Source: New Zealand Government
Well, a very good morning, everyone. It is wonderful to be here, and thank you so much to Simon Bridges and the Auckland Business Chamber for hosting this event. And thank you so much to everyone who is taking the time to be here.
I am pleased to share today some of my perspective as the Minister for Energy, and to set out how the government is working to make New Zealand a country where electricity is abundant, affordable, and reliable. Everyone here appreciates the role reliable energy plays in an economy. It fuels the businesses and industries on which jobs depend, and it keeps our houses warm and the lights on.
The government’s vision is simple. We want abundant, affordable, and reliable energy for all New Zealanders, and an energy system that is increasingly renewable. That means an electricity system that is not just building generation to meet demand, but building it to fuel economic growth.
A system that provides households with affordable energy, a system that pulls businesses up to compete with our trading partners instead of pushing them down with high costs, and a system reliable enough that industry can plan with confidence, because nothing undermines confidence like uncertainty.
Put another way, while the electricity and gas sectors directly contribute around 2% of GDP, that 2% underpins the other 98%. That places a heavy responsibility on everyone in the sector to understand how their decisions ripple through the wider economy.
This morning, I will leave you with three things.
First, why New Zealand needs a firm backup for the dry years, and why an LNG facility. Second, that our procurement of that facility is progressing, with two providers now shortlisted, and that we are working through how we can pay for it. Third, that we are putting a lasting obligation on the gentailers to manage the dry-year risk themselves, so we are never again left exposed in the way we were in 2024.
But first, let us consider the strong starting position we find ourselves in as a country. New Zealand is on track to have 95 to 98% renewable electricity, and the fourth quarter of 2025 was 96.4% renewable, the highest ever recorded.
Thanks to this government’s quick work to cancel the Lake Onslow project, secure the future of the Tiwai Point Aluminium Smelter, and launch the Electrify New Zealand programme, we have restored investment confidence and accelerated renewable generation. The volume of new generation built between 2023 and 2025 was double the volume built in the previous eight years. Make no mistake, this is a government committed to renewable energy.
New wind farms, new solar farms, geothermal power stations, and batteries are all coming online quickly. We have a renewables boom underway in our country right now.
However, there remains a large shadow over what is otherwise a bright picture. It is a shadow that keeps investors who depend on high-volume, low-cost power waiting on the sidelines instead of expanding. It turns electricity into an inhibitor of growth rather than a fertiliser of it, and it holds back new generators from entering a market still dominated by the four big gentailers.
That is because much of the new renewable energy being built is intermittent by nature and needs a backup for those winters when the lakes are low, the wind is not blowing, the sun is not shining, and geothermal cannot meet peak demand. This is the so-called dry-year scenario. 2026 is not likely to be one, but 2024 was.
It was only two years ago, and I was the Minister of Energy then, as I am again now. MBIE advises me that in a dry year, the shortfall we need to cover is around three terawatt hours over three months.
Assuming that coal can fill 1.5 terawatt hours, thanks to the Huntly Firming Options that have been put in place, this leaves a remaining 1.5 terawatt hours to cover. This is not a gap that you can plug with a few days of stored water or a handful of batteries. It is a sustained gap lasting weeks and months, and something has to fill it.
Our electricity market performs well in average conditions, but it does not reward investment in the firm capacity that is used only in rare, high-impact dry years. This is a market failure identified by Frontier Economics in its recent review. The previous government did not address this, leaving us increasingly exposed as gas declined.
Their one idea, a $16 billion lake at the bottom of the South Island that would not deliver a single kilowatt of electricity until 2037, was no answer then, and is no answer now. The result is a risk premium of $30 to $50 per megawatt hour, sitting in forward prices, borne by every household and business up and down our country.
People have been paying for the dry-year risk, even in the years where there has not been a dry year, and when a dry year does eventuate, we see an even more extreme impact on prices. In 2024, a moderate dry year, gas constraints meant gas-fired generation could not fully run. Coal ran at its maximum, and spot prices exceeded $800 a megawatt hour.
The New Zealand aluminium smelter cut production, and some businesses shut their doors for good. We call this demand destruction, but that clinical phrase hides what it really means. It means workers losing shifts and then losing jobs, a family in a regional town watching the plant that paid their mortgage fall silent, and a business that someone spent decades building gone in a single spell of bad weather.
This is not an outcome that the government accepts. We believe in markets, but we also believe in the responsibility of government to protect New Zealand’s economy and its families from the brutality of some market outcomes when sensible interventions can avoid them.
Compounding the dry-year risk, the backstop we have relied on has been a combination of coal and natural gas, and as gas supplies dwindle, soon that will become less of an option. Six major gas fields that provide 98% of our gas supply are in sharp decline, with the Maui field expected to cease producing later this year.
This creates problems across industry, but its effect on the electricity market is acute. If Maui ceases, it is expected that Methanex will exit with it, and with it the ability to temporarily shift gas from industry to electricity generation during a dry year would go. That was the very mechanism that kept the lights on in 2024.
