A proposed reliability obligation to manage dry-year risk

About the consultation

Electricity supply in New Zealand depends heavily on hydro generation. In dry years, when hydro inflows are low, there is less energy available. At the same time, recent changes in the energy system - including less thermal generation and more wind and solar – have increased our reliance on weather conditions for energy.

When the system works well, electricity is available when we need it and prices remain manageable. When the system is not working effectively, the potential for energy shortages increases and prices can rise sharply or gradually over time, affecting industry, businesses and households.

Current arrangements in our energy system rely on the market to manage dry year risk. However, recent experience suggests the market may not always deliver the energy cover we need ahead of time to help manage conditions in a dry year.

Cabinet has agreed to a strengthened regulatory framework to ensure dry-year risk will not re-emerge in the future, which will be progressed via changes to the Electricity Industry Act 2010, and an updated Government Policy Statement on Electricity.

We are now consulting on a proposal to introduce a new reliability obligation. This would require market participants to secure enough fuel or firm generation capacity ahead of a winter where a shortfall is expected.

We want to understand:

• whether you agree that additional incentives are needed to better manage dry year risk; and
• your views on the proposed two-layered winter energy reliability obligation.

Your feedback will help inform decisions on whether additional incentives are needed and how the proposed obligations should be designed.

We welcome feedback on any, or all, of our consultation questions.

Who we want to hear from

We invite submissions from anyone with an interest in New Zealand’s electricity market, including and not limited to:

• electricity generators, retailers, and other registered market participants
• investors and developers in electricity generation, storage, and demand response
• business groups and industry bodies
• large energy users and industrial consumers
• household consumers, and consumer and community groups
• iwi, hapū, and Māori organisations
• academics, researchers, and advisors.

Read the discussion document

MBIE has published a discussion document to support this consultation. The discussion document seeks feedback on the key issues and our proposed preferred solution, as well as explaining why other options have not been progressed.

The document sets out specific consultation questions, and we ask submitters to refer to the relevant question numbers in their feedback.

We encourage you to submit your feedback via our submission form.

What happens next

After the consultation closes, MBIE officials will review and analyse all submissions.

MBIE officials will then provide advice to the Minister for Energy on the feedback received and proposed next steps. Any future policy decisions would be subject to the usual government decision-making processes.