Record low lake levels push Electricity Authority to strengthen power supply rules ahead of winter

Transpower's enhanced information-gathering powers are to improve the reliability of supply. Photo / Transpower

Record low lake levels for this time of year have prompted the electricity regulator to strengthen the rules around the security of power supply.

The Electricity Authority (EA) said an urgent code amendment would give grid operator Transpower enhanced information-gathering powers so it can find out exactly how much thermal capacity is available to the system when hydro and other renewable power sources are constrained.

The regulator said the rule changes would help to ensure consumers could continue to rely on their electricity supply through winter, despite challenges caused by changing weather patterns.

“While we are better prepared for this winter than last year, New Zealand’s hydro inflows are the lowest on record for this time of year,” said Jeremy Cain, the EA’s acting general manager wholesale and supply.

“Low hydro lake levels increase reliance on thermal generation, and it is critical Transpower has accurate thermal fuel information so that it can do its job effectively,” he said.

The changes, effective from today, are aimed at ensuring Transpower can better manage security of supply risks.

A second code change will update the “scarcity pricing settings”.

Genesis chief executive Malcolm Johns. Photo / NZME

This would ensure the correct pricing signals are set in the wholesale market to incentivise immediate responses, should a shortage emerge.

The EA said it would also encourage investment in demand-side flexibility, batteries and fast-start generation.

As it stands, Transpower has limited information-gathering powers in respect of thermal fuels.

It gathers thermal fuel information from multiple sources including publicly available data such as Wholesale Market Information (WMI) obligations, gas industry reports, and NZX disclosures.

However, the data is often disclosed infrequently, voluntarily, and with significant delays, or presented in formats that hinder analysis, the EA says.

“This can lead to gaps and inconsistencies, hence the change to enable more direct and timely access to the thermal fuel information to assist accurate forecasting and risk management,” it said.

Wholesale power prices have been steadily rising since the start of the year due to ongoing dry conditions.

Prices hit around $350 a megawatt hour (MWh) this week, up from $295MWh a month ago, but short of last August’s peak of $800MWh.

Last year’s power prices were blamed for the closure of two central North Island timber mills and cut-backs in other energy-intensive industries.

Transpower is responsible for forecasting the electricity system’s ability to meet demand and managing risks associated with energy shortages.

The EA said the availability of thermal fuels information is increasingly critical for forecasting and managing security of supply.

“The winter of 2024 highlighted how constrained thermal fuel supply can significantly impact both hydro generation and overall system stability.”

Last month, Genesis and its competitors Mercury, Meridian, and Contact entered non-binding heads of agreement to investigate the potential for extending the life of Genesis’ coal and gas burning Rankines to help manage “dry-year risk”.

The new arrangements could be in place for 2026, subject to any regulatory approvals, Genesis said then.

Meanwhile, Genesis has beefed up its coal stockpile at its Huntly Power Station ahead of anticipated demand this winter.

It has more supply on the way.

“We’ve increased our coal supply despite the expense and the risk that rain may yet top up the hydro lakes,” Genesis chief executive Malcolm Johns said.

After being depleted during winter 2024, Huntly’s coal stockpile had been replenished to more than 500,000 tonnes.

In line with undertaking to maintain this level, Genesis had ordered just under another 500,000 tonnes to be delivered between now and September.

In its latest market outlook, Transpower said it was critical the industry continued to focus on fuel storage and plant availability ahead of 2025, including across controlled hydro storage and thermal fuel arrangements.

In the next six months, about 250 MW of new generation is expected to be commissioned.

Contact Energy will keep its Taranaki Combined Cycle generator (330 MW) available in 2025 with limited running hours, five-day call-up time and limited gas to run for extended periods.

“Peak capacity risks, especially in cold snaps, will persist until there is sufficient investment in flexible resources such as batteries, demand response and peaking generation,” Transpower said.

Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.