Transpower grid upgrade to double in cost

Wednesday, 23 April 2025

The Upper South Island Upgrade Project is being driven by growing electricity demand linked to population growth, electrification of industry and transport, and new developments.

Consumers may face electricity price rises after Transpower more than doubled the estimated cost of its grid upgrade for the upper South Island.

The national grid operator now estimates its updated proposal, released this month, will cost about $164 million, up from $77m in the original plan.

Transpower’s Upper South Island Upgrade Project aims to strengthen transmission capacity between the hydro lakes in Waitaki - where the power is generated - and the towns in the upper South Island, where the power is needed.

The new proposal states most of the cost will be passed on to residents after Transpower revised how it calculates the benefits of the planned transmission investment.

Under the previous proposal, only 30% of the project’s benefits came from consumers avoiding the need to generate their own electricity during supply shortages. That meant costs were spread more broadly.

The new proposal now shows that figure is 75% - shifting the balance of who benefits, and who pays.

The upper South Island depends on electricity generated in power stations such as Benmore.

This change means most of the cost will now be allocated to consumers in the upper South Island, where the reliability improvements are expected to have the greatest impact.

The exact cost will not be known until the final proposal goes to the Commerce Commission mid-year.

The increase in cost reflects the complexity of the project which involves constructing two switching stations, plus line upgrades and installing equipment to manage voltage.

There will now also be more benefits to the consumer - including improved quality of supply and grid resilience.

How the cost is split is determined by the Transmission Pricing Methodology (TPM), which determines how infrastructure investment costs are shared between regions and electricity users.

Without action, the current upper South Island grid will begin to experience voltage stability issues and overloads during peak periods by the early 2030s

This could lead to a modest increase in local transmission charges over time, though the exact impact on power bills will depend on decisions by electricity retailers and distribution companies.

Major Electricity Users Group chairperson John Harbord said it supported the need to invest in the country’s electricity grid but was worried about the impact on households’ monthly bill.

“Our concern is about the cumulative impact of electricity price increases on consumers.”

He also said some businesses were finding electricity price rises so large they were struggling to operate.

Westpower network general manager Mark Blandford objected to the proposal during the first round of consultation.

While he said he supports the project, he does not agree how the TPM allocates costs to the regions.

“The challenge for the West Coast is that the way the costs are recovered penalises the West Coast and regions.”

He said when the TPM was first released in 2023, transmission costs to West Coasters increased by 103%

“It's just like another thing against the regions, another increased cost that you wouldn't experience if you live in the main centre.”

The project is being driven by growing electricity demand linked to population growth, electrification of industry and transport, and new developments in fast-growing areas like Christchurch and Selwyn.

Without action, the current grid will begin to experience voltage stability issues and overloads during peak periods by the early 2030s, Transpower said in its consultation documents.

Given the scale of the cost increase and the changes in benefit and cost allocation, Transpower has reopened consultation, with submissions being accepted until May 5.