New research identifies key challenges for New Zealand’s energy infrastructure

Our latest research finds that while the cost to build renewable generation is falling, we face challenges with short-term electricity price volatility and with the long-term investment needed to power a larger, low-carbon economy.

Build costs are falling for renewable energy

“We’re used to hearing that infrastructure is hard to build in New Zealand, and that it’s only getting more expensive over time. But the electricity sector shows it’s possible to build infrastructure differently – at a lower cost and with long-term benefits for the economy,” says Peter Nunns, General Manager – Strategy at Te Waihanga.

“From 2015 to 2025, the cost of new wind farms halved and the cost of new solar farms fell by two-thirds. Geothermal power stations cost less to build here than the global average. By comparison, New Zealand’s new road, hospital, and water projects have multiplied in cost over the last decade.”

Challenges to affordability remain

“Falling costs to build new generation help keep energy affordable. But despite this trend, energy infrastructure faces some challenges in the short and long term. Addressing them in a consistent, predictable way is critical to keeping investment flowing and prices affordable for consumers,” says Nunns.

The Commission’s research, 'Shifting currents: Energy infrastructure in transition', identifies a short-term challenge with high and volatile wholesale electricity prices, which, along with a recent lift in regulated electricity lines charges, have pushed up prices for consumers, especially large industrial users.

Price volatility has been driven by declining gas production, which raises the cost of ‘backup’ generation when renewables fall short. Building new electricity generation and storage is needed to offset declining gas, but uncertainty about future gas supply and electricity demand, including the future of the Tiwai Point aluminium smelter, appears to have slowed new investment.

“Wholesale electricity prices are now falling as the pace of investment picks up,” Nunns observes. “But it’s early days, and we need to avoid undue regulatory hurdles and ensure there’s sufficient competition to build new generation.

“As new renewable generation comes online, it will also change how the electricity system operates. The value of shifting demand away from peaks will rise, and financial 'hedging' markets will play a larger role in helping large industrial users and retailers manage exposure to variable wholesale prices.”

Need for clarity on the long-term outlook

“Our long-term challenge is scaling up electricity infrastructure to power a larger, low-carbon economy,” says Nunns.

“Forecasters agree that New Zealand will use more electricity as we shift transport, heating, and industry away from fossil fuels. We’ll need to expand generation from sources like wind, solar, and geothermal to meet demand. But the pace of electricity demand growth is uncertain, driven by technology trends like EV adoption and data centre construction, and by policy decisions that influence how energy is used in our economy.”

The research outlines how a predictable approach to key policy settings can help give infrastructure providers the confidence to invest. Delivering the transition will also require government, regulators, and industry to adapt and coordinate, ensuring decisions in one area do not cause problems in another.

'Shifting currents: Energy infrastructure in transition' provides evidence and analysis on the challenges facing New Zealand's electricity infrastructure. It supports the National Infrastructure Plan's recommendation to establish clear, consistent, and coordinated government policies to accelerate electricity investment.