Contact Energy's 174MW Tauhara steam turbine plant near Taupō.
A resounding majority of business leaders believe New Zealand must invest more in electricity generation to cater for new demands on supply.
The leaders were asked: The increased use of artificial intelligence, electric vehicles and data centres will create a demand on electricity — has New Zealand got sufficient investment in the right places to cope with this big shift?
A total of 78% of Mood of the Boardroom survey respondents said “No”, 6% said “Yes” and just over 16% were unsure.
When asked: Should the Government do a “Telecom” and separate retailers from generators in the energy sector to encourage further investment in the generation market, 39% said “Yes”, 23% replied “No”, and 38% were unsure.
Creating a long-term plan and speeding up the consenting process could unlock investment, the leaders said.
Scott St John, chair of Mercury Energy, said ongoing investment in generation and lines was an opportunity for New Zealand.
David Carter, Beca Group executive chair and regional Director of Asia, said a raft of generation projects were proposed and the capital existed to deliver these, while noting not all will be built.
“The speed with which they can be consented and the ability to store and transmit the energy once generated seem likely to be the key constraints, he said.
Paul Newfield, chief executive of infrastructure investor Morrison, said: “We need to fundamentally lift our levels of investment in renewable energy development. Simplifying the resource consent process for new wind and solar is a good step. Getting rid of the overhang of the potential Lake Onslow Government project is another good step.”
Therese Walsh, chair of Air New Zealand and ASB Bank, said: “I believe we do have the right pathways and investment to meet much of the demand if consenting processes were less onerous and time-consuming.”
Other business leaders said there were lots of investment proposals but capital supply and faster consenting were needed. Policy was not forward-looking enough, and needed consistency.
Another leader highlighted “very poor leadership evident in addressing our long-term power needs”.
“Inappropriate corporate structures have prevented timely and innovative responses such as distributed generation.”
The coalition Government quickly axed the $16 billion pumped hydro scheme in Central Otago because of cost. The scheme would have served as a giant battery, storing enough water to produce about 1200MW, equal to 12% of the country’s peak generating capacity, and ensuring a consistent power supply rather than using the coal-fired Huntly power station.
Energy Minister Simeon Brown said “our decision to cancel Lake Onslow, and our commitment to making it easier to consent wind, solar and geothermal energy projects will give industry certainty in the direction the Government is heading and greater confidence to invest in more energy production in New Zealand”.
Brown earlier said demand is forecast to increase by two-thirds by 2050 and “we need to build enough generating capacity to meet that demand”.
“To do this, we’re going to need to significantly increase the amount of clean energy we generate from solar, wind and geothermal.”
The Government is proposing to lift the ban on petroleum exploration beyond onshore Taranaki — the ban was imposed by the Ardern Government in April 2018 — through amendments to the Crown Minerals Act.
The ban shrank investment in natural gas development and the country is feeling a gas shortage.
Resources Minister and Associate Energy Minister Shane Jones earlier said “without this investment, we are now in a situation where our annual natural gas production is expected to peak this year and undergo a sustained decline, meaning we have a security of supply issue barrelling towards us”.
Japan’s new Ambassador to New Zealand, Makoto Osawa, was moved to highlight the plight of foreign investors in an uncertain energy market.
During an introductory courtesy call with Shane Jones and Forestry Minister Todd McClay, Osawa said electricity prices had been “fluctuating and becoming higher and higher before crashing, which had been difficult for investors”.
Osawa told the NZ Herald predictability was important for Japanese investment and it was important the Government heard the perspective of large investors here.
“The sudden high price of electricity is hurting.”
Japan is New Zealand’s fourth-largest foreign investor, to the value of $16.2b in 2023, up from $10.6b in 2018. Japanese companies such as Oji Fibre Solutions, Pan Pac, Juken, Nelson Pine and Daiken are well invested in the forestry sector here.
Osawa said the future for Japanese investment was bright especially in renewable energy but investors needed predictability and certainty over electricity prices.
In the Mood of the Boardroom survey, an energy company leader said “the mixed ownership model means you are invited to invest in opposition to the Government’s own investments.
“Who in their right mind invests in foreign countries against the Government’s direct investments when the Government sets the rules. Even KiwiSavers are asked to invest in opposition to the Government’s majority ownership of the electricity sector,” he said.
Malcolm Johns, Genesis Energy chief executive, said New Zealand has more than enough capital willing to invest — capital will be deployed by all investors in a rational way. So clear demand signals coupled with stable, long-term policy and regulatory settings were key to deploying capital.
A board director said Transpower had been under-invested over many years and has an $8.5b investment need. This was resulting in material increases in lines charges to the gentailers which then passed them on to the end-customer.
The public was unaware the return on capital for the gentailers barely covered the cost of capital. The challenge was because of the rapidly increasing lines costs and legacy of the Labour Government decision to legislate against the gas market without giving any thought to peaking risk for dry years - a national disgrace, the director said.
A member organisation chief executive said: “We have two basic problems in energy today — too little supply and too much cost. The Government’s basic rhetoric bagging Labour’s stupid petroleum ban is fine as far as it goes, but it’s also basically a red herring.
“Rather than populism, let’s see some substantive policies which solve the big issues in the medium term.
“Otherwise, let’s continue to say goodbye to New Zealand industry and energy-intensive innovation,” he said.
An investment adviser said the electricity distribution network was not configured to handle the demand that would be placed upon it by a large fleet of electric vehicles, likewise the “industrial” demand of data centres and artificial intelligence would be challenging on generation.
