The Kinleith Mill closure earlier this year was linked to high electricity prices. Pictured are the team at Paper Machine 6 on their final shift. Photo \/ Brian Loveday<\/p>\n
Electricity-hungry primary metals producers are the most exposed to closure, including NZ Steel, which many consider strategically important to national economic security.<\/p>\n
The figures were produced by consultancy Sense Partners for the Ministry of Business, Innovation and Employment (MBIE). <\/p>\n
It used a model of the New Zealand economy to gauge what might have happened if electricity prices had been a third lower between 2017 and 2025.<\/p>\n
The work is considered inexact, as most complex modelling is, but useful insofar as it helps to understand how higher electricity prices have broadly affected New Zealand.<\/p>\n
Sense noted that high electricity prices stimulated a 26% lift in investment in electricity generation, including wind, solar and geothermal. This, however, could not outweigh the overall losses from prices in the period.<\/p>\n
Obvious indications of manufacturer stress in recent years include the permanent closure by Oji Fibre Solutions of its Penrose and Kinleith mills and Winstone Pulp International\u2019s closure of its Tangiwai sawmill and Karioi pulp mill. <\/p>\n
Production of methanol by Methanex was also shuttered in 2024, when, in an acute shortage of natural gas and under pressure from the government to help it secure a supply contract<\/a>, it sold gas, which it uses as a feedstock, for electricity generation.<\/p>\n Sense also warned that high electricity and gas prices chilled manufacturing capital expenditure, which will continue to have growth limiting effects into the future.<\/p>\n Between July 2014 and June 2018, wholesale electricity prices averaged $69 per kWh; between July 2018 and June 2022, they doubled to average $139 per kWh, and since then the price has averaged $152 per kWh, with a peak monthly cost of $468 per kWh in August 2024, a notable dry winter.<\/p>\n Sense did not attempt to divine the reasons for the steep electricity price increase. Superficially, these are the declining supply of natural gas and low hydro lake levels during three major dry years (2021, 2024, 2025).<\/p>\n An overarching problem is that no new back-up power generation has been built in New Zealand in over a decade. Back-up power generation, which can be quickly stopped and started on demand, is critical to moderating prices, especially as more intermittent production such as wind and solar power generation is added to the grid. <\/p>\n In addition, critics say the New Zealand market is not configured for sufficiently strong competition. <\/p>\n Four large gentailers (generation plus retail), Meridian, Mercury, Contact and Genesis, own all of the country\u2019s back-up power, and smaller independents say this stymies their access to back-up power contracts and discourages competition and the addition of new wind and large-scale solar power generation, which is intermittent and requires additional back-up supply to make it reliable.<\/p>\n Coal, diesel and natural gas-driven power is generally considered the most certain back-up power. Pumped hydro is an alternative, but extremely expensive to build new.<\/p>\n High prices are a problem, but what\u2019s the solution?<\/p>\n A recent review of New Zealand\u2019s electricity market performance produced by consultancy Frontier Economics identified insufficient back-up power in the electricity generating mix as a key reason for high prices.<\/p>\n The Government agreed with the report\u2019s problem diagnosis, but it dismissed its recommendation to break up the gentailers\u2019 assets and establish a state-owned entity to take primary responsibility for owning, securing and selling back-up power.<\/p>\n Instead, Energy Minister Simon Watts announced the Government will take a series of other measures<\/a>, including beefed-up electricity risk assessments, the commencement of Crown procurement of a liquefied natural gas (LNG) facility to import natural gas, and new \u201cnon-discrimination rules\u201d to create a level playing field between gentailers and independent generators.<\/p>\n The plan, however, has been met with scepticism and disappointment in some quarters.<\/p>\n Margaret Cooney, chief operating officer of Octopus Energy, said Watts\u2019 announced changes don\u2019t address the main problems of high prices and gentailer market power.<\/p>\n She said the advice repeatedly supplied to the Government makes it clear \u201cthe New Zealand market lacks the necessary competition or incentives to provide stable and affordable electricity. As a result, the country is poorer and less productive than it could be and our potential to grow is deeply constrained\u201d.<\/p>\n Octopus was one of four parties, including the Independent Electricity Generators Association, that wrote to Watts in October, telling him the market reforms that the Electricity Authority (EA) was then consulting industry on are likely to make competition problems worse, not better.<\/p>\n In particular, they said any non-discrimination rules would apply only to gentailers\u2019 \u201cuncommitted\u201d generation capacity. Since the vast majority of gentailers\u2019 capacity is considered \u201ccommitted\u201d, the group said they expect no meaningful change.<\/p>\n Asked about the concerns, Watts told the Herald that the EA\u2019s consultation processes are independent of the Government, and that the regulator had arrived on its in-principle decision to introduce non-discrimination obligations following a comprehensive consultation process with industry. <\/p>\n He said the recent consultations, \u201cprovided industry further opportunity to input into the final shape of the non-discrimination obligations.\u2019<\/p>\n The Authority will publish its final decision early in 2026.<\/p>\n The gentailers have denied that the electricity market needs major reform<\/a>, and, in addition, have announced some smaller new steps this year to better provide back-up power and price stability, including an August agreement to establish a strategic coal stockpile<\/a> at Genesis\u2019 Huntly Power Station.<\/p>\n Labour\u2019s energy spokeswoman Megan Woods was also critical of the Government\u2019s planned changes. She said they ignore the main problem of storing energy for dry years and for when the sun isn\u2019t shining or the wind isn\u2019t blowing.<\/p>\n When in power, Labour\u2019s proposed solution to these problems was investment in batteries (increasingly useful for short-term storage) and a new pumped hydro scheme at Lake Onslow. <\/p>\n But the preliminary cost estimate in 2022 for the Onslow plan was $16b, before transmission and operation costs and contingencies and the Treasury was wary that the final price would be much higher.<\/p>\n It was estimated the first phase would take nearly a decade to build. In 2023, the coalition Government scrapped the plan.<\/p>\n In 2018, the Labour-led Government also banned new oil and natural gas exploration, helping to set the stage for the current steep decline in gas reserves and the surging price, which has doubled in the last five years<\/a>. Beyond the problems caused by high gas prices in the electricity market, direct natural gas users, including both retail and industrial users, are suffering both the high cost and high uncertainty around future supply.<\/p>\n As yet, the Government has provided very little detail on the possibility for LNG imports, including: who would pay for the regasification plant; who would pay for related supply contracts, which are not included in the current procurement exercise; and whether the supply would do anything to lower electricity prices.<\/p>\n Natural gas is super cooled to liquid form for export by tanker and importing countries must build regassification infrastructure in order to add it to their domestic storage facilities and pipelines.<\/p>\n Watts said the Ministry of Business, Innovation and Employment (MBIE) received \u201ca number of submissions\u201d in a recent registration of interest (ROI) procurement process, which also seeks options for accelerated delivery.<\/p>\n The ROI closed in November and MBIE is still discussing the submissions with proponents. <\/p>\n The Government expects to announce whether it will proceed with the next stage of procuring a regassification plant in early 2026 and says it is also considering alternative (non-LNG) ways of managing the dry year risk to secure electricity supply.<\/p>\nLabour’s energy spokeswoman Megan Woods is sceptical about the Government’s proposed remedies for soaring electricity prices, but those prices more than doubled during the six years Labour was last in power.<\/p>\n
The Huntly Power Station has Genesis’ last coal-burning generators, and is a critical supplier of back-up electric power. Photo \/ Doug Sherring<\/p>\n