision to invest an additional $2 per week into Kiwisaver, I went through a process of assessing my long term goals, reviewing the available funds and their investment philosophies, and arriving at the decision that the best long term investment option that met my investment criteria was the Simplicity Kiwisaver Balanced Fund.

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Let’s have a look at Z’s annual report

I’ve heard our Prime Minister is preparing law to enable the Commerce Commission to have a sweeping set of powers to investigate fuel businesses and collect information on their profit margins. Did you know that this information is already freely available in the company’s annual report? You can access this information without the need for law changes that will force new compliance costs and ultimately the cost of doing business in New Zealand up higher than it has been recently. More importantly, you are guaranteed the information is accurate, since if a public company lies to its shareholders it gets sued.

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Learning the acronym ‘DRS ABCD’ to recall CPR instructions

I recently completed my First Aid Course – first time in a while – and I wanted to hang on to the information I gathered. Basically, I run a motel frequented by a number of elderly guests, and I also have two elderly parents who could potentially at one stage or another be at risk of cardiac arrest.

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Why I’ve ‘bonded up’

My review of Kiwisaver has prompted me to seek out the most cost-efficient group of funds on the market – namely, Simplicity Kiwisaver. While the rates of return on Simplicity funds are lower than the previous bank-based fund I was with, the fees are significantly lower, particularly as the fund grows in size.

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