Government’s Winter Energy Reliability Obligation runs into flak from submitters

Friday, 24 July 2026

A Government proposal that would force New Zealand's biggest electricity companies to insure against future power shortages has drawn criticism from opposite sides of the industry.

The Electricity Retailers and Generators Association (Erganz), whose members include the big four power firms, argues the scheme is unnecessary, while another representing major electricity users says it is unlikely to solve the problem.

Submissions closed on Tuesday on the proposed Winter Energy Reliability Obligation, which Energy Minister Simeon Brown said was designed to reduce the risk of a repeat of the wholesale electricity price spikes that drove up businesses’ power bills during winter 2024.

Wholesale electricity prices surged during that period after a sharp fall in gas supplies coincided with relatively low hydro storage, forcing some large industrial users to cut production or close.

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The Winter Energy Reliability Obligation would see system operator Transpower identify power shortages up to five years ahead. The Electricity Authority would then allocate responsibility for covering that shortfall between Contact Energy, Genesis Energy, Mercury, Meridian Energy and the New Zealand Aluminium Smelter.

Those organisations would be required to demonstrate they had secured enough qualifying generation, fuel or other cover to meet their share of the obligation, or face fines of up to 10% of their annual turnover.

The four generator-retailers would also face a separate obligation to respond to more unexpected shortages that could, for example, stem from a power station failure.

Work on the proposal is understood to have begun last year under former energy minister Simon Watts.

It is understood ministers wanted to place greater responsibility for security of supply on the sector itself, after the Government was forced to temporarily shore up energy supplies by agreeing to underwrite an LNG import terminal and ahead of what could otherwise be other difficult decisions on major market interventions.

Brown told The Post last month it was “important to reinforce” that the proposals were still out for consultation and no decisions had been made.

Erganz urged the Government not to proceed with the obligations in their current form.

It submitted that the electricity market had changed significantly since 2024, with rapid investment in renewable generation, greater certainty over the future of the Tiwai Point aluminium smelter, and agreements to maintain a strategic coal reserve at Genesis Energy’s Huntly power station all reducing dry-year risks.

A report prepared for Erganz by Concept Consulting went as far as claiming the electricity market “performed relatively well through the significant dislocations of 2024”, although the association said that report did not necessarily represent its own views.

Concept’s report said the proposed obligations would increase electricity costs while distorting market incentives, in part because they would encourage gentailers to reduce the number of retail customers and supply contracts they held in order to limit their potential liabilities.

The Major Electricity Users Group, which represents large industrial businesses, took a different view of the underlying problem but also concluded the proposed obligation was unlikely to achieve its objective.

The Government and the Ministry of Business, Innovation and Employment had “clearly set out the key problem that needed to be addressed — how to manage dry-year risk and ensure sufficient firming generation in an increasingly renewable yet intermittent market”, it said.

The market would not deliver enough firm generation on its own as New Zealand became increasingly reliant on renewable electricity, it said.

But it questioned whether the scheme would materially change the behaviour of the major generator-retailers.

“The discussion document sets out how ‘the market’ hasn’t developed a solution in recent years but then expects the market to now provide solutions,” it said.

The proposal would need “considerable updates” to bring it to a state where it was robust enough to justify the application of substantial penalties for any non-compliance, MEUG said.

“MEUG expects that it would drive more solar generation to be built, but questions whether it would drive the type of firming investment needed to deal with an increasing level of intermittent generation.”