Last week the government closed submissions on its proposed Winter Energy Reliability Obligations, a new set of rules and penalties that would require major power companies to secure more back-up energy for winter.
The goal is right - New Zealand needs a reliable energy system, especially through dry years and periods of pressure.
The real test is whether a new policy like this improves reliability at the lowest total cost while helping deliver a more electrified and affordable system.
As it stands, these obligations don’t pass that test. They risk asking consumers to pay more than necessary for extra security. You can never remove all risk from an energy system, and the harder you try, the more it costs.
We (ERGANZ) made it clear in our submission that we want to work constructively with the government on a more workable solution. If electricity companies are required to hold extra fuel, contracts or back-up generation for winter, those costs will eventually be recovered through the system. In plain terms, it's like insurance, households and businesses could pay more in premiums for protection that may be more expensive than the risk requires.
New rules designed for an old problem
The WERO proposal responds to what happened in winter 2024 and that winter was difficult: gas supplies were much lower than expected, hydro storage was low (it was a dry year), and low wind and solar output added to the pressure. The result was high wholesale prices, which were especially challenging for companies who choose not to hedge and were directly exposed to the wholesale price.
But high prices are not the same as an energy crisis. From Transpower’s system-operator perspective, while there was record low lake levels in 2024, controlled hydro storage did not drop below the ‘Alert’ risk curve. Supply and demand were managed without the country running short of electricity. In fact, by Spring, wholesale prices were sometimes running as low as $1/MWh.
Since winter 2024, the picture has changed materially. The market sent a clear signal to build even more new renewable generation. Transpower says 17 new projects are now being connected to the national grid, adding more than 3,000 MW of new capacity across wind, solar, geothermal, and grid-scale batteries. That is a sizeable wave of new supply. Together with ERGANZ members’ $10billion of planned investment over the next decade, it means New Zealand is in a very different position from the one policy makers were responding to in 2024.
Other changes are also strengthening resilience, including the Huntly Firming Options put in place by ERGANZ members, changes to access to contingent lake storage, and the Government’s work on LNG.
The point is simple: reliability policy should respond to the system we have now, not the pressures of 2024.
So, what do we recommend?
Reliability is about more than dry-year risk. It means having enough firming and flexibility to meet New Zealand’s evolving electricity needs at the lowest practical cost.
That means building on the tools we already have such as stronger contracting, better visibility of fuel and storage risks, more demand flexibility, and continued investment in renewable generation, storage, and firming.
This is the opportunity in front of us: using New Zealand’s renewable electricity advantage to power more of our lives, our businesses, and our economy.
Done well, electrification can mean warmer homes, lower running costs, more productive businesses, and a cleaner, more resilient country. That is the future we should be building towards.
Electrification depends on confidence. Households and businesses will only switch from fossil fuels to electricity if they trust the system to be both affordable and reliable. Reliability measures should build that confidence, not add costs that slow the transition down.
