Why the electricity balance between the North Island and South Island is shifting

The Spinoff

20-05-2025

With the cable that links New Zealand's islands together electrically due for replacement, and our electricity needs expected to grow enormously, Shanti Mathias explores the major shift under way in how we generate it.
Each day, a service vital to New Zealanders traverses Cook Strait carrying essential supplies. But with the risks of a breakdown, the authorities managing the service are proposing that it gets replaced. That replacement won't come cheap: the manufacturers who could make it are all overseas and a high degree of technical knowledge is needed. The replacement will have to be planned years in advance.
I'm talking, of course, about the cable that runs under Cook Strait, carrying electricity between Te Waipounamu and Te Ika a Māui. Known as the HVDC, for High Voltage Direct Current, the cable has been an essential part of New Zealand's electricity infrastructure since the islands were electrically connected in 1965.
'It enables a level of resilience for New Zealand's electricity system,' says James Kilty, the chief executive of Transpower. The state-owned company has just released a proposal for public consultation about how it would renew the cables; the plan will be approved after it's submitted to the Commerce Commission, which regulates Transpower.
Part of the renewal of the HVDC, which is estimated to cost $1.38bn, is about capacity increase. There are already three cables journeying under the ocean. Together they carry 1,200 megawatts of electricity. How much electricity is that? When I ask Kilty, there's a long pause. 'I'm not sure how to describe it without saying megawatts again,' he says. 'You can fuel large cities with the amount of electricity these things transfer, put it that way.'
Transpower is proposing to add a fourth cable under the strait, more kilometres of copper and insulating plastic filled with tumbling charged electrons. New Zealand has been consuming more electricity over time, as more things in our houses, and industrial processes, are electrified. 'The fourth cable means additional capacity – New Zealand is a global leader in renewable electricity, but we need more power if we want to reach net zero by 2050,' Kilty says.
Hydro from the past
As the need for an HVDC cable upgrade indicates, New Zealand's electricity needs are growing. But the source of electricity carried through the cable is changing, too, as New Zealand's semi-privatised electricity companies shift how and where they generate.
Most people associate New Zealand's electricity sources with hydroelectricity. Fair enough: hydro projects currently provide about 57% of New Zealand's electricity (it fluctuates each year depending on how much water is in the hydro lakes).
Historically, New Zealand's largest hydro projects have been built in the South Island. Te Waipounamu has sharp, tall mountains, which catch precipitation as rain and snow. That water then tumbles to the sea via rivers and lakes, the force of thousands of tonnes of water spinning turbines, which make electricity. Essentially, it has more water that can fall from higher levels and generate more electricity. Major sources of electricity are New Zealand's largest power station at Lake Manapouri; the Clyde Dam on the Clutha River; and the Waitaki Hydro Scheme, a series of eight stations along one river in the central South Island.
The HVDC link Transpower is proposing to replace runs from the Benmore substation at the bottom of the Waitaki scheme to a substation in the Hutt. The scheme was first conceived in 1904 and construction in the Waitaki Valley began in the 1920s; the last station was constructed in 1985. 'Building hydro power is incredibly capital intensive – most hydro dams were built with state backing from the Ministry of Works,' says Ed Miller, a researcher with the Centre for International Corporate Tax Accountability and Research.
If you're going through the MacKenzie District, it's impossible to miss how much land and water is dedicated to making electricity. The glacial blues of lakes Ōhau and Pukaki twine into kilometres of canals, often frequented by anglers after the wild salmon which live there.
There's a distinct smell of concrete when Sarah Hutchinson gives The Spinoff a tour of the Ōhau A power station. Hutchinson, an electricity supply manager for the six Waitaki stations run by Meridian (the two others are run by Genesis), offers earplugs and hi-vis overalls and leads us into the vibrating belly of the station, which is mostly underground.
It feels awesome, in the old-fashioned sense: an amazement that people have built this, like entering a cathedral. It's a different kind of awe than glimpsing Aoraki outside, although surely some of the water charging through the feed pipes rolled off his shoulders. The power station is loud, even though only one turbine is running – there's not much demand just after Easter – and echoey: a secular cathedral, dedicated to the process of making water energy into something new. The vision and technical expertise to keep this running amazes me. I note down some of the words I don't recognise. 'Thrust bearing', 'drainage gallery', 'buzzbar'.
A roar of water that sends a line of deep bass through all of Ōhau A. The sound is just a byproduct: the transformation of water and gravity into sparkling electricity happens in the turbines. The turbines spin on a long rotor: their flow is controlled by gates, kind of like window blinds, which are eased open and closed by high-pressure oil in hydraulic systems, which has to be strong enough to withstand the pressure of the water.
Ōhau A also shows its age. Construction took place in the 1970s; it's now more than 40 years old. 'Hydropower is reasonably old technology – there's been a lot of changes in how efficient a turbine can be,' says Chris Ewers, the GM of wholesale power at Meridian. 'We're always trying to identify technical limitations or control systems upgrades that will allow us to do more with the assets we have.' For instance, changes to turbines at the Benmore station last year meant its capacity was reassessed as 552 megawatts, a 12-megawatt increase.
Making existing hydro generation more efficient is an alternative to building new hydro stations. 'There's a general consensus in the sector that under the resource Management Act, those big hydro projects couldn't be consented now,' Miller says. Ewers agrees, calling consenting, as well as environmental concerns, a 'key challenge' in New Zealand, pointing to the example of the controversial Hawke's Bay Ruataniwha dam.
Generating power and selling it wholesale is profitable, and Meridian and the other big three power companies want to return dividends to their shareholders. 'Post privatisation we've seen investment in new generation absolutely collapse while gentailers have generated huge profits and pay enormous dividends,' says Miller. 'That includes the Crown, which is the largest share owner in the sector.'
