Finance Minister Nicola Willis played down the impact data centres could have on power prices despite warnings that a massive Southland facility poses a “system-level” risk to the national grid. A confidential briefing to Ms Willis from advisors at the Ministry of Business, Innovation and Employment (MBIE), released under the Official Information Act, warns Ms Willis economic benefits of the Datagrid data centre near Invercargill are “provisional”. While the data centre could “anchor” investment in renewable energy, “the scale of the electricity demand creates system-level risks”, the briefing states. However, in a post-cabinet press conference last week, Ms Willis said MBIE officials had advised her data centres “coming on in the next 12 months” would not risk higher electricity prices because of “arrangements they [the data centres] had in place”. She did not mention the Datagrid AI data centre, expected to open a few months later in 2028. The data centre is anticipated to consume at least 280MW, making it New Zealand’s second-largest electricity user after Tiwai Point aluminium smelter. Dunedin Green MP Scott Willis said it was “disingenuous for the finance minister to claim there was no risk from projects starting over the next year when the government knows the Datagrid data centre has been consented and will go live shortly afterwards”. The “very clear impact” of increased demand on the grid from data centres would be hiked electricity prices, he said. The Green Party has called for a one-year pause on consenting data centres to give time to consider impact and any necessary rules. Events on July 27 demonstrated the vulnerability of the grid to price hikes. Record amounts of electricity used during a cold snap, combined with low wind for generation, resulted in energy from gas and coal being brought on to the grid to supplement cheap energy from hydro, geothermal and other renewable sources. The wholesale price of energy rocketed, with gas commanding ten times the price of wind power the previous day. The MBIE briefing, dated May 12, said the economic benefit of the Datagrid data centre was dependent on whether additional electricity generation was delivered “in step with demand, whether grid upgrade costs are largely internalised and whether domestic firms and institutions have the skills and capability to use the compute capacity”. The University of Otago had been “identified as an anchor tenant, indicating potential linkages to research activity and advanced AI workloads”. However, a spokesperson for the university countered the claim. A memorandum of understanding had been signed with Datagrid in 2022, but lapsed in 2023. “We no longer have a strategic agreement with this organisation and are not currently a tenant in its facility,” the spokesperson said. The MBIE staff had asked, in the briefing, to discuss with Ms Willis her “preferred approach” to managing data centres, including risks posed to electricity prices. If there was not enough timely investment in generation and network capacity, data centres’ energy usage could “increase electricity prices for other electricity-intensive activities, including the electrification of transport and industrial processes that also represent opportunities for economic growth”. The briefing cites problems in Ireland, where data centres use around 20% of electricity. It also flags Microsoft’s Auckland data centre investment, which includes paying $300 million to Contact Energy to support development of the Te Huka Unit 3 geothermal power station — in addition to buying renewable energy — which “reduced the likelihood that the data centre load would place upward pressure on electricity prices for other users”. The briefing states Datagrid’s “economic profile” includes an agreement to purchase 140MW from gentailer Mercury “to support further renewable generation investment”. New Zealand Media via Getty ImagFinance minister Nicola Willis failed to mention warnings, given to her by civil servants, about the grid demands of the Datagrid AI data centre in statements she made last week /New Zealand Herald via Getty Images) However, there has been no announcement that Datagrid will fund hydro or geothermal energy projects to increase resilience of low-priced energy supplies. Datagrid’s data centre is one of 13 pipelined by the Electricity Authority to consume a total 1135MW. Another MBIE briefing, dated a year earlier in May 2025, to Minister for the South Island James Meager, states that Datagrid’s consumption alone could be as high as 1000MW and the government agency Invest New Zealand is still actively promoting the nation as an appropriate base for data centres. In her statements last week, Ms Willis said she had directed “further work” to identify “additional measures we might like to introduce to ensure that going forward no future data centres would put up the pressure on electricity prices”. There was a need to ensure that “where data centres are coming we are getting that additional electricity generation”. An MBIE spokesperson said Ms Willis’ comments were “consistent” with MBIE’s advice regarding “impacts of electricity price impacts from currently planned data centres”. MBIE was “assessing international approaches to data centres” and whether any further policy measures were warranted. This week, consumer and climate groups demanded the auditor-general launch an inquiry into government plans to build a Liquefied Natural Gas import terminal to replace dwindling domestic gas supplies that provide power to the grid when renewable sources fall short. Ms Willis was asked to clarify what advice she had received prior to her comments last week and her office replied that MBIE had advised the minister on July 2. A paper was being prepared about the advice “for proactive release” and a draft paragraph was pre-released to the ODT. It reads, “if data centre growth remains as expected and government takes actions to address dry-year risk as currently planned, we do not expect data centres to drive upwards pressure on electricity prices”. mary.williams@odt.co.nz
