New Zealand faces 2028 electricity security breach with no clear backup plan for declining gas

HouGarden New Zealand, 21 October — Law firm Simpson Grierson says that despite a surge in wind and solar investment, New Zealand still lacks sufficient reliable backup generation to carry the country through prolonged dry periods. Its October Energy Outlook identifies three structural gaps facing the electricity sector: dry-year supply, network connections, and affordability.

The previous government deferred its commitment to an LNG import terminal until after the election, leaving the question of how to replace declining domestic gas supplies unresolved. Simpson Grierson partner Simon Vannini said the next government must now decide whether to proceed with LNG imports or identify another workable solution.

"If there isn't going to be a new LNG import terminal, what is the solution to the gas supply issue?" Vannini told BusinessDesk. Asked whether he could see an alternative to LNG, he said there was no clear Plan B. "We're right up against it as far as we're concerned."

National grid operator Transpower's latest Security of Supply Assessment forecasts the country's winter energy margin could fall below its security standard by 2031, even if all committed and consented generation projects are delivered on time. If domestic gas supplies decline faster than expected, that risk could emerge as early as 2028 — three years earlier than the baseline forecast. The assessment assumes LNG imports become available from winter 2029, an assumption now in doubt.

Electricity Authority figures cited in the Simpson Grierson report show 2.71 gigawatts of intermittent generation — wind and solar — sitting in the 2026 project pipeline, compared with 861 megawatts classified as firming capacity, which includes batteries, geothermal and hydro. The distinction matters: intermittent generation cannot be relied upon during prolonged dry, calm periods. Batteries connected to the system typically provide only about two hours of output at full capacity, and hydro cannot necessarily cover an extended dry-year shortfall. That leaves the country dependent on other firm generation, including gas and coal.

Securing additional gas addresses only part of the problem. New Zealand also needs power stations capable of burning it. Genesis Energy is reviewing the future of its 403-megawatt Huntly Unit 5 combined-cycle gas turbine. Unit 5 uses gas more efficiently than Huntly's three older Rankine units, which can burn either coal or gas. Its closure could complicate the economics of importing LNG for dry-year backup. Todd Energy's Nova Energy and Contact Energy also operate smaller gas-fired plants.

The vertically integrated electricity companies — which both generate power and sell it to retail customers — have proposed alternatives to LNG, including greater use of diesel and coal and measures to secure domestic gas supplies. Vannini said there was no certainty these would be sufficient, and that the next government needed to decide what it would support and enable.

The Electricity Authority is currently consulting on options to encourage long-duration firming capacity. The options range from improved reporting of supply shortfalls to mandatory auctions of firming contracts. Submissions close on 13 November. No decision has been made, and the outcome will be an early item for the incoming energy minister.

Getting new generation onto the network is a separate but related problem. More renewable projects are connecting to local distribution networks rather than Transpower's national grid, creating potential bottlenecks and requiring costly upgrades. Simpson Grierson advised Centralines on its joint venture with Lodestone Energy to develop the 31-megawatt Ongaonga Road solar farm in Central Hawke's Bay, which will connect to the Centralines distribution network as a quicker and cheaper alternative to joining the national grid. Connecting more generators in this way could, however, require substantial network upgrades, with costs ultimately falling on developers or electricity consumers.

The Commerce Commission and the Electricity Authority — two separate regulatory bodies — have been examining connection charges and whether greater competition in connection work could reduce costs and delays. In August, the Commerce Commission told distributors and Transpower it expected qualified third parties to be allowed to undertake connection work where safe and practical.

Those costs are feeding through to bills. Electricity prices rose 12.5% in the year to March 2026, according to the report, adding to costs faced by households and businesses. New wind and solar developments are helping lower wholesale electricity prices, but lower prices could also discourage new investment before demand catches up, and higher lines charges are likely to keep bills rising even if wholesale prices remain subdued.

A separate Simpson Grierson survey of 90 offshore investors found almost a third of North American and European respondents regarded energy prices as a major or moderate barrier to investing in New Zealand. Across all respondents, 64% said they were focusing their New Zealand acquisition strategies on businesses able to pass higher costs on to customers.

The major political parties remain divided on electricity market structure. NZ First and the Greens have advocated separating the major integrated electricity companies' generation and retail operations, while National and Act oppose a breakup. Labour has left open the possibility of more fundamental changes without committing to separation. Simpson Grierson considers structural separation unlikely to emerge from coalition negotiations, though Vannini said increased regulatory oversight remained a possibility. He said any separation proposal should be preceded by economic analysis to establish whether it would actually deliver lower prices.

"If we can get some clear guidance from the new Government reasonably quickly, that is going to help the gentailers, investors, and others know where they should be focusing," Vannini said.

For households, the practical consequence of unresolved supply and network issues is straightforward: electricity bills are likely to keep climbing, adding to the cost of owning or renting a home regardless of what happens to wholesale power prices.