Oct 1, 2025
Media
Media statement: Government's reforms a missed opportunity to bring cost of electricity down; ignoring advice on LNG terminal risks creating an expensive white elephant

Government's reforms unlikely to bring down cost of electricity for New Zealanders, and an LNG terminal risks locking the country into a solution that will increase energy costs, reduce fuel security and create unnecessary emissions.

In summary: 

  • We need a low-cost, near-term solution to provide security of supply while we accelerate uptake of renewables, but investment in an LNG terminal locks us into a solution that will increase energy costs, reduce fuel security and create unnecessary emissions. The Government has ignored the advice in the Frontier Report and gone ahead with it anyway, without strategic consideration.
  • The Government had a big opportunity to electrify industry and get homes and businesses off gas, but an LNG terminal is likely to lock in gas use and stop private investments into electric upgrades. It also creates more uncertainty in the market and links New Zealand to volatile international prices.
  • There are other solutions. Solar is a guaranteed way to reduce bills and create competition in the energy market and it’s a massive missed opportunity for the Government to not to invest in increasing uptake. There are other short term solutions to provide electricity in dry winters that cost a fraction of the upfront cost of relying on LNG.
  • There is very little focus on lowering bills for New Zealand households and businesses. These reforms are focused on keeping the lights on, but they look set to provide a gold plated solution to dry winter supply that is not guaranteed to reduce the costs for customers. 
  • Long-term low-interest loans for solar, batteries, and electrification upgrades to help families get off gas and reduce their bills by between $1,000-4,000 a year is a simple fix and could easily be implemented this term. The total cost to the Government would be an equity investment of $6m.  

1st October, 2025: Talk is cheap. Unfortunately, it doesn’t look like our electricity will be. 

Despite plenty of discussion about lowering New Zealanders' rising energy bills, most of the reforms announced today as part of a market review and in response to the Frontier Economics report, are focused on the big end of town, or the supply side, and risk locking New Zealand into an expensive energy future with solutions that we don't need.

What's clearly missing is a focus on the households, or the demand side. More efficient electric machines can reduce overall energy costs significantly. More solar on rooftops can reduce those costs further - and also help keep more water in the lakes in a dry year. Adding more batteries can help deal with our daily peaks. But there is very little in these reforms that is focused on these things. 

LNG proposals will be expensive

Energy Minister Simon Watts said the purpose of the review was to “help ensure our regulatory settings can deliver on the long-term interests of consumers, keep prices down for Kiwis and keep the lights on”. 

The Government's announcements may help to keep the lights on, but New Zealanders are going to be paying a high price for that investment for the next 15 years via our power and tax bills. It is committing to an LNG terminal - which will require a significant fixed cost outlay, and is almost guaranteed to cost more to build than planned. This decision also goes directly against the Frontier report.

In addition, the Government intends to provide capital for state-owned gentailers that could be used to build gas peakers that will use this LNG, locking Kiwi households and businesses into a long term future for volatile imported gas in our electricity system. The costs of running our electricity system is now going to be further hitched to the vagaries of geopolitics, global supply and demand, and the strength of our currency. No government can guarantee what the price of LNG will be.

An LNG import terminal - even if it is ‘targeted’ - will be an enormous investment and is expected to take three to four years to build. The best way to recover the cost of building it is to maximise its guaranteed usage, which isn’t good for prices or emissions.

The new LNG plant is intended to guarantee electricity generation in dry years, but we could instead have backed dual fuel peakers that can run on diesel or biofuel and are located close to our import terminals. We already have diesel infrastructure, they cost much less to set up, they can be turned on quickly if we really need them, and they can be sold. You can’t sell a LNG terminal when it is no longer needed: it will be a white elephant, a monument to a short-sighted decision by the Government. Diesel is painfully expensive for electricity generation, but we wouldn’t lock ourselves into LNG and it would be a short-term solution to the dry year issue as we continue to invest in renewable generation. 

A number of studies have been done on the viability of LNG in New Zealand and pretty much all of them have decided it doesn’t make sense, largely because it’s just too expensive in comparison to domestic gas (and much more expensive than other forms of renewable electricity generation). Frontier Economics noted in its report: “It would make no economic sense to develop an LNG import terminal to meet just dry year risk as the large fixed costs would be spread over a relatively small amount of output.” 

It also advised that any consideration of LNG as a last resort should be done as part of a wider supply strategy for communities and industrial users that tests if LNG is a lower cost solution. This advice has clearly been ignored.

Even Resources Minister and Associate Energy Minister Shane Jones said recently that an LNG terminal risks exposing the country to higher energy prices and greater fuel insecurity. We agree. It is an especially strange decision considering the big gentailers reached an agreement - approved by the Commerce Commission - to stockpile coal as part of a strategic reserve that was intended to deal with our dry year issues.

New Zealand is very reliant on hydro and no battery will solve our dry year problem, but much more solar and other renewables would help keep water in the big battery we call our hydro lakes during the critical late summer and autumn period. Solar production also increases in a dry year, and we need all the non-hydro generation we can get. 

A missed opportunity - and more uncertainty - for industry

There is a real opportunity to go hard on electrifying industry, but, unfortunately, this investment into an LNG terminal could discourage private businesses from upgrading to more efficient/productive electric alternatives. 

Far from being the lifeline industry, businesses and communities need, it will also introduce further uncertainty for big gas users. Will it actually be built or could it be axed by a new Government? If it is built, what future price of LNG should a business use if it needs to replace its gas boiler? Will domestic gas prices have to align with more expensive imported gas prices? Will we, a tiny country at the bottom of the world, still get the boats turning up in the face of geopolitical issues or natural disasters?

