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The idea that big power generator-retailers are holding back on investing in new renewable generation is not backed by the numbers, the Electricity Retailers’ Association of New Zealand says.
The industry is sometimes slammed for not enough investment in new generation conditions, which iswhy the system sometimes comes under pressure and prices surge.
In August, low hydro levels, a gas shortage and poor wind power generation resulted in wholesale power prices spiking to over $800 per megawatt hour.
Critics say that while there has been investment in new generation, there has also been retirement of old thermal plants – Contact Energy’s ageing gas-fired Taranaki Combined Cycle Plant is due to close before the end of the year.
Wind turbines at the newly-commissioned Harapaki wind power plant. Photo / NZME
The system is also still heavily dependent on the coal and gas-fired Huntly Power Station for support when the hydro lakes are low or when there is a cold snap.
A Concept Consulting report commissioned by the Electricity Retailers’ Association of New Zealand (Eranz), which brought together data on New Zealand’s electricity generation over the past 20 years, concluded billions of dollars have been invested in renewables despite uncertainty in the energy system.
Eranz’s members supply almost 90% of New Zealand’s electricity. Members include Contact Energy, Genesis Energy, Manawa Energy, Mercury, Meridian Energy and Nova Energy.
The report said around 5000 gigawatt hours of new renewable generation will be built in the coming years - enough to power 625,000 homes.
It contends that sustained wholesale prices above the cost of new generation supply incentivise investment in new generation.
Eranz chief executive Bridget Abernethy said generator retailers have invested heavily in renewable generation since 2010, despite minimal demand growth due to energy efficiency improvements and the reduction of industrial demand.
“The report highlights the factors that have created uncertainty for investors, including the future of Tiwai, changes in emissions trading scheme policy, fluctuations in gas supply and concerns about transmission capacity,” she said.
“Even with these challenges, gentailers are rapidly developing new energy sources and replacing thermal generation with renewables to pave the way for New Zealand’s low-carbon future.”
The NZAS smelter at Tiwai Point in Southland.
Abernethy says elevated spot prices are a recurring market feature.
New generation investment is incentivised when there are sustained wholesale prices above the cost of supplying new generation, she said.
“High spot prices reflect scarcity and signal the need for more generation.
“That increase in generation is what we are seeing now.
“The idea that gentailers are avoiding investment in generation simply isn’t backed by the evidence from this report.”
The report also found that, in addition to already completed projects, there was a significant amount of future generation in the investment pipeline.
“New entrants beyond the established players supply an increasing share of this generation, indicating that competition remains strong in New Zealand’s generation sector.
“While not all proposed projects will get built over the next few years, it does show how committed the industry is to adding options for new renewable generation.”
Over the past 25 years about 1400MW of net new capacity has been built, despite major fossil fuel retirements.
Starting from a baseline of about 9000MW, this represents a 16% net increase in capacity.
“Capacity growth has been particularly strong over the last few years, as well as during the global financial crisis in the late 2000s,” the report said.
Over the past few decades, economic and population growth effects have been muted by increased energy efficiency and the exit of some industrial plant.
The report pointed out that since 2019, there had been uncertainty about the future of New Zealand’s largest electricity consumer – Rio Tinto’s Tiwai Point aluminium smelter – until it recently signed new electricity supply contracts out to 2044.
The possible closure of Tiwai meant there would have been a “steep and substantial decrease in demand”.
Many new projects are already under construction and all are expected to be completed by 2027.
The committed projects include 300MW of grid-scale batteries by Meridian (100MW, Ruakākā), Contact (100MW, Glenbrook) and Genesis (100MW, Huntly.)
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
