Ministers may hope for no more tough calls on energy after LNG, but dream on
Tuesday, 9 June 2026
OPINION Nice try. But there has to be a big question-mark over whether the Government’s attempt to — in effect — outsource an energy strategy to the country’s big four electricity gentailers, will really work.
Energy Minister Simeon Brown provided an update on Tuesday morning on the Government’s efforts to procure an LNG import terminal.
There wasn’t too much of consequence, there.
Work on procuring a terminal is proceeding but perhaps a bit less advanced than expected, with officials still weighing up proposals from two suppliers.
Read more:
Simeon Brown confirms LNG still part of the solution for an energy system ‘run on the edge’
Jubilant Lake Onslow backers forecast it can be built by 2034 and slash power bills
Inside Cabinet’s case for importing LNG ‒ and the puzzles that remain
A contract sounds like it could still be at least a couple of months away.
And Brown signalled the Government would recoup the cost of the investment directly from the big four power firms, rather than through a levy on electricity bills.
But the precise funding mechanism for an LNG terminal is more a matter of political optics and economic semantics, given the way the cost would transmit — one way or another — through the economy.
Rather, the meat of Brown’s announcement today was that the Government would create a “Winter Energy Reliability Obligation” in a bid to put the onus on the big four power firms to ensure there is an abundant supply of power out into the future.
A discussion document published by the Ministry of Business, Innovation and Employment envisages the Electricity Authority would be charged with attempting to spot any risk of a power crunch up to five years out.
If it assessed there might be a supply shortfall, it would apportion that between Contact, Genesis, Mercury, Meridian Energy and the New Zealand Aluminium Smelter and order them to secure enough energy to cover the gap, penalising them up to 10% of their annual revenues if they failed.
The big four power companies — but only them and not the smelter — could also be ordered to plug any supply shortfall that popped up more unexpectedly as a result, for example, of a power plant breaking down or a sudden drop in gas supply.
The Government’s message to the big power firms could be paraphrased as; “we want a reliable power system without the risk of power cuts or big price spikes — you figure how to deliver that or will fine you some of your excess profits”.
As Brown noted, LNG is one option to help guard against an energy crunch, as are more generation, demand-response measures, and power “storage”, which could include the likes of batteries and pumped hydro.
But it seems implausible the Government can wash its hands of any role in charting and coordinating a journey to a more resilient energy market.
If the cheapest long-term solution to covering a winter energy gap is to have a bunch of solar and winds farms standing by idle for a (non) rainy day, who decides who builds and owns those, and how do they recoup their losses from the sector?
Should the best post-LNG dry-year solution instead be a pumped hydro scheme at Lake Onslow, that would turn the power on its head and require a complete re-regulation of the market.
Encouraging more demand-response could involve a whole heap of regulations, to standardise communication protocols between ‘smart’ devices in the home, for example.
Who decides the work programme and where the costs fall? How will the interests of those who won’t be subject to the Winter Energy Reliability Obligation be represented? That would include most businesses, including lines companies.
Big changes require leadership, so how exactly is that going to emerge from a handful of power firms and the smelter, which have their own individual commercial interests and perspectives?
As Brown observed this morning, the major gentailers have “run the system on the edge”. That’s because it is not in their financial interests to have excess electricity generation sloshing around in the market.
Is the idea to give them the choice of cutting their own throats by building more generation than they normally need, or facing massive fines? And what if they split on that decision?
The task of fairly apportioning liability for a power shortfall could get increasingly difficult if their approaches to investment diverged over time.
One interpretation of today’s announcements might be that after biting the bullet on LNG, Brown is seeking to avoid a raft of other difficult decisions that perhaps only the Government can make — most specifically including whether to back a multi-billion dollar investment in pumped hydro.
Whether that was a private or public sector venture, no-one would put up the cash for that without a green light and regulatory certainty from the Government.
To be fair, it’s a tough decision that a lot of people might want to dodge.
In the meantime, the big power companies appear to be quietly bristling.
Meridian chief executive Mike Roan said the company “looks forward to taking part in consultation on the Winter Energy Reliability Obligation, but New Zealand’s security of supply is already something the company takes extremely seriously”.
“Last financial year that responsibility cost Meridian $300 million in hedge contracts to get New Zealand through winter 2024, and we see this as a key advantage for the country of having financially strong generator-retailers,” he said.
Bridget Abernethy, chief executive of the Electricity Retailers and Generators Association, whose members include Meridian and its fellow gentailers, also said it “welcomed a conversation about the Winter Energy Reliability Obligation”.
But she added its members “are investing and will continue to invest in generation solutions to help provide energy during those dry years when output is low”.
“Our members alone plan to invest $6b in new generation projects between 2025 and 2030, which will strengthen New Zealand's energy security and help meet our future energy needs,” she said.