Electrification is the biggest productivity opportunity New Zealand has. It’s about doing more with less. But we need cheap electricity to unlock all the economic, environmental and energy security benefits of this transition. You cannot create cheap electricity with expensive fuel. 

EECA’s Regional Energy Transition Accelerator work has looked at all the industrial projects that make economic sense to electrify. In the North Island regions, 32% of large industrial fossil fuel emissions could be mitigated through projects that could save businesses money and free up significant gas supply for other users. 

There is so much more the Government could be doing to help businesses and households get off gas. This would save money, reduce emissions and free up our remaining gas reserves for those that really need it.

There are other options to ensure security of supply

We need to use our hydro lakes more strategically. Currently, we burn fossil fuels when the lakes get low, but we could instead keep them high with more solar. We shouldn't underestimate the role rooftops can play here because in Australia, 15% of the total electricity supply came from residential solar in the first quarter of this year. It hopes to get to 80% penetration by 2050.

Other markets like California, Germany and Hungary are embracing solar at both a small and large scale, and it is typically replacing gas and coal in the electricity generation system.  

There is over 1 GW of consented solar farms waiting for investment right now in New Zealand and they could be built (with low risk) in less than two years. There is a similar potential for rooftop solar that's near-term too, if we ramp up solar install capacity. 

Using gas to deal with our daily peaks now cannot compete with batteries. This is a technology that can store cheap electricity and remove homes from daily peaks and even remove their neighbours from peak through exporting (over 1000 batteries a day are being installed in Australia). It also reduces the need for expensive infrastructure upgrades and these costs are expected to make up the bulk of customers’ bill increases in the coming years. 

The Government has assured gentailers that capital is available for investment. That could speed up renewable generation, or lead to more gas peakers being built. But the Government should also be investing in generation on its own assets. For example, putting solar on 20% of the roofspace of all schools could deliver the same amount of power consumed by about 80,000 houses.

Bigger solar systems on schools plus batteries also offer the opportunity to massively contribute to communities and their local networks, while reducing the Government’s energy bills and creating a 30 year income source.

Streamlining EDBs should be positive for those installing solar and giving the EA more teeth is good to see, but these are small changes. 

There's not much for customers

The solar on farms initiative has been successful and there is huge demand for solar in the rural sector; there have been other changes like to voltage limits and tax incentives for solar that should increase demand, and the Energy Competition Taskforce has made changes around tariffs and time of use plans. Minister Watts deserves credit for pushing these changes, but this market review offered an opportunity to make some fundamental changes. There is nothing to drive additional demand or make it easier for New Zealanders to reduce their bills. 

These proposed changes to the electricity sector have largely failed to consider the role customers can play in the energy system and failed to meaningfully reduce electricity costs. 

Minister Watts also said: “From the review’s inception, we were clear that we needed experts capable of bringing a fresh perspective to the complex challenges facing our markets.” 

But it looks like we have the same old, tired ideas - some of them going against the advice of experts brought in from offshore. Our bills have been increasing every year for the past 25 years. This set of decisions is unlikely to reverse that trend and, in our view, is likely to lead to even bigger increases. 

There is a guaranteed way to reduce bills, however, and it lives on your roof. Solar could save every household around $1000 a year on bills - and you own an asset at the end of it. So where is the support for that and why are they not making it easier to install? 

Rewiring Aotearoa’s Electric Homes report suggests that the average home could save around $4,000 per year by upgrading to electric hot water, heating, cooking and driving and powering those electric machines with a combination of the grid, rooftop solar and batteries, including the cost of interest on a loan, so where is the support for that? 

All is not lost

Those who can afford to install solar and electrify their homes should do it now because the economics stack up so well. The problem is that not everyone can afford to pay for that solar or those more expensive machines and that's why we think there is still a chance the Government could balance the ledger by backing long-term, low interest loans for households through the proposed Ratepayer Assistance Scheme (RAS). That would actually reduce energy bills, and it could help everyone from renters to pensioners. 

Low-income homes spend a much greater proportion of their income on energy than high-income households and around one third of New Zealanders rent. These households would get an even greater benefit from cheap solar, but they may not be able to access those savings. The RAS and a Solar for Renters scheme we’re currently working on could change that.

With the election coming up next year, the RAS could still be the perfect companion to a subsidy scheme should the opposition parties choose to campaign on that. There is growing demand for solar across the board - from farmers to homeowners - and it’s something many would love to see. 

There has been plenty of discussion about increasing competition in the electricity sector. The biggest competition to the incumbents will come from rooftops because the cheapest energy New Zealanders can get is the energy they generate themselves. 

As the gap between the price of solar and grid electricity (around half of which is made up by the poles, wires and middlemen) continues to grow, that competition grows fiercer. 

Some of the lines companies might say their networks won’t be able to cope, but, again, it’s helpful to look to Australia, where all of these problems have been solved. New Zealand is currently at around 3% solar adoption, while Australia is at about 40% and has reached 80% in some neighbourhoods.

The Prime Minister has said in the past that we should be fast followers. If that’s the case, we should be looking to Australia and trying to replicate its success. Instead, we seem to be looking to the 1970s and making it easier for the incumbents, rather than trying to reduce electricity bills for households and businesses.  

The solutions are there. While we are disappointed at this missed opportunity, there is still plenty this Government could do in the next year that would actually help households bring down their energy bills. We have shared some ideas with Ministers, and are ready to help.

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