Contact Energy's CEO says the risk of New Zealand running out of power in winter has fallen significantly, thanks to new solar and geothermal capacity that wasn't available three years ago. But the question of what replaces dwindling gas supplies remains unresolved.
New Zealand's energy system is in a quieter and more stable place than it was two years ago, according to Contact Energy chief executive Mike Fuge — and the reason is not one thing but several, all arriving at the same time.
The context is important. In 2024, low hydro lake levels, a lack of wind generation, and falling gas supplies combined to create a winter energy crisis that forced some businesses to close and sent wholesale electricity prices sharply higher. The episode exposed how dependent the country remains on rainfall to fill the hydro lakes, and how thin the buffer can be when conditions are unfavourable.
What has changed
Fuge told RNZ that the risk of a future dry year event has "moved downwards", citing three specific changes. First, increased solar power generation in summer months has shifted the way the system works — solar output peaks in the months when New Zealand's hydro lakes are being drawn down, reducing the peak demand pressure on hydro assets. Second, additional baseload generation from geothermal plants has come online. Third, there is more renewable capacity overall — Fuge cited two to three additional terawatt hours of renewable energy that was not available three years ago.
The immediate outlook for winter 2026 is described as "very good": lakes are full, the AGS gas storage facility is full, gas stockpiles are near record levels, and all equipment is available. By mid-2027, further geothermal capacity from Contact Energy and Mercury Energy will be online, along with more wind and solar — which Fuge said would further reduce dry year risk.
The gas supply problem that hasn't gone away
The improvement in dry year risk does not mean the structural challenge of New Zealand's declining gas production has been solved. Gas supply has been falling for years, and the country has been drawing down on existing fields faster than new discoveries are being developed.
The government is currently considering whether to spend close to $1 billion on a liquefied natural gas import facility — essentially a floating terminal that would allow New Zealand to import gas from international markets when domestic supply is insufficient. The argument for the facility is that it provides certainty for the energy sector and a backstop against dry year events. The argument against is that it locks in fossil fuel infrastructure for decades and is inconsistent with climate commitments.
Fuge supports the government exploring the LNG option, but with a condition: the business case has to stack up. The OECD has been more definitive, saying in a recent report that New Zealand should transition away from gas and treat LNG only as a short-term option. The government has not yet made a decision on whether to proceed with the import facility.
What this means for power prices
The short-term outlook for power prices is more benign than it was in 2024, when the energy crisis pushed wholesale prices to very high levels. More generation capacity in the system means more competition, which moderates wholesale prices. Higher lake levels and full gas stockpiles mean the risk of a supply-driven price spike this winter is lower than it has been in some time.
The longer-term question is whether the new renewable build-out is sufficient to replace the gas generation that will eventually phase out. New geothermal and wind projects are being built, but the timeline for new capacity to come online and the timeline for gas production to decline need to be carefully matched. If gas production falls faster than renewables come on stream, the dry year risk reasserts itself — and the argument for the LNG backstop becomes stronger, regardless of the policy preference.
For households and businesses, the practical implication is that the extreme price volatility of 2024 is less likely in the near term, but the long-term trajectory of power prices still depends heavily on whether the investment in new generation keeps pace with the decline of existing gas fields.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.