New Zealand’s energy infrastructure is benefiting from falling renewable generation costs, but new research from the New Zealand Infrastructure Commission, Te Waihanga, highlights ongoing challenges around electricity affordability, price volatility and the investment needed to support a larger, low-carbon economy.
The Commission’s report, ‘Shifting currents: Energy infrastructure in transition’, found the cost of building renewable generation has fallen significantly over the past decade. Between 2015 and 2025, the cost of new wind farms halved, while solar farm costs fell by two-thirds. Geothermal power stations in New Zealand also cost less to build than the global average.
Peter Nunns, general manager – strategy at Te Waihanga, says the findings demonstrate that infrastructure can be delivered differently.
“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 Nunns.
“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.”
Despite lower generation costs, the report identifies short-term challenges associated with high and volatile wholesale electricity prices. Combined with recent increases in regulated electricity lines charges, these have contributed to higher costs for consumers, particularly large industrial users.
The report notes that declining gas production has increased the cost of backup generation when renewable output falls short. While new generation and storage projects are needed to offset that decline, uncertainty around future gas supply and electricity demand, including the future of the Tiwai Point aluminium smelter, appears to have slowed investment.
“Wholesale electricity prices are now falling as the pace of investment picks up,” Nunns says.
“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.”
The report also highlights the long-term challenge of expanding electricity infrastructure to support a larger, low-carbon economy.
“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.”
Nunns says the pace of future electricity demand growth remains uncertain, influenced by factors such as electric vehicle uptake, data centre development and policy decisions that affect how energy is used across the economy.
The research concludes that a predictable approach to key policy settings can help give infrastructure providers the confidence to invest. It also notes that government, regulators and industry will need to adapt and coordinate to ensure decisions in one area do not create problems in another.
The report supports the National Infrastructure Plan’s recommendation to establish clear, consistent and coordinated government policies to accelerate electricity investment.