Mercury will build a $256 million wind farm at Turitea near Palmerston North and has scope to expand wind generation in the area by four times.
The company would stage future developments but could spend more than $1 billion in the area, recognised as one of the best areas for wind generation in the world.
It is the first big power station announcement for five years during a period of flat demand and will add to Mercury's Waikato hydro and geothermal power plants and a trial solar scheme in Auckland.
Mercury's chief executive, Fraser Whineray, says that current market conditions indicate that new renewable energy capacity is required for New Zealand.
He said the electrification of transport in New Zealand would drive demand for electricity during the next 30 years.
Transpower has forecast a doubling of demand for electricity by 2050 which Whineray said was equivalent to about 80 similar size power plants to that announced today.
The 33-turbine Turitea wind farm will contribute $30 million a year to earnings, assuming an average generation price of $75/MWh.
The company has been working towards wind farm development for 15 years during which time the economics of wind generation had improved due to more larger and more efficient turbine blades.
Modelling showed a capacity factor of 45 per cent at Turitea, meaning the wind farm could operate at full power for nearly half the time.
The 119MW Turitea wind farm will generate 470GWh per annum on average, enough electricity to power 210,000 cars.
When generation connects to the national grid at Linton from late 2020, Turitea will be New Zealand's third largest wind farm.
It will be the first large-scale generation addition to New Zealand's capacity since 2014.
The $256m project was part of a potential investment of just over $1 billion in wind energy.
The Turitea project will be funded from existing debt facilities available to the company which late last year sold its smart-metering business, Metrix, to Australia's intelliHUB Group for $270 million.
Mercury has contracted Vestas-New Zealand Wind Technology, a local subsidiary of Vestas Wind Systems A/S (the world's largest wind turbine supplier), to build and maintain the Turitea wind farm for 25 years.
Mercury has consent to build 60 turbines and transmission and other infrastructure from this project is scaled to support the development of the remaining 27 turbines at Turitea and on the Puketoi range to the east where it has consents for a 53-turbine wind farm.
If it went ahead with all the projects they would have a total capacity of around 500MW - 20 per cent more than the Clyde Dam.
"With this announcement, Mercury has realised the 'awesome foursome' of renewables - hydro, geothermal, solar and wind - that enhance our contribution to New Zealand's green energy future," Whineray said.
The development of the wind farm would provide jobs in the area.
Mercury already generates around 6800GWh of renewable electricity a year - about 16 per cent of New Zealand's total electricity generation.
It operates solar business Mercury Solar, and has a 60kWp solar array at its Penrose R&D centre.
Mercury also owns 19.99 per cent of Tilt Renewables, which operates and develops wind farms in New Zealand and Australia.
Like other gentailers, Mercury's shares have rallied this year hitting a record $3.83 today.