Some will ask why we simply cannot burn more coal. The answer is that our coal generators can only deliver around half of what we might need in a dry year. In 2024, in what was only a moderate dry year, Huntly was running at capacity, coal was at its maximum, and prices still climbed over $800 a megawatt hour.
Coal-based electricity is limited by the capacity it can produce through the Rankine units at Huntly, and we cannot build more Rankine units quickly. So, in a deeper dry year, coal cannot come close to covering the gap.
Worse still, the gas-fired plant that would normally pick up the slack would sit idle for want of fuel. We would have generators, but not the gas to turn them on.
Our coal capacity at Huntly is also finite and ageing. Some would describe running Huntly as something like the government flying Boeing 757s for our Prime Minister, necessary but unreliable.
The numbers confirm what is at stake. Last year, high energy prices cost the economy $5.2 billion. The risk of a dry year is priced into every power bill, driving costs up and incomes down.
You cannot run an economy on weather forecasts. Dry-year risk should not define our electricity system, but it is starting to do exactly that. New Zealanders deserve better, and under this government, they will get it.
Looking ahead, the next dry year, which is expected on average every four years, will arrive with even less gas, and eventually, with the loss of Methanex, this will mean no large-scale ability to shift gas from industry to electricity. MBIE analysis is clear that without a circuit breaker, prices would rise, stay elevated for longer, and reach well beyond 2024 levels.
That is why the decision is urgent and not something we can leave for the next parliamentary term or the one after that. The next dry year could arrive as soon as 2028, the very same year an LNG facility could support generation.
A decision delayed is not a decision postponed. It is a decision to face the next dry year with no backup at all.
We do not get to choose when the wind drops and the lakes run low. We only get to choose whether we are ready.
With declining gas, the choices are stark. Either gas is taken from industry, forcing large and small gas users to close, with production shutdowns, job losses, and lost exports, or gas is not prioritised for electricity, and wholesale prices reach extreme scarcity levels, with a real risk of a conservation campaign, where many users may be forced to shut down.
Either path imposes economy-wide costs, feeding inflation and doing lasting damage to confidence. That is why every other OECD country without enough of its own indigenous gas has secured access to imports through LNG terminals or through pipelines.
With indigenous gas dwindling, New Zealand is the outlier, and I put it to you, you cannot be a serious first-world country without access to the natural gas needed to fuel the economy. Modelling from MBIE suggested that, against a scenario of middling gas supply and rising gas prices, an LNG terminal that caps gas prices would leave GDP $1.2 billion better off a year by 2035, and would save up to 4,900 jobs by 2032.
As you know, the government has been procuring an LNG facility to act as that backstop. Today, I can announce that we have shortlisted two providers, both at Port Taranaki and both with global expertise in building LNG facilities. Having carefully weighed the impact of the conflict in the Middle East, we have concluded that, even so, LNG remains the cheapest, most flexible, and fastest solution to the dry-year problem this decade, given the dramatic reductions, and further forecast reductions, in indigenous gas supply.
I want to make four points clear. First, importing LNG as a firming fuel is not a retreat from our commitment to renewable energy. It supports it.
Second, LNG will not replace renewables. It is the transitional tool that lets the system become overwhelmingly renewable without outages, price spikes, and economic shocks. It will help more wind and solar get built, because developers know there is a reliable backup when the weather does not cooperate.
Third, the outlook for LNG supply is positive. 2026 was already expected to begin a period of global oversupply, and the International Energy Agency expects new supply this decade to far outweigh any disruption in the Strait of Hormuz. Future prices for 2028 and 2029 remain consistent with our decision to proceed.
Fourth, consider the counterfactual without LNG. New Zealand faces domestic gas prices that PwC forecast could reach $31 per gigajoule as supply declines, alongside costly shortages. A diversified gas supply helps keep electricity prices down.
MBIE, after taking expert advice, assessed 11 options for dry-year cover and shortlisted five, each capable of delivering 1.5 terawatt hours of cover annually. The electricity sector has yet to convince government that no dry-year risk exists, and government needs absolute certainty in this regard, given the costs to our economy and the impacts on New Zealanders.
LNG was selected over the rest because it offers four things. First, speed, supporting generation from 2028, in time for the dry year if it hits that very year. Second, lower prices, with dry-year cover at around $200 to $250 a megawatt hour that could materially reduce wholesale future prices.
Third, flexibility, to manage unpredictable dry years without locking us into new long-lived assets, such as building Rankine units. And fourth, system-wide benefits, providing gas to industrial users for the longer term.
MBIE advises that LNG remains the most cost-effective option, and that since the announcement on 9 February, forward prices for 2028 and 2029 have already fallen by around $20 a megawatt hour. That is worth around $800 million a year to the economy in electricity costs alone, while giving manufacturers, growers, and bakers the gas they need to keep operating as they invest in longer-term solutions, saving jobs in the process.
