Reforms expected to target energy crunch risks, not full market overhaul
Monday, 29 September 2025
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The Government is tipped to unveil its long-awaited electricity reforms on Wednesday, barring any last-minute hitches.
Energy Minister Simon Watts is expected to announce “surgical” measures designed to reduce the risk of future energy crunches of the kind that saw wholesale prices spike and factories close last winter.
These could include measures to encourage power firms to hold more generation in reserve, or more direct interventions to encourage greater investment in thermal or other forms of “firming” generation needed to meet peaks in demand.
The focus is expected to be on bolstering energy security rather than tackling energy affordability head on, although the latter has at times been squarely on the Government’s agenda.
“If electricity prices remain high, New Zealanders will look at the sector and ask, ‘what have we been doing to deal with that underlying issue?,” he said in April.
The Major Electricity Users Group, which represents large industrial and commercial users of electricity, appears to have come round to the view that significantly cheaper electricity would involve reducing the price generators were able to charge for low-cost hydro power.
It said it wanted to “break the cycle of renewable generators pricing up to the price of thermal generation”.
Prior ideas for industry reform, such as a “single-buyer” model proposed by the Labour Party ahead of the 2014 election, have also centred on creating a system in which generators would be paid different amounts for power, depending on the cost of the technology used to produce it.
Forward wholesale prices for electricity over the next three winters are hovering around $200 per megawatt-hour, far higher than the weighted average cost of producing power.
An industry source suggested the short-run marginal cost of existing hydro generation was typically about $13/MWh — a small fraction of that price.
But the Government is not expected to tamper significantly with the “Bradford” market reforms put in place in the 1990s that shaped the current electricity market.
Watts told The Post in August that the market was fundamentally “doing what it should do”.
“We're not looking at it from the context of saying, ‘you know, we're going to throw the entire market out and start again’.”
Instead, the Government was looking at making some “surgical changes in the market in areas where we know there are problems that the market has not been able to solve itself”, he said.
The Government is expected to release the advice it received from British consultant Frontier Economics, along with a peer review that is rumoured to be critical of that report, at the same time as setting out its policies.
Simon Bridges, chief executive of the Auckland Business Chamber, one of a number of business groups that has been campaigning for major change, said people wanted “bold action”.
A “dismal” drop in economic activity reported by Stats NZ during the three months to the end of June highlighted the impact of high energy prices on the economy, he said.
“If decisive action isn’t taken, what we’re going to see more and more is the economy going backwards – the current state of economic activity could be as good as it gets.”
Contact Energy chief executive Mike Fuge appealed last week for the Government not to play “yesterday’s game”, saying last year’s energy crunch was the result of a series of unfortunate events that the industry had since taken steps to prevent recurring.
He suggested the emphasis should go on making sure generators had greater certainty over whether or not new investments in renewable energy would be consented.
“We have to keep building electricity of any form as fast as we can,” he said.