As New Zealand’s economy gears up for electrification, the demand for electricity is poised to grow at a staggering rate. The country’s gentailers—those dual-role players in generation and retail—are reportedly building “as much as they can, as fast as they can.” Yet, to truly meet the anticipated surge in demand, independent developers will need to step into the ring, bolstered by offshore capital. The pressing question is whether New Zealand offers the right conditions to facilitate this development.
The government has signaled its intent to review the electricity market, specifically examining how business ownership structures and market designs impact investment incentives. Anecdotal evidence suggests a wealth of offshore funders eager to pour money into renewable energy. Following the recent U.S. election, the Asia-Pacific region has gained traction as a prime investment destination. Independent developers are already making their mark in New Zealand, with the Electricity Authority’s Investment Pipeline indicating that while gentailers hold the lion’s share of committed new electricity generation, independent developers are leading the charge in new projects.
However, the road to a final investment decision (FID) for independent generation projects is anything but smooth. Despite high spot and wholesale prices, numerous hurdles remain. Key among these are the Power Purchase Agreement (PPA) market and the complex consenting processes that can stymie progress.
Independent developers face an uphill battle in securing offtake agreements, a unique challenge that gentailers don’t necessarily contend with to the same degree. New Zealand’s heavy reliance on the PPA market—without government subsidies—means that the current conditions are likely exacerbating the gap between potential investment and actual development. Investors typically seek long-term PPAs, often spanning a decade or more, before they commit funds. However, the limited pool of creditworthy corporates willing to enter into such agreements restricts opportunities. Outside of major players like Fonterra, the options are scant, making it difficult for independent developers to find reliable offtakers.
Adding to the complexity is the mismatch in desired PPA terms. Developers often look for agreements lasting up to 20 years, while offtakers, wary of price uncertainties, lean toward shorter contracts, typically between three to five years. A more robust PPA market could be the key to unlocking investment in generation, and the Energy Competition Task Force is exploring measures to compel gentailers to offer a minimum volume of flexible electricity through long-duration contracts, potentially smoothing the path for PPAs.
On the consenting front, the Electricity Authority’s 2023 generation investment survey highlights environmental consenting as a significant bottleneck. International developers have labeled New Zealand’s processes as among the most complex they’ve faced. However, the introduction of a fast-track approvals process could alleviate some of these delays. Additionally, offshore investors must navigate the Overseas Investment Office (OIO) approval for certain projects, though recent government announcements suggest that this scrutiny might ease by late 2025, albeit with critical energy infrastructure still in the spotlight.
Despite these challenges, there’s a silver lining. Interest from overseas developers and investors remains strong. By nurturing a deeper PPA market, enhancing pricing transparency, and streamlining the consenting process, New Zealand stands to attract the foreign investment it desperately needs to support its energy transition and secure a sustainable future. The landscape is ripe for change, and the next few years will be crucial in determining whether New Zealand can capitalize on its potential as a renewable energy powerhouse.
