The draft Security of Supply Assessment makes sobering reading for power suppliers. Photo: 123rf.com
Transpower is warning of higher risks of electricity outages starting in winter 2026.
The national grid operator's draft Security of Supply Assessment predicts an elevated risk of shortages will arrive four years earlier than thought as recently as a year ago.
It found solar, wind and battery storage isn't coming online fast enough to make up for dwindling supplies in the country's gas fields.
The assessment found, if every electricity generation project in the pipeline was built, supply would be much more reliable, but Transpower said there was a risk of some proposed solar, wind and battery projects falling over.
Previously, Transpower thought its lower security standard - a measure of the safety margin between expected demand and supply - would be met until 2030. Now, it says that will be breached in 2026, much earlier than expected.
"It doesn't mean there will actually be outages, but it does signal an increased risk," said Transpower chief executive James Kilty. "It is telling us things are getting tighter and next year is looking tight."
He said companies in the electricity market could challenge the draft assessment, which said, if all potential solar, wind and battery projects in the development pipeline were built, the country would be in a much more secure position, but many projects didn't have consent yet.
The main factor behind the changed outlook was worse-than-expected results from gas producers.
Not only have yields from the country's gasfields dropped faster than expected, independent experts have also downgraded the size of estimated gas reserves in existing fields since the previous assessment a year ago.
Transpower now expects lower demand from industrial users than previously forecast, with more electricity generation projects committed to being built than a year ago.
Commercial rooftop solar has also helped alleviate some pressure, but while those factors improved the buffer, they weren't enough, the assessment found.
A solar farm. Photo: Supplied / Genesis Energy
Need for certainty for planned projects
Transpower says, to get the reliable supply the country needs, more renewable generation projects need to progress from possible to locked-in.
"The more speculative part of the supply pipeline... has increased," the assessment says. "However, with so much of the supply pipeline unconsented, there is risk that these projects could be delayed, deferred or dropped."
The risk of shortfall out to 2034 can't be met by coal and gas, even at their maximum levels.
"Even with the highest plausible energy contribution from thermal [coal and gas], we require a rapid and sustained build of new generation, exceeding the large amount currently consented, to maintain energy margins above the security standards over the full ten-year horizon," the assessment said.
Eighty-five percent of planned new generation is solar and wind, with most of the rest battery projects. Batteries can be used to store solar or wind power, and switched on and off to boost supply at stretched times, taking some pressure off the nation's hydro dams.
Octopus Energy's Margaret Cooney said the risks could be alleviated before next winter, if the government acted quickly.
"What the report's saying is actually, yes, that risk of outages is increasing," she said. "We do have opportunities to take action now that could reduce that, so more batteries more quickly, more demand response - both of those could help solve that situation and avoid the blackouts."
"We're not getting enough new generation coming in fast enough to compensate for the fact that we've lost the firmness or certainty you've had with gas. The government really needs to focus on making sure more supply is coming into the market as soon as possible."
Cooney said the government could take steps now that would make a difference within a year. One of those was changing the market, so companies could be paid to lower their demand at peak times, helping the country survive the short-term risk of outages.
Octopus' UK arm made those payments in the United Kingdom and the company also wants to offer it here.
"I'm not talking about shutting down plants for whole seasons, it's literally just to manage the supply imbalance that happens for a few hours," Cooney said.
"When you look at markets abroad, they have incentive payments... so in those situations, where you're approaching peak scenarios, they get called on and if they reduce their usage at that time, they get paid.
"It's something Fonterra and other major energy users have highlighted they are open to doing, but the current market structure doesn't support it.
"There is potential to quickly spin up a solution and examples in other markets we could replicate quite quickly."
Cooney said overall productivity need not be impacted.
"They could time maintenance over the peak period, but ultimately not impact their own production."
The country's biggest electricity user, Rio Tinto, has agreed to reduce its electricity use during tight winters, but in that case, the hiatus impacts production of aluminum.
Likewise, the country's biggest gas user, Methanex, has committed to selling its gas to electricity generators this winter, if needed, to shore up dwindling gas supplies during a potentially dry winter for the hydro power lakes.
Methanex has agreed to forfeit production of methanol for export for the second year in a row, because it was considered more profitable to onsell its gas supply to the likes of Contact and Genesis Energy.
Managing director Stuart McCall told RNZ that its core business remained methanol production and it intended to get back to it.
"Recent gas sales to New Zealand's electricity sector reflect targeted support during a period of energy supply stress, not a shift away from our core business," he said.
"Our priority remains manufacturing methanol, a key ingredient in everyday products such as mobile phones, pharmaceuticals, construction materials, wind turbines, solar panels and an increasingly important lower-emissions fuel for the global shipping industry."
Kilty said the hydro lakes looked a little fuller than feared going into winter 2024, and deals struck with Rio Tinto and Methanex also helped lower the risk of shortages this winter, but the sector needed to respond again to lower the risks in 2026.
The draft assessment looks ahead 10 years and forecasts fossil fuel supplies, new power stations, new build of factories and demand sources, and assesses how much buffer there may be in the electricity supply.
"We need to keep working hard to bring new electricity to market as soon as possible and make sure existing stations are well-fuelled going into next winter," he said.
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