Jacinda Ardern helped to bring BlackRock's renewable electricity fund to New Zealand but the Crown's investors haven't signed up yet

BlackRock’s $2 billion renewable electricity fund, announced on Tuesday, was first discussed in a meeting between Jacinda Ardern and Larry Fink in New York last year. 

The then-Prime Minister met with the chairman and chief executive of BlackRock as part of a trade mission she led to the United States in September 2022. 

A news report from the meeting said the business delegation was left “almost speechless” when Fink showed up at the table — they had been expecting “some middle manager”. 

Ardern’s high international profile may have rubbed some voters up the wrong way, but it comes with significant power and influence on the world stage. 

A spokesperson for the Labour Government said there had been an ongoing conversation with BlackRock since that meeting in New York. 

Energy Minister Megan Woods and now-Prime Minister Chris Hipkins had held follow up meetings, where the pair agreed to facilitate the fund and make the announcement. 

Blackrock said it was the one who first raised the idea with the government, since the transition to renewable energy was top of mind for many of its clients. 

A spokesperson said the NZ government provided feedback about its policy settings and the type of investments that would be necessary to reach a 100% renewable electricity grid. 

However, that’s where the government’s formal involvement with the new fund ends. It will not directly contribute any money into the fund, which BlackRock will have to raise itself. 

The Crown investment entities, which are hoped to contribute, are independent and make their own decisions about where and when to invest money. 

Neither the Super Fund nor ACC have agreed to invest in the BlackRock fund, but Peter Scobie, a manager at ACC Investments, said he was open to the idea. 

“We assess all investment opportunities on their merits and are happy to hear from Blackrock on their proposals,” he said in an emailed statement. 

ASB Investments said it was likely to contribute to the fund, as it had already outsourced much of its fund management to BlackRock in 2021. 

In a statement, the bank’s investment arm said it was positive that BlackRock was bringing its global expertise to NZ and giving investors opportunities in the transition to net zero. 

“Given our unique partnership with BlackRock in New Zealand, we are already speaking with them about our involvement and are keen to be supportive, subject to satisfactory due diligence,” it said. 

BlackRock said it was hoping to raise $2 billion for the fund before the end of the year, but there was scope to increase the target if there was enough demand from investors. 

The fund will mostly invest in larger electricity infrastructure and it will target returns in the high single digits. 

Some terms and conditions

While this fund and its investors will be independent from the Government, some level of agreement has been struck between the two parties. 

Woods said BlackRock had committed to selling any assets it acquires through the fund back to New Zealand investors wherever possible.  .

Interest.co.nz confirmed this with the investment firm. A spokesperson said NZ-based owners would be the natural long-term owners and most likely buyers of these assets anyway. 

As always, any sale to overseas interests would require approval from the Overseas Investment Office and meet the national interest test. 

Brett Christophers, a political economist and author, said it was likely that more informal agreements had been struck behind the scenes. 

His book Our Lives in Their Portfolios: Why Asset Managers Own the World, examines how large investors such as BlackRock and Vanguard are having an impact on everyday life. 

Christophers said almost all private investment in renewable energy around the world happened with some sort of public subsidy as an incentive. 

“In some way or another the Government will have committed to significantly derisking any investments this fund undertakes,” he said. 

“Funding will only flow into renewable energy if a lot of the risks involved in that have been absorbed by someone other than BlackRock”. 

Christophers is currently working on a new book which maps how the history of investment in renewable energy has tracked against government support. 

“It's a risky business absent government underwriting,” he said.  

While it was good to have investment being made in renewable electricity, the Government should be much clearer about the terms of the agreement. 

“I'd be surprised if there aren’t some pretty significant carrots that have been negotiated in the background”.  

Both BlackRock and the NZ Government said no other commitments had been made, beyond those disclosed above.

Generating money  

New Zealand currently gets roughly 82% of its electricity from renewable sources, but it will need more capacity as the economy moves away from fossil fuels. 

For example, swapping fossil fuels vehicles for electric ones will increase demand. 

Transpower has estimated that a 68% increase in electricity generation will be needed to meet demand by 2050.

This was made up of a 14% increase in base electricity demand, a 38% increase due to vehicle electrification, and 16% boost from electrification of process heat and industry.

Any wide scale hydrogen production could double this forecast increase in demand, although the technology is still being developed. 

Boston Consulting Group wrote a report detailing the $42 billion of investment that would be required over the next decade. 

Over $10 billion would be needed to increase electricity generation capacity by 50% and another $22 billion on distribution infrastructure.

On top of that, $1.9 billion would need to be spent on creating flexibility in electricity supply and demand to manage peak demand and dry years. 

Plus $8.2 billion for transmission infrastructure, such as a second high-voltage line to carry electricity from the South Island under the Cook Strait.