Power play: National walks tightrope as energy crisis hits homes and industry

Wednesday, 17 September 2025

Andrea Vance is National Affairs Editor for The Post and Sunday Star-Times.

ANALYSIS: Forget butter. The defining cost crunch of 2026 will be power.

With gas supplies collapsing and electricity prices spiralling, New Zealand risks sliding into a quiet de-industrialisation, the slow death of freezing works, paper mills and fertiliser plants that once underpinned the regions.

On top of that, households are bracing for another shock: water prices are set to soar, with councils planning $50 billion in infrastructure spending over the next decade.

Some households could see annual bills top $7000, while others escape with more modest rises. As my colleague Charlie Mitchell wrote earlier this month, Porirua, Lower Hutt and Queenstown-Lakes face particularly steep hikes, exposing decades of underinvestment and tighter environmental rules.

At the heart of the energy crunch is gas.

The supply is in sharp decline, and that’s starting to hit homes and industry hard.

Last year, total gas use dropped 22%, the lowest level since 2011. The Ministry of Business, Innovation and Employment (MBIE) says the drop is driven both by falling production at ageing fields and by companies revising down their estimates of how much gas is left underground. (Natural gas reserves at the start of 2025 were 27% lower than the year before.)

The Maui field offshore Taranaki, the country’s largest, remains crucial. But pressure in its reservoir could fall below the level needed to maintain flow by late 2027. A major maintenance program next year, costing as much as $100 million, may not happen if its Austrian operator, OMV, decides closure is simpler than investing in a field with a short remaining life. The Kupe field faces similar uncertainty.

Industrial users are already feeling the pinch. Methanex temporarily shut plants last year, selling its gas to power companies to shore up electricity supply, while fertiliser producer Ballance Agri-Nutrients warned it might have to close its Taranaki plant temporarily.

Business surveys show gas prices have doubled over the past five years, with companies responding by hiking product prices or cutting staff.

Households are not immune. High gas prices push up electricity costs because gas-fired generation sets the price during times of high demand or crisis.

Experts warn that shrinking gas supply, high prices, and ageing infrastructure are creating a death spiral: as some households switch off gas or electrify, the remaining users, often low-income renters, face ever-higher bills.

It’s become clear that the country urgently needs a national energy strategy to manage the transition. Earlier this year the government commissioned a review of the electricity sector and the findings are imminent.

The “big four” gentailers (Contact, Meridian, Mercury, and Genesis Energy) have have proposed measures within the existing market framework.

They have signed an agreement to stockpile up to 1.1 million tonnes of coal at Huntly Power Station, ensuring the units remain available for quick-start generation when renewables are low or gas supplies constrained. (This prevents a repeat of winter 2024, when low hydro inflows, weak wind, and fluctuating gas supplies sent electricity prices soaring).

UK-owned Octopus Energy, which started New Zealand operations in 2022, has been lobbying for bolder action.

The company argues that government-backed long-term contracts for new renewable generation could provide certainty for investors, bringing supply online ahead of demand.

And operational separation of gentailer wholesale and retail arms would encourage competition and give independent retailers and generators a fair chance to enter the market.

Ensuring market mechanisms deliver stable prices would also accelerate electrification of transport and industrial processes, helping the economy decarbonise while keeping costs under control.

Margaret Cooney, chief operating officer of Octopus Energy NZ, warns that without these measures New Zealand risks “robbing itself of future growth” as new industries, like data centres, and electrifying sectors face supply constraints, driving up prices and deterring investment.

The debate over how to fix the system has drawn heavyweight attention, in a very-Wellington battle of the lobbyists.

Hamish Rutherford, Prime Minister Christopher Luxon’s former chief press secretary, is advocating for Octopus. On the other side, Kenny Clark of Lillis Clark (arguably the most powerful lobbying firm in the country right now due to its close National links) is representing the gentailers’ interests, through Electricity Retailers' and Generators' Association of New Zealand.

