The company now plans to build the 27-turbine, southern element of the project with the rest of the development. That will take the total project size to 222 megawatts, produced by 60 turbines, making it the country's largest wind site.
Whineray said the company had spent 18 months getting to the decision point on the first $256m stage of the project.
But he said the company was surprised at the time that other generators did not have other projects "shovel-ready" to go.
Since then, power prices have remained higher than the project's business case assumed and funding costs have been lower, enabling the company to complete the full development at a cost no greater than the first stage.
Whineray said Mercury doesn't see tight gas and coal supplies – which are contributing to high power prices – changing any time soon. Prices are "pretty crazy" when hydro storage is above average but spot prices this morning were above $250 a megawatt-hour.
"That is a sign of a market under stress," Whineray said.
Mercury shares rose 1.2 per cent to $5, taking their gain so far this year to 42 per cent.
The company operates the Waikato hydro chain and has interests in five geothermal plants around Taupo and Kawerau. It is expanding into wind to take advantage of falling turbine costs and to complement the flexible generation it has at its hydro dams.
The $464m investment at Turitea, south-east of Palmerston North, will boost its generation by about 840 gigawatt-hours to more than 7,400 GWh, and will allow it to optimise the value of the storage in its dams on the Waikato River.
Assuming an average wholesale electricity price of $80 a megawatt-hour, the project will lift Mercury's operating earnings by about $55m a year. Whineray says that will improve – not reduce – the company's ability to continue paying rising ordinary dividends.
He noted that Rio Tinto's recently announced review of the Tiwai Point aluminium smelter, the country's biggest electricity user, had not changed the firm's view on investment risk. The smelter's closure within the life of any new generation investment has always been considered likely, given the age of the site and the 25-plus year investment horizon for new generation.
Whineray said the smelter will close by 2030 so it is only a question of when. It is firms that, unlike Mercury, have thermal plant or generation on the South Island that will face some "really crunchy" decisions when that happens, he said.
Contractor Vestas will build both elements of the Palmerston North project, ground on which was formally broken last month.
Mercury committed $256m for the 33 northern turbines, which are rated at 3.6 MW. They are expected to operate at about 45 per cent of that maximum capacity and will deliver about 470 gigawatt-hours of electricity and $30m of earnings annually.
Those turbines are expected to be commissioned late next year.
The 27 southern turbines will have the same rotor size but are rated at 3.8 MW to help offset the slightly lower average wind speed at that part of the range. They are expected to operate at about 41 per cent of capacity and deliver about 370 GWh of electricity and earnings of about $25m a year.
They are expected to be commissioned in late 2021.