Over time, the amount of hydro energy flowing from the South Island to the North Island under Cook Strait is set to decrease. The Energy Efficiency and Conservation Authority estimates that by the 2030s, hydro will make up just 46-50% of New Zealand's electricity generation, and that percentage will keep falling.
What replaces hydro? Wind and solar
At the hydro station it seems so simple: water goes in, electricity and water come out. The electricity goes into the grid and, using a system of supply and demand, travels to where it's needed.
But it's not so straightforward. It's better for electricity to be close to where it's going to be used. That's why New Zealand's biggest power station, at Lake Manapouri, is close to the Tiwai Point aluminium smelter, which uses about 13% of New Zealand's electricity supply (with extremely subsidised power costs estimated to add $200 to the power bill of every household in the country each year).
If that electricity had to travel to Auckland, say, about 10-13% of it would be lost during the process of transmission and distribution – just like how wifi signals are weaker when you're further away from a cellphone tower. That's why the electricity spot market, which finds the cheapest source of power about every half hour, takes into account the distance the generation is away from the demand. Power might be wanted in Auckland – but even if there's lake capacity and cheap electricity in the Waitaki hydro system, it might be better to get slightly more expensive power from a wind farm in Raglan.
That's why Meridian has been building wind and solar capacity, Ewers says. 'It's a lot cheaper,' he says. Most of that capacity growth is going to be in the North Island, closer to where the demand is – meaning less hydropower from the South Island will be needed, and when lakes are dry, the North Island can actually power the South. 'Solar investment in Northland could flow to Auckland, and in the summer it could even flow south to power the hydro lakes.'
Meridian is building a 130-megawatt solar farm and battery system at Ruakākā, near Whangārei; five of its six operational wind farms are in the North Island, closer to demand. Wind farms, and solar generation even more so, are faster to build than massive hydro projects. None of the massive earthworks which built the cathedral-like spaces of Ōhau A are required. The turbines and panels don't need to withstand the force of tonnes of water pushing through a penstock.
While the hydro lake levels have to be within a certain limit (less than a metre for Lake Ōhau, 14 metres for Pukaki), summer electricity from wind and solar farms could mean that hydro capacity is saved for winter, when there's less solar energy. 'That diversity of fuel is important for the security of generation,' Ewers says. While Transpower is independent, he says upgrades to New Zealand's transmission like the HVDC are essential for companies like Meridian to increase generation capacity. 'We need investment in transmission, because it takes longer to build than generation.'
New Zealand's electricity needs are expected to grow enormously as manufacturers and individuals move away from fossil fuels. A recent report from Rewiring Aotearoa showed, for example, that 8.4 million fossil fuel-powered machines in New Zealand could feasibly be replaced by electric equivalents. 'Large businesses will start moving forward with electrified kit, not fossil fuel kit – it's much cheaper in the long run,' Miller says.
It's particularly cheap if you can generate power where you are. Rapidly dropping prices of manufacturing in China has made it cheaper than ever to use solar panels, either for personal use or bigger industrial use. 'There are so many industrial areas with seas of rooftop spaces, you can imagine more and more solar panels and battery rigs next to them to keep charging,' Miller says. 'That will bring the cost of electricity down because you're not paying for transmission and distribution.'
Instead of the big gentailers controlling power, solar will make the electricity market more local, more affordable, and less dependent on fossil fuels. 'It's a lot cheaper to generate on site than import fossil fuels to power an inefficient machine,' Miller says.
Ewers thinks the privatised electricity market is working well to create the right amount of affordable, renewable power for New Zealanders. 'Every dollar spent on generation ultimately flows to consumers – you are very much incentivised to invest just the right amount, and do it in the most economic way so you're not burdening New Zealand consumers with huge costs. That's where wind and solar come in.'
Miller disagrees. 'Generation investment has been increasing as security of supply has gotten tighter,' he acknowledges. But 'in general, there is a strong incentive [for generation companies] not to invest.' Companies tend to buy ideal wind or solar sites, get consents for new projects, then not build until the energy is absolutely needed – because the capital needed to build a project can go towards sharemarket returns instead.
He thinks the government should forgo its share dividends, so money can be directed at building electricity capacity instead. 'The government retaining a significant state shareholding should mean there are the tools to do this, but it hasn't played out that way.' If the government making shareholder resolutions and using seats on the board isn't enough, he says the electricity companies should be regulated into increasing power generation – because if electricity isn't cheap, companies won't replace fossil fuels with electric-powered machines.
While solar currently only provides just over 1% of New Zealand's electricity, the EECA estimates that it will be as much as 6% by 2035 and more from 2040 onwards. That rapid growth applies to wind, too, which is estimated to go from 6% of energy in 2021 to 20-34% by 2035. Geotherma l, too, is expected to increase, but not as dramatically. Solar and wind, which are less constant sources (solar doesn't work at night, the wind doesn't always blow), will need to be supported by battery systems.
'It's an exciting time, there are so many renewables in the pipeline and a real opportunity for New Zealand to electrify,' says Kilty, the Transpower CEO. In about five years' time the cable-laying ship will arrive to put the HVDC replacement under Cook Strait. That new cable will carry a very different mix of electricity generation sources to when the cable was last replaced in the 1990s. 'As wind, geothermal and solar farms grow around the nation, we're going to need increased connection between the islands.'