New Zealand’s Power Shift: Why Gas is Out, Hydro is In, and What it Means for Your Bills
A staggering $1400 million is currently being invested in new electricity generation capacity in New Zealand, a direct response to the shock of 2024 when gas – long touted as the bridge to a renewable future – proved to be anything but. Consumers felt the pinch last year with rising power bills, and while relief is on the horizon, the path forward is a dramatic reshaping of the nation’s energy landscape.
The Gas Illusion and the Hunt for Alternatives
For years, gas was positioned as the ideal transition fuel, offering a lower carbon footprint than coal while providing reliable power. Meridian Energy CEO Mike Roan succinctly captured the industry’s reckoning: “The 2024 year was a big shock… gas was not going to be the transition fuel that everyone expected.” This realization has triggered a scramble for alternatives, with a renewed focus on bolstering renewable sources and, surprisingly, revisiting the potential of large-scale hydro storage.
While gas still accounts for around 8% of New Zealand’s power generation, its future is uncertain. Importation of Liquefied Natural Gas (LNG) is being considered to address dwindling reserves, but Roan emphasizes that, from an electricity sector perspective, LNG is now more about affordability than security, especially with the Huntly power station’s coal stockpile providing a safety net. The high infrastructure costs associated with LNG are a significant hurdle.
Peaking Power: Beyond LNG
The need for “peaking” power – electricity to meet periods of high demand or unexpected outages – remains critical. Channel Infrastructure is exploring distillate-fuelled peaking facilities at Marsden Point as a potentially more cost-effective alternative to LNG. This highlights a pragmatic approach: finding the most economical solution to ensure grid stability, even if it means temporarily relying on less-than-ideal fuel sources.
Hydro Power’s Renaissance: Storage is the New Gold
The industry’s focus is rapidly shifting towards maximizing New Zealand’s unique advantage: its abundant water resources. Roan believes increased hydro storage is the key to overcoming the intermittency challenges inherent in relying heavily on renewable energy sources like wind and solar. “The one thing New Zealand has… is a lot of water,” he stated. “And a lot of that water flows all the way to the ocean… that means that we are really, really lucky.”
The ambitious proposal to expand Lake Pūkaki – already the country’s largest hydro lake – exemplifies this strategy. Revamping Pūkaki would involve a major dam rebuild, a decade-long project, but could significantly increase storage capacity, moderating the impact of dry years and potentially lowering electricity prices. This long-term investment mirrors the hydro backbone built 60 years ago, a testament to the enduring value of strategic infrastructure.
Navigating the Consent Maze and Distribution Costs
While new generation capacity is coming online – approximately 1400 megawatts in the next year or two – a major bottleneck remains: the speed of project consenting. Roan stresses the need to “find ways to invest and invest faster,” acknowledging that the loss of reliable gas supply has accelerated the urgency.
Consumers aren’t out of the woods yet. Distribution and transmission costs are expected to continue rising for the next four years. Meridian is exploring innovative products to help customers manage these increases, such as time-of-use tariffs that incentivize shifting electricity consumption to off-peak hours.
The Political Landscape and a Stable Market
The rising cost of power is inevitably becoming an election issue. However, Roan remains optimistic, citing government reviews that consistently highlight the health and competitiveness of the New Zealand electricity market. He believes the fundamental business model supports consumers in the long run, regardless of the election outcome.
Furthermore, the confidence in the Huntly coal stockpile and Meridian’s demand-response deal with New Zealand Aluminium Smelters – allowing the smelter to reduce usage during peak demand – provide additional layers of security. The current full hydro storage facilities across the country offer further reassurance.
New Zealand’s electricity sector has faced – and is responding to – significant challenges. The industry has undergone eleven reviews in the past 29 years, consistently reaffirming the market’s underlying strength. The events of 2024 have spurred a wave of improvements, the full benefits of which are yet to be realized, but are undoubtedly coming.
What does this mean for the average New Zealander? Expect continued investment in renewable energy, a growing emphasis on energy storage, and a potential shift towards more dynamic pricing models. The era of cheap, readily available gas as a transition fuel is over. The future of New Zealand’s power lies in harnessing its natural resources and embracing innovative solutions to ensure a secure, affordable, and sustainable energy supply.
Explore more insights on New Zealand’s energy sector on the Ministry of Business, Innovation and Employment website.
What are your predictions for the future of energy storage in New Zealand? Share your thoughts in the comments below!