And energy reform is about to get more politically charged.

Sparse snow this winter will likely leave left hydro lakes low next year, meaning generators may have to rely more on coal and gas to meet winter demand, pushing up wholesale electricity prices.

With 2026 an election year, that has the political class on high alert.

ACT is naturally not keen on heavy-handed market intervention. (Although energy spokesperson Simon Court does point to his party’s support for a $200 million co-investment in new gas fields as a public-private partnership announced in the Budget).

It promotes a shakeup of Transpower’s regulation to allow for a developer-led approach to build generation and grid connections.Court is also keen on small modular nuclear reactors, as part of a future low-emissions power mix, but admits that the politically incendiary proposal is not part of the current discussions.

On the other side of the coalition, NZ First’s Resources Minister Shane Jones is openly floating structural reforms, splitting the gentailers’ generation and retail arms, even hinting at nationalisation.

His party benefits by casting itself as a defender of regional industry and ordinary households against both rising bills and market concentration.

For both parties, there is political upside in disruption. NZ First gains by spotlighting National’s failure to head off the crisis and pushing its own industrial-populist agenda.

ACT may see a period of turmoil as the opportunity to push for selling down the Crown’s stakes. In discussions with coalition partners, they argue that the oil and gas bans and past regulatory decisions, not the market itself, have created the pressures New Zealanders now face.

By holding back on structural changes, ACT preserves the value of the mixed-ownership companies, particularly Meridian, keeping future sell-downs credible for investors. In other words, the party is content to lose politically on energy now, betting that a carefully managed sell-down in the next term can proceed without undermining investor confidence.

The political risk is now so elevated, that no-one is under the impression that Energy Minister Simon Watts is calling the shots.

Luxon’s office is unusually well-stocked with energy expertise.

His chief of staff Cameron Burrows was chief executive of the Electricity Retailers' Association. Chief policy adviser Matt Burgess specialised in energy as an economist at the New Zealand Initiative think tank. And policy director Joe Ascroft recently wrote wrote his PhD thesis on natural gas and energy market dynamics.

The sense is that Luxon and his advisers, and Finance Minister Nicola Willis want to avoid anything that looks radical and substantial structural reform, let alone a tilt toward nationalisation, is unlikely.

The safer bet is targeted, retail-friendly measures, such as subsidies for rooftop solar or incentives for household batteries, allowing the government to project action without rewriting the market.

He is walking a tightrope. With household bills surging and industries under pressure, and approaching an election year, the margin for error is thin.

Move too softly, and National risks looking complacent in the face of an unfolding energy crunch. But move too boldly, and Luxon further risks unsettling business confidence and fracturing his coalition.

The rising cost of clean water adds another layer of risk. Just as energy exposes the vulnerabilities of New Zealand’s industrial and household networks, new water bills will be a reminder that essential services are under pressure.

In 2026, there will be no relief from the cost of living crunch and previous hesitancy on tackling the market dominance of supermarkets and banks has left many voters frustrated, feeling that policy protects business interests rather than consumers.

But Luxon and his senior ministers are also acutely aware that any bold interventions in the energy market carry the risk of shaking investor confidence.

KiwiSaver funds and other institutional investors hold substantial stakes in the mixed-ownership companies, meaning that even a relatively routine policy adjustment can trigger visible losses on the sharemarket.

A sharp drop in Meridian or Contact, for example, would dominate headlines and immediately attract criticism, no matter the underlying economic rationale. In contrast, the broader consequences for industrial energy users (factories closing or data centres operators choosing to go elsewhere) are far less visible, even though stable energy supply is critical for maintaining jobs and economic activity.

It creates a classic “damned if we do, damned if we don’t” scenario for ministers.

Any move perceived as radical risks short-term market volatility and negative optics, while inaction leaves households and businesses exposed to soaring power prices and looming supply shortfalls.

Caught between public expectations, investor scrutiny and internal coalition disagreements, National are left to weigh the headlines against the long-term health of the economy.