- Strengthening New Zealand’s gas market, alongside new renewables, could cut wholesale electricity prices by up to 25% by 2030.
- Gas remains essential for reliable backup power when renewable generation can’t meet peak demand.
- Investment in gas storage, supply development and LNG backup is needed to maintain affordability during the energy transition.
- Lower wholesale electricity prices won’t necessarily reduce household bills due to rising line charges.
- A more secure energy system could help New Zealand capture a $70 billion data centre opportunity.
An independent Boston Consulting Group (BCG) report, Energy to Grow: Securing New Zealand’s Future, finds that strengthening the gas market, securing backup fuel for electricity generation and continuing to build renewables at pace could lower wholesale electricity prices in New Zealand.
Commissioned by Contact Energy, Genesis Energy, Mercury and Meridian Energy, the report sets five priorities to create a secure energy future for Aotearoa, and one focuses on gas.
Recommendations include doubling effective gas storage and expanding funding to help develop existing gas supply. It also suggests having liquified natural gas (LNG) as a backup option.
Other priorities include rapidly developing more renewable generation, maximising existing hydro, and a “bold vision” for future grid development. According to the report, with this type of managed transition scenario, we could see a 25% fall in wholesale electricity prices by 2030. However, it’s important to note that this doesn’t mean we would necessarily pay lower household electricity bills. Line charges make up between 35% and 45% of residential power bills and line charges will increase as we shore up our ageing electricity infrastructure.
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Gas provides instant firming for peak power use times
To achieve those falling wholesale electricity prices, a stronger domestic gas market is an essential factor. Gas has a key role to play in the energy transition because it provides firming or reliable backup supply in times when renewables can’t meet demand.
In dry years when hydropower generation is low, renewable generation can’t yet supply enough electricity at peak times. We still rely on ‘firming’ to bridge that gap, and gas is an excellent option because it fires up instantly. The other traditional ‘thermal’ firming option is coal, which often needs to be imported and typically produces much higher carbon emissions than natural gas.
New Zealand is in the process of identifying renewable firming options, such as batteries and improved hydro management. In the meantime, the BCG report notes that firming fuels like gas, despite declining in supply, is a critical transition fuel that still sets prices during peaks and dry years. That is why we need more investment in gas storage and in the development of gas wells to maintain a secure domestic gas supply as we transition to future fuels.
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Beyond energy, data security and sovereignty also drive locality decisions, as data centres often house highly sensitive information.
Enabling a $70 billion economic opportunity
New Zealand already has a high-performing energy sector – the World Energy Council’s Trilemma Index ranks us ninth globally and first in Asia-Pacific for affordability, equity and security.
But the rewards for doing even more could be substantial, according to BCG. By creating a stronger, more secure energy future, it will provide a foundation for New Zealand to capitalise on a $70 billion data centre industry.
The report states that, “Beyond energy, data security and sovereignty also drive locality decisions, as data centres often house highly sensitive information. As a stable democracy with strong data sovereignty laws and an abundance of renewable energy potential, New Zealand is well positioned to serve these trends and capture global market share.”
Read the full BCG report here, and learn more about Clarus’s role in New Zealand’s energy transition at Future of Energy.
