Insights
The Balance of Power
How to keep the lights on while respecting the natural resources powering them.
As climate change ramps up and energy demand rises, it’s likely some lakes will need to increase their upper limit by 1.4 to 2 metres" Alex Safran ESG Analyst
Nobody loves a power bill, especially when it’s higher than expected – and over the next 12 months, households are likely to feel the pinch with bills rising $10–$25 a month depending on where you live. And it doesn’t stop there: experts warn annual price hikes are here to stay through to 2030 (RNZ). Tough news if you’re trying to save for the future amid a cost-of-living crisis.
So, what’s powering the spike? In short: futureproofing. Our ageing electricity networks need urgent upgrades to handle growing demand driven by electrification, AI and population growth. Auckland alone is forecasting a 60% rise in demand from data centres in the next decade. (RNZ*). Many of these data centres also rely heavily on water – in fact, every AI query requires around 1/5 of a teaspoon of water to cool the data centre infrastructure that powers it. Tiny per click, massive at scale.
In a country where 60% of our electricity comes from hydro, how we manage and prioritise water matters.
Pathfinder’s Investment ESG analyst, Alex Safran, shares insights into what’s really going on with Aotearoa’s energy infrastructure and how smart, sustainable investing can help shift the dial for both the planet, your portfolio and the future.
Hydro’s balancing act: the highs and lows
The Government has a target for net zero emissions of all greenhouse gas emissions (GHG), other than biogenic methane, by 2050. Reducing fossil fuel emissions from the electricity grid will contribute significantly to this goal, as electricity powers all sectors of the economy.
“Getting as close as possible to 100% renewable electricity is a simple way to help achieve this goal, but it’s not easy” says Alex. “We need an over-supply of electricity to call on during peak demand – this means we need to be able to store it. That’s what makes hydro so critical in meeting our climate goals. Unlike wind or solar, which are at the whim of weather, water can be stored in lakes and converted to energy when we need it most,” says Alex.
Lake Taupō, the Waitaki and Clutha rivers, and the Manapōuri Dam are our electricity backbone. When demand peaks or wind and solar fall short, these systems step in, adjusting water levels to keep electricity flowing through our key power stations. Sounds straightforward, but every action has a reaction.
For example, Transpower, the Electricity Authority, NIWA and power companies closely monitor water levels to ensure they stay within safe and agreed limits because:
Rising levels (when water is stockpiled) can increase shoreline erosion and sediment run off, as well as restricting or covering culturally sensitive historical sites for iwi.
Low levels result in concentrated nutrients and pollutants, degrading our water quality and having major impacts on our eco-systems.
Over 2024, was a great example of just how fine this balancing act can be. Key lakes that feed the dams got close to their lowest acceptable limits and politicians were put to the test.
"Several factors converged last year, a drought coincided with low solar and wind generation, while coal and gas reserves nationwide were critically low. This combination created an electricity shortfall with no reliable backup. Policymakers are acutely aware of the economic consequences of a power shortage so as a result government was forced to purchase coal and Liquefied Natural Gas (LNG) from overseas - at a wholesale price nearly ten times higher than what we’re facing today. Government bore the brunt of this cost as they are well aware of the economics of not keeping the lights on.”
“As climate change ramps up and energy demand rises, it’s likely that Manapouri and Te Anau will need to increase their upper limit by 1.4 to 2 metres, unless we can find energy alternatives,” says Alex. “Everyone involved knows the stakes, from erosion and ecological damage to cultural impacts. But, if we’re serious about cutting fossil fuels, tough choices lie ahead if we want to keep the lights on. While we can rely on an abundance of geothermal and our many lakes and rivers, we also need to take care of our natural capital that helps take care of us. It’s evident that Aotearoa needs to increase its reliance from multiple sources to meet demand.”
Choosing a brighter future, through our pockets & portfolios
It’s apparent that Aotearoa is reaching a turning point in how we produce and consume electricity if we want to keep our emissions down to protect our natural resources. It’s time to both recognise the problem and seize the opportunity, and a great place to start is by looking for ways to use energy wisely. On top of this, here are some other things you can do:
As a consumer:
1) Choose your AI wisely.
Not all AI systems are created equal - especially when it comes to the environmental impact of the data centres they rely on. Some depend on drinking water, coal or nuclear power. Others use advanced reticulated water-cooling systems (that recycle water) and run on solar or renewable energy.
It pays to do a little digging - try asking your AI where it's hosted or do a quick search. And if energy efficiency is your priority, Google Search remains a strong alternative, using roughly 10 to 20 times less energy than most generative AI queries.
2) Compare providers:
Power prices are volatile and getting the best deal for your family can take a little research. We found these independent sources to help:
Powerswitch – 100% free and independent, this tool helps you compare plans by taking a quick survey and/or uploading a current power bill.
MoneyHub – in-depth analysis and research into comparing power companies taking into account the region where you live. Download an excel spreadsheet, input your details and compare options.
While you can use these providers to hunt out a good deal, you won't be able to choose how your power is generated as all the power New Zealanders use comes from the same National Grid. This means, no matter what power company you choose, the method of energy generation is the same. But - as investors - we can choose to invest in companies that generate renewable energy.
As an investor:
In the same vein, as investors, we can direct our money toward companies leading the shift towards cleaner energy and ecologically considerate data centres.
“We believe that investing can help shape the world we live in. By actively choosing stocks in companies that are innovating, expanding or creating infrastructure that will improve our energy future, it will not only help people and planet, but we believe it should also make for a good investment long term” says David Lewis, Chief Investment Officer.
Among others, the Pathfinder KiwiSaver Plan invests in companies like Equinix (sustainable data centres), First Solar (solar panel manufacturing), and Nextracker (smart solar tracking systems that improve efficiency and land use).
Closer to home, we hold shares in Mercury, Meridian and Contact Energy as we think they are leading the transition charge when it comes to renewable electricity ( Contact breaches our 5% threshold for fossil fuel extraction, but we’ve granted an exception because they have a genuine commitment, and credible pathway, to transition to renewables). We also invest in Infratil, recognising their leadership in renewables and data infrastructure. And we are proud to invest in Lodestone Energy, a private locally-owned solar company aiming to supply 5% of our nation’s electricity in the future, whilst creating jobs and energy resilience in regional communities.
Opportunity ahead
While our wallets are likely to take a hit in the short-term, we believe opportunity and relief lies ahead: in the face of increased demand our country’s energy infrastructure will need to adapt. We’ll need smarter grids, better energy storage systems, and more flexible power sources to support both traditional needs and new tech-driven demands. Alternative energy sources will provide choice to consumers (and optimistically might result in lower prices in the future) and provide the chance to invest in exciting companies that are leading the way towards a better future.
“Fortunately, Aotearoa has the renewable resources to lead the world toward clean energy,” says Alex. “The key is balancing our resources with a growing tech ecosystem and embracing innovative infrastructure. That not only creates exciting opportunities for investors, but it also offers hope for our power bills and our whenua for generations to come” says Alex.
Whether you're choosing a power, AI or KiwiSaver provider, every decision has an impact. Your decisions can help shape a more resilient, renewable Aotearoa.