It is worth weighing LNG against the alternatives others have put forward. Some have suggested simply burning more diesel. While this was the next best option identified, diesel would cap prices at around $550 a megawatt hour, more than twice the cost of LNG.
It would do little for forward prices, and would also consume around 27% of our country’s daily diesel needs. In terms of batteries and other types of storage, whilst these can provide for intraday peaks and are improving, they do not provide for the long-duration winter peaks, the winter dry-year problem that we are dealing with.
Ultimately, the government has decided, on the evidence before us, to procure an LNG import terminal. New solutions may emerge over time, but we need to act now, and quickly, to give Kiwis the confidence the problem can be solved.
The next question is how this will be paid for. The government is now working through the detail of how this facility will be paid for, but Kiwis can be certain of one thing today, and that is it will not be funded by a levy on their power bills.
We have been clear that responsibility for managing dry-year risk sits with the sector. As the largest players, the gentailers have particular responsibility to ensure New Zealand has secure and affordable energy at all times, including in dry years. That principle, keeping the lights on, sitting with the electricity sector, is what will guide the decisions on funding.
I have asked the Ministry of Business, Innovation and Employment, and the National Infrastructure Funding and Financing Company, to work with the gentailers on a fair funding model. We will have more to say in due course. It would prioritise access to LNG for dry-year generation, but include a user-pays element, so that industrial users can pay to access gas, reducing the cost to the electricity sector and protecting jobs.
My message to the gentailers is clear. The alternative to LNG is the deindustrialisation of New Zealand businesses, either by taking their gas and shutting them down, or by pushing electricity prices sky high in a dry year, because there is no alternative. We saw that in 2024, and we will not stand by and let our industrial base become the collateral damage of an insecure market.
I want New Zealand exporting our goods, not our jobs, and our electricity market has a critical role in making sure that is the case. While negotiations are underway, Cabinet has agreed to develop a regulatory backstop should these negotiations not succeed.
What I can tell Kiwis is this. The job of managing the dry-year risk belongs to the gentailers, and we will make sure they take it on. What it will not be is funded by a levy on the power bills of ordinary New Zealanders.
Finally, while LNG secures the fuel to manage dry-year risk in the medium term, there is a need to get ahead of the dry-year risk and, once and for all, fix the foundations of the market. To do that, the system needs to identify dry-year risk earlier, and needs stronger incentives so the market invests in the firm capacity and fuel we need, and it needs better tools to manage risks as they evolve.
Today, I can also announce that Cabinet has agreed to strengthen the dry-year regulatory framework by giving the Electricity Authority a broader role in managing, monitoring, and responding to dry-year risk, improving information and reporting, and updating existing risk-management tools, all of which will ensure the system does a better job and delivers better outcomes for New Zealanders. The government will be changing the law to make managing the dry-year risk one of the key requirements of the Electricity Authority.
The Ministry of Business, Innovation and Employment has also started consultation on a new reliability obligation, which will be placed on the major gentailers. The obligation is designed to ensure the electricity sector addresses dry-year risk instead of consistently leaving the system on the edge. When Transpower’s modelling indicates emerging dry-year risk, the obligation will kick in, backed by strong penalties for non-compliance.
The obligation will sit on the retail side of the gentailers’ business over the long term, to ensure that they have firm capacity contracted over the long term, and the obligation will also sit on the generation side in the short term, to ensure they have the fuel to back up the eventuality of a dry year, as previously agreed by Cabinet.
The government is also increasing penalties for serious rule-breaking from a maximum of $2 million to up to $10 million, or three times the commercial gain, or 10% of the company’s turnover, whichever is the greatest. Power companies, in particular the gentailers, need to face real consequences if they do not meet their obligations.
This will ensure there is enough investment in firming, such as backup winter generation and secure fuel supply, which will obviously make the system more resilient. It will also deepen hedge markets, enable more retailers and generators to compete, and that competition in turn will support more renewable generation and help deliver abundant, affordable electricity.
I encourage the electricity sector to engage with the consultation, which has been launched today, and to share its views.
In closing, let me return to the three things I came here to say. First, New Zealand needs a firm backup for the dry years. An LNG facility is the fastest, cheapest, and most flexible way to provide it.
Second, that facility is being procured now, with two providers shortlisted, and we are working through how it will be paid for, though I can assure you, not through a levy on power bills. Third, we are placing a lasting obligation on the gentailers to manage this risk, so the country is never again left where it was in 2024.
The stakes only rise from here, as our homes, our cars, and our businesses come to run more and more on electricity, and as our electricity system becomes more renewable, we need to make sure we get this right. For too long, the investment needed to secure the system has not been made, and this government is making the decisions necessary for the future of our electricity system.
We intend to keep the lights on, keep the bills down, grow jobs and opportunities here in New Zealand, and deliver abundant, affordable, reliable energy for all New Zealanders.
Thank you very much.
Original source: https://nz.mil-osi.com/2026/06/10/energy-speech-to-auckland-business-chamber/