A long-running argument over who can access South Island hydro reserves is back in focus, as Transpower moves to tweak — but not loosen — the rules governing water held back for dry years.
The main issue is “contingent storage”: hydro lake water reserved for periods of extreme scarcity. Used too early, it can raise blackout risk if a second dry spell follows. Held back too rigidly, it can keep wholesale power prices higher than necessary for households and industry.
Transpower has completed a review of its Security of Supply Forecasting and Information Policy (Sosfip), proposing seasonal storage buffers and a narrowly defined discretion that would allow access to water slightly earlier in limited circumstances. The system operator says the change is precautionary, designed to avoid water being stranded by operational or consent constraints, rather than to enable generators to run lakes lower in normal years.
Meridian argues that broader access to contingent storage could cut electricity costs by about $527 million a year. Transpower counters that looser settings could expose the system to as much as $440 million in additional curtailment costs in a stressed dry-year scenario. Independent modelling by JC2 Consulting found unrestricted access would reduce system costs by about $38 million in 2026, but significantly lift dry-year risk. That cost gap narrows by 2035 as wind and solar expand, though hydro remains the main buffer against shocks.
Meridian cited economist Brent Layton in submissions, who warned that ownership of thermal generation could shape behaviour.
“The incentives on both parties to access contingent water could be influenced by their ownership of thermal plants,” Layton wrote. “Even if there were no evidence this has happened, a prudent regulator should consider with a critical eye the potential incentives on all parties that may impact its proposals.”
Genesis rejected any suggestion of withholding water, pointing to consent limits at Lake Tekapo and its compliance with market rules.
Transpower has opted to retain an aggregated contingency buffer aligned with existing resource consents. The Electricity Authority is expected to consider the proposal in February 2026, with implementation before winter, while upcoming lake reconsenting processes are likely to test how the rules work in practice.