Retail power prices and power supply security

Secure supply is essential to a reliable power system

The ability of power supply to meet demand over time is referred to as ‘security of supply’. Our challenge in New Zealand is to have enough generation capacity to meet peak demand and enough fuel to generate electricity over the long term. Hydro, gas, coal, geothermal, wind and sun are used to generate electricity in New Zealand (Figure 2).

Hydro generation is the largest proportion of these fuels and also has the largest amount of storage as water can be stored in the lakes and released when it’s needed. Hydro provides between 4,412GWh-4,562GWh of power storage, depending on seasonal environmental consents. For context, 4,500GWh of generation would cover all of New Zealand’s electricity for about six weeks. This means our long-term security of supply relies on:

• how full our hydro storage lakes are
• how much rain is expected to fall into those lakes, and
• how much thermal fuel the generators have stockpiled to use when the lakes are not full enough.

Security of supply in recent years

Figure 3 shows how periods of high inflows into the hydro lakes and hydro storage tend to result in lower wholesale spot prices, and vice versa.

Wholesale spot prices were high in August 2024 but were balanced out by very low prices when hydro inflows were high from October to December. Since January 2025, hydro inflows have been low, and the spot price has been increasing to reflect low levels of stored water.

Gas supply also contributed to high spot prices in 2024. As Figure 2 shows, thermal generation often increases in years when hydro generation decreases. Total gas production in New Zealand has been declining over the last five years (Figure 4). This has led to higher gas prices.

When gas availability was limited in August 2024, Methanex, a major industrial gas consumer, shut their operations down to provide more gas for the electricity sector. This enabled an increase in gas-fuelled generation, which, alongside increased hydro generation, helped decrease wholesale electricity prices in August and September.

Securing New Zealand's power supply for the future

Gas supply will continue to influence future electricity prices as gas production may continue to decline. However, the Methanex deal is a good example of how industry can act to help ensure our electricity supply remains secure in times of market stress.

More renewable generation is being built to ensure there is enough capacity in our system to meet growing electricity demand. Figure 5 shows the expected capacity growth up to 2029.

What we are doing to support New Zealanders

The Authority has several policy initiatives designed to empower New Zealanders as electricity consumers and put downward pressure on retail prices.

A new hub to support smart power use and retail choices

Firstly, we are developing a new, more comprehensive service to help New Zealanders compare and switch power plan or provider, and to find information about how to actively manage their power use and costs. The Authority intends to launch the new service before the end of 2025 but will continue to fund ConsumerNZ’s Powerswitch until the new service is well established.

This is a key initiative to ensure consumers are equipped with the information and tools they need to take full advantage of a dynamic and competitive electricity market.

New consumer rights

On 1 April 2025, the Authority’s new Consumer Care Obligations became binding for all retailers. Power companies must follow these obligations to help households stay connected and manage their power bills. Some of the most important rules are to help prevent homes from being disconnected. Power companies must have a consumer care policy that explains how they will meet these obligations and publish it on their website in a place that is easy to find.

Supporting competition in the market

The Authority is currently consulting on a proposal to level the playing field between the gentailers - Genesis, Contact, Meridian and Mercury – and independent companies. We are proposing to introduce a new rule called mandatory non-discrimination obligations that would prevent the gentailers from giving preferential treatment to their retail arms for hedge contracts. This would increase competition in the retail electricity market, giving households and businesses more choices and better power prices over the long term.

Shining a light on power retailers and consumer choices

We are also improving our retail market monitoring, to increase transparency and accountability. This will enable us to identify potential issues, publish more insights and make well-informed policy decisions that will benefit consumers.

Keeping the lights on

We are also working on other changes to ensure the lights stay on, even through a dry winter.

In winter 2024 we saw how important contingency arrangements are for managing supply risks. The demand response agreement between New Zealand Aluminium Smelters Ltd (NZAS) and Meridian is a good example. It was used early in the winter and benefited the electricity market by reducing the smelter’s power use. Later in the winter power generators purchased gas from Methanex to use in generation. This deal was done after prices peaked in early August and soon after prices dropped. If there had been the increase in gas availability prior to the start of winter, this may have helped lower wholesale prices. We have encouraged and monitored contingent contracting and as a result our system is in a better position than in 2024, even without the largest tranche of demand response being available from NZAS.

We have also completed an urgent Code amendment that gives Transpower (as the system operator) enhanced information gathering powers so it can more effectively manage security of supply risks.

The Authority introduced a second Code change to update the ‘scarcity pricing settings’. This took effect on 17 April 2025 and will ensure the correct pricing signals are set in the wholesale market to incentivise immediate responses, if a shortage situation emerges. It will also encourage investment in demand side flexibility, batteries and fast-start generation.

We are introducing new requirements for the provision of thermal fuels information. Thermal generators will be required to provide information on their fuel availability weekly, through the Authority’s information provision platform. As we head into winter each year, knowing how much thermal fuel is available to support the electricity system is critical for understanding security of supply. Publishing more information will help participants to make informed decisions about risk-management for winter 2025 and beyond.