Vince Hawksworth: Transition to renewable needs careful management


Wholesale electricity prices seem to have almost matched the Covid pandemic for column inches recently. It’s true that low lake inflows and constrained gas supply have meant elevated prices.

While this has not hit household bills, it has challenged industrial energy users and some businesses retailing electricity.

The need to keep prices low is in tension with the fact much more renewable generation will be required to achieve the goal of net zero carbon by 2050.

Both in NZ and overseas, managing this transition while keeping prices affordable and the lights on is proving challenging.

But we’re fortunate in NZ that we’re starting from a strong place. Already around 80 per cent of our generation is renewable, we have the second most secure electricity system in the OECD, and prices are in the lower third of the OECD.

And recent claims that gentailers haven’t already been investing in renewables don’t reflect reality.

Over the past 20 years there has been significant investment in new renewable generation with Mercury alone investing $1.2 billion in geothermal (many through joint venture with Iwi land trusts).

Similarly, suggesting hydro generation is ‘free water’ is simply not true.

The dams require constant work and major investment of capital. $300 million has been invested in Mercury’s Waikato hydro assets over the past decade. This investment both maintains and enhances our dams – an extra 50GWh gained.

However, we need to move even faster to transition from fossil fuels in time. A new wind farm is needed every nine months until 2050 to achieve the goal.

More than $1.5b is already committed by companies like Mercury, which will lift us to over 90 per cent renewable by 2025.

It’s always heartening to see milestones that show we’re on the right track. Mercury recently produced the first electricity from what will be New Zealand’s largest wind farm at Turitea, and Genesis has signed a 20-year commitment to support the construction of the Mercury Kaiwaikawe Wind Farm, near Dargaville.

The upheaval of a well-functioning market is not a solution that will deliver the renewable generation New Zealand needs.

We welcome the Electricity Authority’s work on how the market needs to function during this period of transition.We hope this work is thoughtful, considered and based on evidence.

Now more than ever, the renewable electricity sector needs as much certainty as possible so that investors can get on with committing to the multi-billion-dollar investment in renewables that will secure New Zealand’s decarbonisation ambitions.

More regulatory risk will mean less investment, higher prices, or both.

Good regulation and market structures, along with policymakers focused on creating an environment supporting investment is unglamorous. But it is also the correct way to deliver on NZ’s goals.

No matter how tempting large structural interventions such as Lake Onslow or splitting generation from retail generates might be for a few quick headlines it does not help generate renewable electricity, lower prices for customers or keep supply secure.

The solution is more renewable generation investment, and a carefully managed transition, not an experimental structural reset.

– Vince Hawksworth is the chief executive of Mercury.

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