Wholesale electricity prices in New Zealand spiked in the winter of 2024, causing significant pain for New Zealand businesses. The main driver was a shortage of “fuel” to generate electricity: gas supplies and lake levels were low, and intermittent wind and solar power couldn’t meet the shortfall. Managing Principal Andrew Horwood looks at industry moves since then and at how secure our electricity supply is looking heading into this winter.
So remind me what happened last winter …
Wholesale electricity prices skyrocketed in winter 2024. The seven-day rolling average for wholesale electricity prices spiked at approximately $800 per megawatt hour (MWh), on 10 August 2024. This was up from an average of around $180 MWh between 2018 and 2023.
Energy-intensive businesses buy directly from the wholesale market, so this price spike led to some industrial users closing their doors temporarily or permanently, citing difficulty managing these prices. Others scaled back production significantly. Some independent retailers stopped taking on new customers, as they couldn’t offer power at a competitive price because of the volatile wholesale market.
For the last few months, wholesale prices have regularly been trending higher than historical averages, at $250 to $400 per megawatt hour.
But why the sky-high wholesale prices in 2024?
High wholesale prices are caused by a lack of “fuel”, which here can mean any of the things we use to generate electricity, like coal or gas to be burned, wind to power turbines, and water in the lakes to feed hydro-electric dams.
The market uses price to indicate scarcity, and to reduce demand when supply is lower. Opinions vary on whether this is the best way to run an electricity system, but for now it’s the system we’ve got.
So how are our “fuel” stocks looking right now – our hydro lakes for example?
Hydro-electric generation has been contributing up to 60% of New Zealand’s power in recent years. So the availability of lake water for generating hydro-power, or the lack of it, has a big impact on electricity prices. When lake levels are low, hydro-generators raise the price to preserve hydro-generation capacity.
From mid-July to mid-August 2024, hydro lake levels decreased from 65% to 45% of the historical average for that time of year. Snowpack levels – the quantity of ice that melts to feed the hydro lakes – were also lower than in previous years, and in fact the lowest for that time of year since records began. This meant water for generating power was scarce.
Right now, water stored in the South Island hydro lakes is below the average for May. A few weeks ago, in April 2025, Transpower reported that:
“… New Zealand’s controlled hydro catchments have had the driest start to the year in 93 years of historic records. While recent inflows have helped arrest the decline, national controlled storage is sitting at just 82% of average for this time of year, which is in the bottom 10% of historic levels for this stage in April.” (Check out the Transpower website for the latest updates.)
In the last few days, there have been some improvements. Hydro storage at Te Anau, Manapouri, and in the North Island has crept above average. However, storage at Pūkaki remains below average, as does national hydro storage.
Further, snowpack is low in the Waitaki catchment, suggesting that lakes that serve key hydro-electric power stations can’t expect to get much of a boost from melting snow. (The Meridian website has regularly updated figures for snow.)
Sounds concerning – so can we draw the lakes down further then?
This is where “contingent storage” (or “reserve water”) can come into play. Contingent storage refers to “water below a level set out in the relevant resource consents held by generators that, due to environmental and community requirements, can only be used to avoid shortages of electricity supply to consumers”, as explained by Transpower.
There are three lakes with contingent-storage arrangements – Pūkaki, Hāwea, and Tekapō. The conditions that allow contingent storage to be used differ with each hydro lake and are governed by the resource consent issued by the relevant council.
The total volume of contingent storage across the three lakes is currently at the same level as in September 2024.
Transpower, a state-owned enterprise, is reviewing the parameters for contingent storage. It will make recommendations to the Electricity Authority, which will make the ultimate decision on any changes to the governing policy, the System Operator Security of Supply Forecasting and Information Policy. The work will be completed in time for winter 2026.
Using contingent storage might seem like a no-brainer when the alternative is burning fossil fuels – but it’s not that simple. Drawing lakes down to very low levels can have harmful effects for both the environment and local communities. A Transpower issues paper quotes a case study of Lake Hāwea from the 2009 Ministerial Inquiry into the Electricity Industry:
“Drawing down the lake exposes extensive lake foreshore which then dries out, causing major dust storms in the spring and summer. The low lake level causes possible issues with fish spawning streams and other environmental issues.”
Using contingent storage also means relying on more precipitation than usual arriving in the future to replenish lake levels. With a changing climate, over-reliance on contingent storage is definitely a gamble.
So what has industry been doing to avoid similar impacts this year?
