The data giant says it’s giving back to New Zealand – giving back renewable electricity, giving back water, giving back jobs and investment. What it’s not giving back is anything much in the way of tax
Analysis: It’s little wonder Amazon needs to get a wriggle on with powering up its new data centres. Locally owned cloud storage providers have watched with some dismay as the tech superpower has snaffled up some of the country’s biggest companies and government departments as customers.
Air NZ, ANZ, BNZ, Contact Energy, Vodafone, Datacom and Xero are all customers. Conservation and the health and justice ministries are on the list too, as well as TVNZ and NZ Post.
Right now, all their data is being stored offshore. It doesn’t plan to open its Auckland-based “region” of three interlinked clusters of data centres until next year, to bring all that data home.
But this morning, to power those half-built data centres, Amazon Web Services (AWS) has announced it’s partnering with Mercury (another of its customers) to buy up to half the capacity of the big gentailer’s new Turitea South wind farm, near Manawatū.
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Catalyst Cloud chief executive Doug Dixon, who runs three smaller data centres, doesn’t pull his punches: “In my opinion, the issues of electricity and water issues are a distraction from the bigger story here – the all-out assault on the New Zealand government market that they’re undertaking with the help of aggressive political lobbying.”
He points out that AWS made $372 million in net earnings from New Zealand customers in the past year. But according to its filed accounts, it expects only a tax credit of $2.1m.
So Dixon is underwhelmed – but of course, he would say that. He’s a competitor, fighting his corner, arguing for the importance of New Zealand data being stored by New Zealand companies.
“In future, Amazon Web Services NZ may need to revise its tax approach because some of its services will involve the use of its data centres in New Zealand. If production activities occur in New Zealand, the ‘retailer story’ becomes non-credible.”
– Dr Victoria Plekhanova, Massey University
Taking a step back, though, how impressive is the commitment to buy, as Amazon puts it, 100 percent net new renewables?
Tiffany Bloomquist, country manager for commercial operations at AWS in New Zealand, says we already have a high mix of renewable energy. “And it’s always been our intention to add to this,” she announces today, “by generating net new renewable energy for the national grid.”
The tech giant says it’s the world’s largest corporate purchaser of renewable energy. It says it’s on a path to powering its operations with 100 percent renewable energy by 2025.
It’s not alone in that. Catalyst Cloud, for instance, is Toitū net carbon zero certified. Mindful of the drain that data centres place on the National Grid, it uses 100 percent renewable energy.
So how new, really, is Amazon’s “new” renewable power?
That’s a moot point. And it’s a critical point.
That’s what the debate is about going into this year’s election: whether the Government’s RMA reforms or National’s new fast, long-term consenting for renewable power plants will be more effective in getting wind and solar farms financed and built.
Mercury Energy has just turned on the first of 27 wind turbines on the 103MW Turitea South wind farm. “We currently have about 18 of those assembled and are continuing to put them up,” chief executive Vince Hawksworth tells me. “It’ll progressively come online through to the middle of this year. The first was commissioned last week; it’s feeding into the grid now.”
Mercury has been perhaps the loudest voice among the electricity companies, bemoaning the difficulties and delays in getting consents to build renewable energy. In 2021, Newsroom reported chair Prue Flacks’ speech to shareholders in which she complained of “unworkable environmental limits”.
“That demand really requires a Turitea-type project every year or so through the period.”
– Vince Hawksworth, Mercury
It’s little surprise the majority Government-owned power generator – which is also the country’s biggest power retailer – is closely watching the alternatives being offered up to ease the consent path for new hydro, solar and wind farms.
National Party leader Christopher Luxon has announced his party would shorten consent and re-consent timeframes for renewable energy projects to just one year, if elected, and allow companies to use the consents for 35 years. But the Government has already proposed to smooth the consenting bath through reforms to the Resource Management Act, working through Parliament in the form of the Natural and Built Environments Bill and the Spatial Planning Bill.
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What most agree on is that electricity demand will rise until 2050, because of the electrification of the transport fleet and industrial processes in particular. Transpower forecasts a 68 percent rise in electricity demand from 2020 to 2050.
“That demand really requires a Turitea-type project every year or so through the period,” Hawksworth says. “You can’t really tie down the cost of the project until you know you’ve got the consent. And the demand on a global scale for new equipment is huge.”
