Auditor-General: New Zealand energy sector needs more investment for reliability

Significant additional investment in New Zealand’s critical infrastructure will be required if the electricity sector is to maintain reliable supply, a report from the office of the Auditor-General says.

The sector will also need to spend more if New Zealand’s “net zero” carbon targets are to be achieved by 2050, the office said in a report arising from its audits of power distributors over 2023/24.

New Zealand’s electricity distribution businesses are natural monopolies and operate under complex regulations, Deputy Auditor-General Andrew McConnell noted.

They also face challenges from ageing infrastructure, the need to adopt emerging technologies and the need to have a resilient network.

The sector recognised the significance of the task ahead.

“However, while some electricity distribution businesses may be able to respond through innovation, smaller companies will find it hard to keep up.”

The energy sector would also benefit from clear, “high-level” goals to guide the publicly owned energy companies’ planning and investment, McConnell said.

“Otherwise, there is a real risk that electricity distribution businesses’ collective investment will not be enough, which may negatively impact the communities they serve,” he said.

The main legislation for publicly owned energy companies is now more than 30 years old.

“With the challenges the companies face, it may be timely to consider whether the legislation remains fit for purpose,” McConnell said.

The Auditor-General’s audits showed the publicly owned energy companies were “generally well-run” and that their regulated core operations were profitable.

Any profit variability usually arose from non-core investments, the report said.

All electricity distribution businesses report on two standardised reliability measures – the average duration of electricity interruptions and the average frequency of electricity interruptions.

Energy companies’ actual performance against ambitious targets had been high – on average, they have provided electricity 99.9% of the time.

According to the forecasts published in 2024, publicly owned energy companies are planning to invest, on average, $730m each year – an increase of 31%.

Some plan to invest “significantly” more than they have in the past, the report said.

Electricity distribution businesses differ markedly in size, reflecting the areas they operate in.

The biggest – Auckland’s Vector – is 75.1% owned by a private trust, with about 600,000 consumers or 25% of the national distribution market.

The smallest is the consumer-owned Buller Electricity with 5000 consumers, or less than 1% of the market.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.