Mark Cairns, Freightways chair, said demand was increasing in the North Island particularly from data centres, and “we have transmission constraints getting electrons across the Cook Strait link when we have dry hydrology in the North Island”.
Thomas Pippos, chair of Deloitte, said the impression is that New Zealand will continue to be challenged, particularly around the affordability of new solutions.
Asked whether the electicity companies should be split into separate generation and retail entities — aka a “Telecom” separation — business leaders were wary that this would improve investment and the energy market.
Roger Partridge, chairman of The New Zealand Initiative, said the problem was not one of competition between the gentailers, but poor regulatory settings and Government policy.
The 2018 offshore exploration ban more or less meant existing offshore reserves were “all there would ever be”. This has had disastrous consequences for energy security — not to mention emissions, with the consequential need to use more coal. The last Government’s Lake Onslow project then hung over the industry, muting private investment decisions. More heavy-handed regulation was the last thing the sector needed, he said.
Pippos said it was not intuitive that the “Telecom’ separation” would solve the problem given that customers can move providers currently.
“What problem are we fixing — investment in generation or integrated business models and pricing? Doesn’t supply help with price?” asked an investment executive.
“Retail gives gentailers a hedge, reducing the risk of investment. The Government should sell its stakes in the mixed ownership companies and have these entities truly unshackled but also at the mercy of the market,” he said.
Cairns said the distribution networks were already regulated and this is where there was a high proportion of cost increases in the electricity bill.
“The squeaky wheels of the retailers that gamble on financial instruments and whinge when they don’t get their bets right is amusing to say the least. Get them to take some financial risk in investing in long-run generation assets and seeking a quasi-regulation return on these investments.”
New Zealand did need new investment in renewable generation but the current Resource Management Act was the biggest handbrake to this being achieved, Cairns said.
St John said the level of investment in renewable electricity generation currently under way was measured in the billions of dollars and would continue for some time. It was difficult to see how separating the retailing arm of generators would assist the build out of generation capacity.
Chris Quin, chief executive of Foodstuffs North Island, said the key was cost-benefit analysis and industry structure. The Telecom story was often misquoted and driven by an investment opportunity and a monopoly copper network and new fibre technology.
“The situation and cause need to be properly understood, not emotionally charged.”
Another energy company chief executive said 10 years of no demand growth in New Zealand, the shadow of Lake Onslow, the sovereign risk impact of the gas ban, aluminium smelter uncertainty, and the capital limitations imposed by the Public Finance Act and the government’s fiscal position created a context of ongoing risk — capital was deployed rationally within this context.
Unlike the electricity sector, Telecom was a single player in an effective monopoly market with minimal ongoing political tinkering of market rules and risk.
“There is no evidence of irrational capital deployment by any party within the electricity sector. The better question may be: what is needed to encourage increased rational capital deployment?” he said.
The long-term supply agreement for the Tiwai Point Aluminium Smelter has spurred the generators into renewable energy development action involving geothermal power stations, wind farms and solar farms.
Mercury Energy has committed $1 billion to three projects: the expansion of the Nga Tamariki geothermal station near Reporoa, the second stage of the Kaiwera Downs wind farm in Southland, and Kaiwaikawe wind farm in Northland (waiting final investment decision).
Contact is commissioning the Tauhara and Te Huka geothermal stations near Taupō, building a 100MW grid-scale battery at Glenbrook near the steel mill and investing in the Kowhai Park solar farm at Christchurch Airport (the last two online in 2026).
Meridian has a target of bringing seven new large-scale renewable generation projects, worth some $3b, into operation by 2030. The first is the Harapaki wind farm in Hawke’s Bay, operational next year and capable of powering up to 70,000 homes. A consent has just been granted for Meridian’s Ruakaka Solar Farm with 250,000 panels near Whangārei and is expected to be operating in late 2026.
The Government’s target of net zero emissions by 2050 requires about $30b worth of investment in renewable energy generation.
Global transport and logistics company Mainfreight is taking its power generation and supply into its own hands.
Managing director Don Braid says: “We are investing a huge amount of money in our solar and water collection on all new buildings. We’ve got to face the realistic situation of having higher energy prices.
“It worries us when we see major producers having to shut their plants because of a shortage or a cost of the electricity.
“If we can invest in the long term and in more sustainable producing equipment, then that’s helping us. We are going to have to look at what we do in terms of hydrogen use and electric truck use.”
Braid says Mainfreight is busy trying to convert some of its fleet in New Zealand to electric.
“We are struggling to get long-haul electric vehicles to work, but we certainly are introducing more electric vehicles for round-town delivery, and they seem to work. It’s just not working for the long haul.”
Braid says Mainfreight is building two new facilities in the United States, both with solar and water collection.
“In Texas they are looking at us in a very strange way, wondering why we are putting solar on the roof when they point to the ground and suggest there’s plenty of gas in the ground to use.
“It’s what we stand for and what we’ve got to do. We are a large user of fossil fuel in terms of rail, air and sea freight, road and diesel. Therefore, we will do whatever we can to lower our own carbon footprint.
“What we are finding interesting is that when we place our sustainability report in front of new customers, particularly in the US and Europe, they are very interested as to the amount we’ve managed to do so far.
“It’s aligning with their principles and the regulations they are facing in each of their countries, and it’s helping us win some business,” Braid says.
Many business leaders rate the Opposition Finance Spokesperson highly.