He says the intent of the Government’s reforms is to make that consenting process easier, but as Mercury and other electricity companies have argued in select committee, there’s more to be done. The law reforms must do more to enable consenting pathways for crucial renewable electricity generation projects, presently constrained by environmental limits, Mercury told MPs.
National’s proposal would help, not just through expediting the construction of projects, but also easing the financing because of the security provided through 35-year consents. Crown-owned companies such as Mercury fund these projects through tools such as green bonds and corporate bonds. Other firms raise equity.
And longer term certainty also makes it easier to sign up cornerstone customers, giving them revenue certainty that also helps with financing. That’s similar to building a shopping centre: if you sign up Farmers or Countdown as a cornerstone tenant, it’s much easier to finance the project.
And that’s where AWS comes in. It’s not a financier. It’s not buying Mercury shares or bonds. It’s a customer, a long-term cornerstone tenant on the wind farm, essentially.
But given that Mercury announced its plan to build the 27 turbines of the Turitea South wind farm in November 2019, how credible is it for Amazon to claim it’s paying for the construction of new, additional renewable generating capacity. Isn’t it just snaffling up a local wind farm’s power output, in the same way Doug Dixon believes it’s snaffling up local customers?
Nine months’ gestation
In September 2021, when AWS first announced it would be opening data centres in New Zealand, we asked Mercury whether it was in talks to provide the electricity. Contact and Genesis said they weren’t, but Mercury stayed shtum. The company wouldn’t say, citing commercial sensitivity.
“Bear in mind that the arrangements such as we’ve got with Amazon Web Services did not happen overnight,” Hawksworth says now. “So it has taken many many months of conversations to get to this point now.”
That may be so, but it’s not the case that AWS was there at the start in 2019, offering Mercury the surety to embark on Turitea South. In fact, the companies confirm they only began talking nine months ago.
That makes it harder for Amazon to run the argument that it’s paying for new renewable power to be built at Turitea, rather than just paying for existing, confirmed supply.
Once operational, Turitea South is expected to generate an average 370 gigawatt hours of new renewable energy a year. Amazon has agreed to buy about 50 percent of the capacity, which is more than what will need when it first open its new data centres, but it expect to use more of that over the duration of the 20-year deal.
Hawksworth doesn’t agree that Amazon is coming into New Zealand and buying up renewable energy that might have otherwise been used by existing New Zealand businesses and households, to help them decarbonise.
“Who’s missing out? We’re not taking away power from anyone else. Your lights are still on, right? Mercury talks to many, many customers who want renewable energy, and we don’t turn anybody away.
“We can all have our opinions on this. But I don’t think they’re taking away from the new renewable story. Because they’re actually supporting an investment that allows us to follow on and invest further. Clearly, we hope that as they scale up, they’ll want to keep talking to us about subsequent projects.”
So Amazon isn’t paying for Turitea South wind farm to be built and commissioned. It would have been built regardless. But it is giving Mercury the confidence to keep progressing its pipeline of construction – in effect, it’s paying not for this wind farm, but for the next one.
And he gives the example of the new 43MW capacity Kaiwera Downs wind farm, which Mercury announced in September 2022, to be built near Gore.
“We have invested significantly and have made quite a few significant contributions locally – not just all the local infrastructure, but training individuals with in-demand cloud skills, and obviously, the jobs in the Auckland and Wellington offices.”
– Tiffany Bloomquist, Amazon Web Services
Hawksworth says: “To underpin new renewables, what we all want to see is customers who will take on long-term arrangements. And what Amazon Web Services brings to this is it gives us a long-term arrangement where they’re taking 50 percent of the generation. And that then gives us confidence to continue to look to the next project to build.”
Dr Ken Haig is head of energy and environment policy for AWS in the Asia-Pacific region. He says that Amazon will receive certification that it’s buying new new renewables.
“The way that a virtual power purchase agreement works is not physically the electrons from the Turitea project going to our data centre. Rather, it is net new renewable power that goes onto the grid,” he says.
“What our contract is for is the renewable power, plus the renewable energy certificates that demonstrate the decarbonising impact that our investment has had on the grid as a whole.”
