After more than a decade of limited new investment, the 2024 'dry year' where hydro lakes fell to their lowest level in years exposed just how vulnerable our energy system has become. This as electrification of energy demand, rapid uptake of renewable generation, and major grid upgrades needed to implement this started accelerating across the country.
The energy sector is being reshaped on multiple fronts, and the question now is how to build an system that is resilient, affordable, and future ready.
Energy security, affordability, and decarbonisation are no longer abstract policy goals. They sit at the centre of our economic competitiveness, with warnings that high energy costs and price uncertainty are driving investors and businesses industries offshore, and raising concerns that we’re heading towards de-industrialisation.
The conversation isn’t just about adding more generation but about how the entire system works together, from supply and storage to transmission, distribution, and the digital capability needed to run a more complex grid.
The pressure points
Our energy system is feeling the strain of long‑term underinvestment.
For around 15 years, additional generation - mainly geothermal and wind - only offset the reduction in thermal plants as they closed down. Overall load growth remained stagnant as energy efficiency and shutdown of major consumers offset any growth in domestic consumption.
When the 2024 dry year hit, coinciding with a major gas outage, the electricity system was revealed to have little reserve to buffer us.
The comparison with 1992's dry year is instructive. Back then, the primarily government-owned generation system controlled prices, with demand being managed through scheduled demand side curtailment. Today’s privatised market responds with pricing spikes when supply tightens, and, in 2024, projections of an electricity shortage sent wholesale prices soaring.
Natural gas has long been relied on as the grid’s security blanket. But it’s in rapid decline. The Maui field is nearing shutdown, methanol manufacturer Methanex is preparing to exit, and the sector is losing the flexibility gas once provided.
At the same time, wholesale electricity prices have since collapsed to the lowest levels in decades due to high hydro lake levels, leaving generators with reduced revenue and more cautious investment decisions.
The generation mix is also becoming more complex. Solar and wind are expanding but require backing up and storage to manage intermittency. Hydro operators are upgrading decades‑old plants, replacing steady baseload turbines with flexible peaking systems to better support today’s grid. Meanwhile, geothermal remains a strength, but its high capital cost and always-on nature limit flexibility in low‑price periods.
The energy trilemma
The challenge can be framed through cost, decarbonisation, and security of supply; three forces that must be balanced rather than solved individually.
In the domain of cost, we see volatile wholesale prices of electricity, high capital requirements - particularly for geothermal - and industry frustration over energy price certainty and affordability.
With decarbonisation, there's the decline of gas, interest in biomass for the Huntly coal plant, growth in solar and wind, and emerging technologies such as hot‑rock energy generation in old Taranaki oil wells.
Security of supply is a perennial issue, with dry‑year risk for the hydro lakes, shrinking gas reserves, and the debate over LNG imports to plug the gaps. Elsewhere, Lake Onslow has re‑emerged as a potential long-duration storage solution.
Put it all together and New Zealand is in a unique position. We're the only developed country that imports no electricity, but that's both a strength and a vulnerability. Domestic generation ensures independence, but it also means resilience must be built at home.
Why generation alone won’t solve it
Adding more megawatts won’t fix the structural issues, with solar and wind, for example, needing firming (storage) to manage intermittency.
Thanks to the work of our forebears from the 1930s, our major hydro schemes remain the backbone of the system, but these are increasingly climate‑sensitive, especially in the South Island where snowpack and melt cycles determine storage levels.
Geothermal offers a reliable source of consistent baseload power but requires significant upfront capital and cannot easily ramp up or down. Backup and storage options, whether LNG, pumped hydro or new technologies, are essential for dry year resilience.
Digital capability is becoming just as important as physical infrastructure. When the system was predominantly hydro, it was relatively straightforward. Now, with distributed solar, variable wind and more complex flows, AI and digital tools are needed to manage the grid in real time.
Meanwhile, the Huntly coal plant, once destined for closure, has become the country’s backstop. Encouragingly, operator Genesis Energy is exploring biopellets to see how wood‑based fuels could be used in boilers designed for coal.
The grid and distribution challenge
Generation is one half of the story; the grid is the other. National grid operator Transpower faces the task of expanding capacity and enabling new renewable projects in locations far from existing high‑capacity lines. Its Te Kanapu initiative extends to 2050 and represents one of the largest infrastructure undertakings in New Zealand’s history, potentially hundreds of billions of dollars.
Yet the workforce is thin, and much of the existing transmission expertise is nearing retirement. Now more than ever is where New Zealand can benefit from global R&D and smarter, faster, more efficient design - essential when the country must build more in the next 25 years than it has in the past 25.
Looking ahead to 2050
My vision for 2050 is a system that is both resilient and abundant. Industries that currently rely on fossil fuels, including transport, are largely electrified. Electricity supply and pricing is not a constraint on economic development, but an enabler.
The grid has enough capacity to ride through hydro dry years without extreme price responses. Generators operate in a more coordinated market, avoiding situations where South Island lakes spill water while the North Island lakes face shortages.
On the consumer side, solar panels are commonplace on rooftops across the country. And hydro will remain central, but with North Island lakes almost entirely rainfall‑fed and South Island lakes relying on snowpack and spring melt, their sensitivity to the impacts of climate change will shape its future planning.
It's dynamics like these that underscore why resilience, not just more generation, is the central challenge for the decades ahead.
Our energy future won’t be secured by any single project or technology, but by a system that works in concert across generation, storage, transmission, digital capability, and workforce capacity all moving together.
Ultimately, coordination is the real opportunity. A resilient system is one that can withstand a dry year, support electrification, and give industry the certainty it needs to invest.
If the country can align its planning, invest in domestic storage, modernise the grid, and strengthen the capability of the people who build it, it can emerge from this transition with an energy system that is cleaner, stronger and far more secure than the one it has today.