Some businesses that are big power consumers have been working on “demand response” – that is, reducing their demand for electricity at certain times to free up power for the rest of the country.
The Tiwai Point Aluminium Smelter is New Zealand’s largest electricity user. Earlier this year, Meridian Energy and Tiwai Point’s owner, New Zealand Aluminium Smelters Ltd (NZAS), agreed that NZAS will provide 50 MW per hour of demand response for winter 2025, until the end of August (unless mutually agreed between the parties).
Meridian and NZAS have also agreed to increase that demand-response option to between 100 and 185 MW for winter 2026.
What about gas? How are our gas reserves looking?
New Zealand’s (indigenous) natural gas reserves have been falling for some time. A new discovery would take years to come to market.
In August 2024 the Government announced it would remove regulatory barriers to building import facilities for liquified natural gas (LNG), but New Zealand hasn’t yet started importing LNG. Therefore, any increase in the availability of gas for generating power would come at the expense of other uses of gas, like industrial uses.
Methanex underpins the New Zealand gas market, taking up to 45% of our natural gas. So this company is best placed to share its gas reserves for them to be redirected to electricity production and help to keep the lights on across the country. On 7 May 2025, Contact Energy announced it had secured a deal with Methanex to take around 2.8 petajoules (PJ) of gas over eight weeks. Contact will use the gas in its Stratford peaking units and in the Taranaki Combined Cycle power station (which it expects to close after this winter).
Genesis has also entered into an arrangement with Methanex to receive up to 1.26 petajoules of gas not needed by other contracted users.
Hmmm … What about coal?
From an emissions perspective, coal is always going to be the last cab off the rank. But it’s undeniably a useful fuel to shore up security of supply.
Genesis can generate power from coal at its Huntly power station. It has started stockpiling coal in case it’s needed this winter, given the constraints on hydro and gas. As at 4 April, it had stockpiled 465 kilotonnes (kt) of coal, with another 770 kt due to arrive between April and the end of August 2025. It also had the option of ordering an additional 35 kt.
Genesis was also advancing plans to operate the less-used third turbine at the Huntly station.
Have we been building any new generation and storage capacity?
Yes – there have been some notable developments in geothermal, solar, and battery storage.
Some of Contact Energy’s geothermal investments have now started feeding into New Zealand’s grid. Te Huka Unit 3 geothermal power station, near Taupō, started supplying power to the grid in October 2024. At full capacity, Te Huka Unit 3 will provide 51.4 MW, enough to power about 60,000 homes. Crucially, geothermal power is renewable and reliable, without the intermittent nature of wind or solar power.
Contact’s Tauhara geothermal power station also became fully operational late last year. Costing over $900 million, it can produce 174 MW to power 200,000 homes. It had been running at lower capacity throughout the winter of 2024, since May.
In late April this year, Genesis and joint-venture partner FRV Australia also opened New Zealand’s biggest solar farm at Lauriston on the Canterbury Plains. The $104 million, 63 MW solar farm has more than 90,000 solar panels over a 93-hectare site.
The big four “gentailers” all have plans to invest further in generation (for completion beyond this winter). For the latest, check out the news on the Meridian, Contact, Mercury, and Genesis websites.
Meridian has also reported that its battery energy storage system – or “BESS” – at the Ruakākā Energy Park (near Whangārei) is on schedule to be completed by mid-2025. A BESS can store energy when generation is plentiful and supply energy when generation is scarce.
The Ruakākā BESS will have a maximum output of 100 MW and storage capacity of 200 MWh, meaning it can sustain its maximum output for two hours. A BESS is great for seeing us through the evening demand peaks when everyone is home with their heat pump on.
Well, it’s great to see the private sector preparing
Definitely. Last winter was a wake-up call, and industry is taking practical steps to reduce the likelihood of similar problems this year. They’re solidifying arrangements around demand response and contingent storage, securing gas and coal, and building new generation capacity. This article has intentionally not covered actions taken by the Electricity Authority since August 2024, but increased regulatory scrutiny and heightened risk of regulatory intervention are always great motivators to demonstrate that a market is well-functioning.
Building generation infrastructure takes time. It requires significant capital, consenting, construction, and testing. It’s good to see a strong pipeline of additional generation capacity being developed, to improve New Zealand’s security of supply over time.
We’ll see how we fair this winter. If it rains enough in the right parts of the country, then much of this preparation won’t have been necessary after all. And that’s a great outcome for most of us!
