Bigger than think big

Testing how claims stack up.

“We’ve got to say no to negative thinking. We are going to take the big decisions and we’re going to push them through … We’ve got to think big … Restructuring is the only way out.” Robert Muldoon 1980 National Party conference

In October 2023, right after the election, I wrote “I foresee that energy will become a key and potentially decisive issue that will plague this government over the coming term as grid fragility, gas supply issues and geopolitical tensions make the standard of living Kiwi’s aspire to even more tenuous.”

This tension is playing out as predicted. Frustration is building in New Zealand, electricity prices are the single biggest contributor to inflation for three consecutive quarters and continue to rise steadily. The OECD have even weighed in our the New Zealand electricity sector this week. People are finding it harder to make ends meet and some politicians are pointing to the finger squarely at the electricity sector and threatening a major shake up.

The electricity sector is building a lot of generation and defends itself by pointing to 2273 MW investment pipeline and even has a new slogan “bigger than think big” to contextualise the scale of the electricity system build out in progress.

To quote Contact Energy’s CEO Mike Fuge’s keynote address at this years Downstream conference “We are in the midst of a renewable energy boom. The sector’s investment in energy infrastructure is larger than during the Think Big era. We are developing renewable generation at the fastest rate in the history of New Zealand.”

Which got me thinking larger in what terms?

Think Big 1975 - 1984.

"Think Big" was the Muldoon-era industrial strategy (1975-84) that committed the Crown to a wave of state-led infrastructure projects. The electricity component was substantial and was effectively delivered between 1976 and the early 1990s. It was comprised primarily of the following projects:

• Huntly units 1 to 4 totalling 1000 MW

• Clyde hydro dam 432 MW

• Tongariro scheme hydro 120 MW

• Ohaaki geothermal 114 MW

• Stratford gas / oil units 250 MW

• Whirinaki / Marsden diesel and open cycle gas turbine 220 MW

• Hydro extensions (Ohau A/B/C, Aviemore upgrades, Wheao, Arapuni) 540 MW

What we are delivering now 2020 - 2027.

The modern construction boom is qualitatively different. It is comprised of many smaller projects, mostly variable-output renewables. Battery storage also features, and has an important role to play but batteries don’t generate electricity, they time shifts it’s delivery.

The list of projects covers those that have been delivered, those that are in construction, those that are consented and the final investment decision has been made, and those consented but with no investment decision.

• Wind (Turitea, Harapki, Kiawera downs stage 2, Mt Munro, Kaiwaikawe, Mt Cass,Mahinerangi stage 2, Slopedown, Castle Hill) 1621 MW.

• Geothermal (Tauhara,Te Huka 3, TOPP2, Ngā Tamariki expansion, Te Mihi Stage 2) 431 MW.

• Solar (Tauhei / Te Aroha West, Edgecumbe, Te Rahui, smaller Lodestone projects, FRV / Genesis projects) 1220 MW

• Hydro upgrades (Karapiro, Maraetai I, Atiamuri, Ohakuri, Maraetai II, Roxburgh) 123 MW.

So how do these eras compare.

When comparing the era’s to test the claim of “bigger than think big” some interesting numbers emerge.

In terms of nameplate capacity the current era is adding ~240 MW per year. The think big era added ~190 MW per year. So the rate of the build out is clearly “bigger than think big”.

However, in terms of total nameplate capacity think big added ~2676 MW of generation.

The current era’s claimed number is 2273 MW, but when we consider the actual committed pipeline, taking out the batteries, and also including the plant that is being retired, we get a net figure closer to 1923 MW.

But as we know capacity is not capability.

When we correct for capacity factors the firm nature of yesteryear’s investments really becomes apparent. Think big added ~13360 GWh/yr of generation. The current era will add ~5460 GWh/yr.

So is today really bigger than think big?

Yes and no. It depends entirely on what you measure.

In terms of the nameplate MW per year build rate - yes, it is ~25% faster.

In terms of the real energy added per year (capacity-factor adjusted, after retirements) - No, about 27% slower (695 GWh/yr/yr vs 954 GWh/yr/yr).

In terms of what really matters for New Zealanders, the capacity to do work, it’s much smaller.

Semantics.

At the end of the day, much of this is semantics. New Zealanders do not want slogans. They want affordable, reliable electricity to run their businesses, power their homes and increasingly charge their EVs.

At the moment, that is not the lived experience. Frustration is building, and it will inevitably be felt politically.

That creates an obvious temptation for politicians to scapegoat the electricity sector. It gives the public’s frustration a target and allows politicians to promise that, if only we vote for them, they will sort it out.

But the reality is more nuanced.

The generators, Transpower and EDBs are largely playing the game they were set up to play by the electricity reforms of the 1990s. The system was designed to introduce competition, separate monopoly networks from competitive generation and retail, and rely on market signals to guide investment.

This will be an unpopular opinion, but I have some sympathy for the industry.

Generators are commercial entities. Even when majority Crown-owned, they must protect their balance sheets, maintain access to capital, and invest in projects that make commercial sense. No generator is incentivised to deliberately overbuild capacity in a way that suppresses its own returns. Meanwhile, successive governments have often treated dividends from majority Crown-owned generators as taxation by another means, rather than as capital to be systematically recycled into long-term system resilience.

Take Genesis. It owns and operates Huntly, the coal and gas-fired power station that still provides critical dry-year and winter security. From a corporate perspective, the Rankine units are aging, expensive and increasingly awkward assets. As wind and solar expand, their utilisation falls outside periods of system stress. That makes them candidates for retirement or reduced investment.

But from the wider boundary system perspective, Huntly’s coal units remain essential. That is why arrangements were needed to keep Rankine capacity available and a large stockpile as dry-year cover. Two initiatives that Genesis would not take on alone.

This is the central tension. The market sees Huntly as a cost. The system sees it as insurance.

The gentailers may all sell the same product at the wall socket, but their generation portfolios are not physically equivalent. Huntly offers something very different to Benmore. Benmore offers something very different to Waipipi. As New Zealand adds more weather-dependent generation, coordination becomes more important, not less.

The Bradford reforms kept a degree of public ownership in the sector, but they privatised much of the operating logic. The result is not a classic public-power model, nor a fully competitive private market. It is a hybrid model that has delivered renewable investment, but has not clearly delivered cheap electricity, industrial competitiveness, or enough firm capacity over time.

That is not to detract from the innovative, capable and highly motivated people working across the industry. It is simply to recognise that they are operating inside a market design with real limits.

When compared with more state-directed electricity systems, New Zealand’s model can look efficient on paper. But it looks less impressive when judged by customer outcomes of affordability, resilience and strategic energy security.

This is where the tension lies.

P.s.

I recommend reading the rest of Mike Fuge’s keynote address. It gives the opposing view and is clearly delivered by a man with a passion to see NZ doing better. It can be found here.

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Larry