Follow the money
To know with any certainty whether the AWS electricity deal is good for New Zealand’s decarbonisation journey, or whether the country is selling itself short, we need to know the dollars and cents.
That’s a big part of the debate about whether New Zealand Aluminium Smelters should be allowed to continue operating at Tiwai Point near Bluff – that it needs to pay a fair rate for the vast quantity of renewable hydro electricity it uses. It hasn’t been – it’s been paying a pittance – but the smelter’s new management now acknowledges it will have to pay more if it’s to stay.
That’s critical to the debate about AWS’ and its big energy-suck data centres, too.
And that’s where we hit a brick wall. Neither Mercury nor Amazon is willing to say how much the tech giant will pay for its share of the wind farm power. Pushed on the question, Hawksworth won’t even say if Mercury is being paid a better rate than fellow gentailer Meridian was forced to accept from the aluminium smelter.
“That’s a kind of narrative that I don’t think is terribly helpful for New Zealand as an investment destination,” he replies. “It’s commercially sensitive, but we have a price that we’re happy with. I don’t think those sorts of comparisons are really useful.”
Would the Government and New Zealanders be happy with the rate that Mercury is selling off the country’s wind power for? “I’m just not going down that track.”
“I ask if they are being responsible corporate citizens, or just the New Zealand arm of an extractive American corporate.”
– Doug Dixon, Catalyst Cloud
Without knowing that, it’s difficult for the public to judge decisions such as those being made in Southland: whether to extend a lifeline to the aluminium smelter, or to use the Manapouri hydro energy to produce green hydrogen.
What we do know is that, according to the accounts filed last month with the NZ Companies Office, Amazon Web Service’s sales have grown from $93.8m in the partial year of 2021, to $372m last year.
But, in an arrangement similar to that operated by Google NZ, AWS paid a big $277.8m fee to its American parent company, for the use of the company’s overseas cloud storage facilities. That fee has grown faster than its revenues.
That, on top of its $58m wages and other costs in New Zealand, neatly wiped out its revenues so that it booked a loss before tax of $4.9m. “The loss for the 2022 year resulted in a $2.1m tax credit, likely usable against future profits,” says Rob O’Neill, writing in NZ Reseller News.
Tax expert Dr Victoria Plekhanova, from Massey University, says AWS NZ may be using the same scheme as Google. “It claims that it is a retailer of digital services and little production activity happens in New Zealand,” she says.
As long as the data centres in New Zealand are still under construction and the data is stored offshore, she says the company’s tax accounts make sense.
“In future, Amazon Web Services NZ may need to revise its tax approach because some of its services will involve the use of its data centres in New Zealand. If production activities occur in New Zealand, the ‘retailer story’ becomes non-credible.
“When the company starts using its data centres in New Zealand,” Plekhanova says, “we should expect a reduction in cloud service fees paid to other suppliers and an increase in the company’s income tax base, unless there are some other expenses that will affect it.”
Again, AWS just doesn’t want to talk about the money. All Tiffany Bloomquist will say is that AWS pays all applicable taxes in every jurisdiction in which it operates.
“I do think it’s important to note that since Amazon Web Services launched in New Zealand, we have invested significantly and have made quite a few significant contributions locally – not just all the local infrastructure, but training individuals with in-demand cloud skills, and obviously, the jobs in the Auckland and Wellington offices.”
As it builds up to opening its domestic data centres, it’s been scaling up its workforce; Bloomquist says it has increased to more than 150, now.
As it begins operating its storage facilities in New Zealand next year, will it stop negating its revenues by remitting large fees to its parent company – and so be liable to pay tax in New Zealand? She won’t say.
But there’s a clue in the small print notes to the company’s financial statements. “Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable profit will be available against which we can use the benefits.”
That suggests the company does not plan to make a taxable profit in the foreseeable future in New Zealand – and so it does not expect to be liable for tax.
Doug Dixon says he’d like to know why they don’t pay their “fair share” of New Zealand tax, when public services are chronically underfunded and taxpayers are going through a cost-of-living crisis. “I ask if they are being responsible corporate citizens, or just the New Zealand arm of an extractive American corporate.”
Bloomquist doesn’t accept that. “I can’t comment on future financial projections at all, but I can say that we will pay all of the applicable taxes in New Zealand,” she says.