New Zealand’s electricity prices are expected to stay elevated throughout 2025.
The wholesale electricity market has experienced a sharp increase, with prices reaching approximately $250 per megawatt hour (MWh) this week—more than double the $104.06/MWh recorded a month ago—which is due to lower-than-normal hydro lake levels.
“At this time of year, you expect the lakes to be high, stocking up storage going into winter, but they’ve dropped a lot over the last month. We have had very, very low inflows in both islands,” said Greg Sise, managing director of EnergyLink.
“All things being equal, it’s more likely that prices will be higher this year than what we were thinking at the end of last year; that’s just about lake inflows and nothing to do with the market.”
While last year’s energy challenges were linked to gas shortages, the industry has been working behind the scenes to improve supply. One key development in the gas market is Contact Energy’s recent deal with Austrian oil and gas company OMV. The contract secures natural gas from Taranaki’s Pohokura field from 2026 to 2032, ensuring long-term fuel security for gas-fired power generation.
However, securing gas does not come cheap. Contact Energy noted that wholesale gas prices have increased by more than 50%, pushing up the marginal cost of power generated at its Stratford gas peaking plants to over $200/MWh.
Industry players are making efforts to avoid a repeat of last year, which saw businesses—including energy-intensive timber mills—forced to shut down due to skyrocketing electricity costs.
Ageing Thermal Plants and Future Energy Security
New Zealand’s reliance on coal and gas-fired power plants is another factor adding complexity to the energy outlook. Many of these thermal plants, operated by Genesis Energy and Contact Energy, are ageing and require investment to remain viable.
To address potential supply shortages, the country’s major power companies are exploring ways to extend the life of Genesis Energy’s Rankine units at Huntly, which provide backup generation during periods of high demand.
Additionally, Contact Energy’s Taranaki Combined Cycle station, which was originally slated for decommissioning, will remain available this winter to help stabilise the grid.
“The generators, I’m sure, will want things to be seen to be looking better than they did last year,” Sise said.
“We have a lot more new renewables coming on, so these thermal plants are going to run less and less, and the impact of (more expensive) thermal on prices will be less and less over time as well.”
“Residential prices move with a big lag, relative to the prices that the big consumers pay, so given how much costs have gone up over the last five years or so, residential prices have a way to go yet, so I think they will continue to tick up for another year or two.”
Furthermore, increased transmission and distribution costs may contribute to rising power prices.
“In order to bring prices down, we need to have a lot more renewables built, and for that to happen, we need the cost of building those renewables down, and that may still happen, but it will take a while,” Sise explained.