If one of the Rankine units in Huntly gets removed, wholesale electricity prices could increase by up to 12% between 2026 to 2028, gentailers say

The country’s four largest electricity generator-retailers estimate if one of the Rankine units at Huntly Power Station is removed, wholesale electricity prices would increase by around 10% to 12% between 2026 to 2028, and 6% over the long-term.

That’s what Genesis, Mercury, Meridian and Contact have told the Commerce Commission as they apply to establish a strategic energy reserve at Huntly Power Station.

The energy companies shared their plans on Monday. The plans are for 10-year ‘Huntly Firming Options’ covering 150 megawatts, 50 megawatts each for Contact, Meridian and Mercury.

As well as this, Genesis plans to establish a fuel reserve of up to 600,000 tonnes for dry winters with low hydro flows.

The stockpile will be coal but Genesis says the reserve may transition to biomass, such as wood products, as it becomes available in coming years.

If it goes ahead, one of Huntly’s three coal and gas powered Rankine units, which was set to be retired in February 2026, will remain in commission. Rankine is a thermodynamic cycle used in power generation.

In August last year, the country narrowly avoided blackouts due to low hydro lake levels, limited wind generation and tight gas supplies, forcing officials to ask businesses and households to reduce electricity consumption.

And as winter approached this year, prices began to creep up and familiar problems threatened another supply crunch.

This continued until May, when electricity producers struck a deal to buy natural gas from Methanex and rain topped up hydro lakes.

Commerce Commission

On Wednesday, the Commission published its statement of preliminary issues relating to the application and has invited interested parties to share their thoughts on the proposed arrangements, including any impacts on things like wholesale energy costs.

One of the things the Commission raised was whether the incentives of the applicants or other market participants will be affected when it comes to investing in “new generation capacity going forward” compared to a situation where one of the Rankine units gets retired.

“This could include: new generation capacity in general; or flexible generation capacity (such as thermal energy generation) that might operate in competition with Huntly to provide capacity during dry winters, taking into account the relative uncertainty as to when such generation capacity might be required and the phase out of non-renewable energy.”

The energy companies hope the agreements will be in place from January 1, 2026.

‘Rules of how this will be triggered will be interesting’

Professor Nirmal Nair from the University of Auckland’s department of electrical, computer and software engineering says this is a “stop-gap arrangement to ensure ‘energy capacity insurance’ particularly during dry-year risks, through a mechanism that is agreed upon by the existing gentailers”.

But there would be no separation between the companies, Nair says, which “is going to smother the visibility of a pure market”.

"The rules of how this will be triggered will be interesting.”

Previously it would have been the Government that would trigger this, Nair says, but if it were up to the companies to trigger this, mandates should be placed telling them not to trigger during certain months.

“Then you’ll manage your water properly, you just can’t play the dry-year risk all the time and put the marginal price on top,” he says.

He also wondered why this agreement was for 10 years. Nair says this should be five years instead. “Otherwise you’re going to give them a free pass for a decade.”

“This is the time for us to really leverage these guys to play financially and really look at other options because right now, we’re playing it very safe.”

“I hope it does not decelerate the ongoing renewable energy resources project from coming online, by scaring off investors who would like their returns in the coming 10 years.

“Else we will both lose on the decarbonisation targets, and not achieve electricity security or affordable energy,” Nair says.

‘Important buffer’

The announcement was welcomed by Energy Minister Simon Watts and Associate Energy Minister Shane Jones.

Watts says last year’s dry winter highlighted vulnerabilities in the country’s energy system.

This led to high prices and unacceptable pressure on New Zealand industries, businesses and households, Watts says.

“I have been extremely clear with power generators that the Government expects them to deliver additional supply so we can reduce the risk of winter power shortages during periods of low lake levels.”

“This will reduce the need for significant commercial power price spikes and the need for businesses to reduce their power use,” Watts says.

Jones says this will “act as an important buffer during periods of high electricity demand in winter and when renewable energy generation is low”.