But the big data centres required by AI are proving a hot potato overseas because of the huge amounts of electricity they consume.
Last month, Ireland’s the Journal reported that the South Dublin County Council had passed a motion calling for a moratorium on new data centres in the area unless they operated wholly from renewable energy sources.
Most of Ireland’s data centres are in Dublin, with at least 30 of them located in the South Dublin County area.
In October, the Financial Times reported that the US power giant NextEra had agreed to reopen a nuclear power station in Iowa that would primarily provide power to Google as the tech firm races to secure clean energy to drive its AI data centres.
Johns puts data centres into three categories.
“The first is just a basic data warehouse, and that’s like putting light bulbs into the electricity system,” he said.
“The second is a data centre with ‘compute’ capacity, and that’s like putting houses onto the electricity system.
“And the third is AI data centres, and that’s like adding towns to the electricity system.
“What we’re seeing is that data centres are becoming sophisticated global networks, where the data moves around the world to the lowest-cost electricity.
“So even though you might have physical data centres in your country, they still have the option of moving the data and compute to some other country, and then you don’t sell any electricity to them.
“There is a risk that data centres actually create an enormous amount more volatility in the electricity system of New Zealand but, equally, they are as essential to the future economy as oxygen is to living on Earth,” he told the Herald.
As New Zealand decarbonised its energy system, there were going to be some “snakes and ladders” along the way.
“We just have to work out how we’re going to accommodate data centres into the New Zealand system.”
He noted that some jurisdictions had capped or banned new data centres because of their potential power drain on the grid, and that some data centre operators were investing in their own generation.
Whichever way people wanted to look at it, electricity would become more important in the future.
“Electrification of transport, electrification of light industrial heat, and data centres are going to be the three big drivers of demand growth.”
Johns has previously raised the alarm about the level of risk inherent in New Zealand’s hydro-dominated electricity sector.
“I still think energy equals prosperity, and energy and infrastructure security in New Zealand is going to require some really big investments,” he said.
Genesis Energy’s coal stockpile at the Huntly Power Station. Photo / NZME
“And to do that, we’re going to have to get really good as a country at competing for capital.
“It doesn’t matter whether it’s electricity or water or roads, to build an economy that can support future generations and give them the resilience and the options that they’re going to need, we can’t keep pushing the photocopier button that we’ve been pushing for the last 10 to 15 years.”
The electricity sector received a nasty wake-up call in the winter of 2024 when constrained gas supply and unusually dry, calm weather conspired to drive wholesale prices up to $820 per megawatt hour (MWh) compared with the winter average of about 160MWh.
Johns said it felt as if the electricity system had since got its head around that episode.
“When I look across all of the [company] investor days this year, everybody is working hard on energy security.”
Last month, the Commerce Commission gave its seal of approval to a deal allowing the big power companies access to Genesis Energy’s coal and gas-powered Huntly power station, in particular its steam turbine Rankine units.
Genesis, Contact, Meridian and Mercury will be able to enter into a series of agreements referred to as the Strategic Energy Reserve Huntly Firming Option (HFO), giving them access to the station and to important backup for the grid when hydro power is stretched.
In the energy sector, “firming” ensures a constant supply of power to the grid, regardless of conditions at the time.
The commission found the public benefits of the proposed arrangements, which last for 10 years, would probably outweigh any potential lessening of competition.
The deal means all three of the ageing but powerful Rankines will be available to the system when needed.
Johns said HFOs were a good example of the sector working hard to cover energy security.
“There’s no question we would have retired that machine [Rankine 2] and I think that would have been negative for energy security.
“With 10-year HFOs, we can take a three-Rankine ranking approach, and that gives us much more resilience in the system.”
The arrangements were proposed to provide a commercial incentive for Genesis to maintain Rankine Unit 2 for use as “dry-year cover” when other forms, such as hydro, might not be sufficient.
Johns said he was feeling better about New Zealand’s journey towards energy security.
“I think … we’re a long way further down the track on dealing with the short end – the minutes, hours.
“More gas flexibility is critical to covering the system, and I think the HFOs and the Rankines give us 10 years to continue to work on long duration.”
Genesis is putting a lot of weight behind its tie-up with the low-profile Malaysian power developer, Yinson, which has a big pipeline of wind projects on the drawing board for New Zealand.
Johns said Yinson had quietly gone about building up its pipeline, and was now ready to begin building.
“In the last two years, we have effectively scoured just about every independent solar and wind project in New Zealand.
“We have an exceptionally good understanding of what is viable and what’s not viable in New Zealand, and Yinson have a quality pipeline.
“Their challenge is they needed a partner to go ahead and develop that, and we needed wind in our portfolio.
“Because we have so much firming capacity, particularly through Huntly, we can build wind and solar into our pipeline and not worry about the wind and the rain aspect of it.
“It’s a very good partnership for us and a very good partnership for them.”
Yinson’s projects will potentially offer up to 1000 megawatts in total compared with Huntly’s three Rankines, which deliver a total of 720MW.
Aside from the Yinson projects, Genesis wants to get its Castle Hill (300MW) project in Wairarapa underway, and has a couple of other prospects worth about 200MW in the wings.
The issue with Castle Hill had been about connecting to the national grid, Johns said.
“We’re working with Transpower to address that, and we’re pretty confident.
“We could build it tomorrow, but we can’t get the electrons to market because there are no power lines.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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