Dry Year Risk — Energy Pulse NZ

The Dry Year Problem

Why rainfall matters more than anything else for NZ electricity

~55%

Electricity from hydro

Decade average

6 weeks

Storage at full capacity

~4,500 GWh total

55%

Aug 2024 storage

vs. historic average

$820

Peak spot price/MWh

August 2024

A structural feature, not an anomaly: Dry-year risk is a permanent design constraint of NZ's hydro-dominant system. New Zealand relies on hydro for over half its electricity, but total storage is only enough for about 6 weeks of generation. When inflows drop during dry periods, water becomes scarce, prices spike, and the system must scramble for alternatives. This isn't a rare tail risk — it's embedded in how the system works.

Why It Happens

La Niña/El Niño cycles — climate patterns can bring sustained dry conditions to hydro catchments
Low snowpack — less spring/summer melt to refill lakes
Winter timing — dry conditions coincide with highest demand
Limited storage — lakes can't hold enough water for prolonged droughts

What Goes Wrong

Hydro generators price high — reflecting water scarcity
Thermal generation called — coal and gas fill the gap
Wholesale prices spike — $100/MWh → $800+/MWh
Supply security threatened — conservation campaigns, demand response

How Dry is "Dry"?

A dry year is typically defined as when hydro inflows fall within the lowest 10% of the 96+ years of records. But "dry year risk" is about more than just low rainfall — it's the combination of factors:

Risk Factor	Normal	Elevated Risk	Crisis
Hydro storage	90-110% of average	70-90% of average	<70% of average
Gas availability	Sufficient supply	Tight supply	Critical shortage
Thermal readiness	Units available	Extended running	Near capacity
Wholesale prices	~$100/MWh	$150-300/MWh	$500-800+/MWh

Sources: Electricity Authority, MBIE Energy in New Zealand 2025, Transpower

Hydro Storage System

Where the water is stored and how much capacity we have

Lake Pūkaki

1,600 GWh

44% of NZ's hydro storage

Lake Tekapo

800 GWh

22% of NZ's hydro storage

Manapōuri/Te Anau

380 GWh

~10% of NZ's hydro storage

Total national hydro storage: ~4,500 GWh — enough for all NZ electricity for about 6 weeks, or about 3 months of hydro-only generation (since hydro is ~50% of supply).

Major Hydro Schemes

Waitaki (9 stations)	~7,600 GWh/yr
Manapōuri	~4,800 GWh/yr
Waikato (9 stations)	~3,650 GWh/yr
Clutha (2 stations)	~2,000 GWh/yr

South Island produces most hydro; HVDC cable transfers power north.

Storage Types

Controlled storage: Can be used anytime. Includes Pūkaki, Tekapo, Taupō, Manapōuri, Te Anau, Hāwea.

Contingent storage: Water below normal operating levels that can only be used during declared supply shortages — essentially emergency reserves.

Snowpack: Additional "storage" in alpine snow that melts and refills lakes — can add ~1,500 GWh in the Waitaki catchment alone.

The pricing mechanism: When hydro storage is high, generators offer cheap power. When storage drops, they price water higher to conserve it, making thermal generation economic. This is the market working as designed — but it can result in dramatic price spikes.

Sources: Meridian Energy, Transpower, MBIE, Electricity Authority

Winter 2024: A Case Study

How a "perfect storm" of conditions led to NZ's worst electricity crisis in years

$820

Peak spot price/MWh

7-day average, 10 Aug

45%

Hydro storage

Mid-Aug vs. average

330 GWh

Tiwai demand response

7% of total storage

118%

Coal generation increase

vs. 2023

Timeline of Events

May-June 2024

Dry conditions persist in South Island hydro catchments. Lake levels begin declining below average.

22 June 2024

Meridian activates 50MW demand response with Tiwai Point smelter. Smelter cuts consumption by ~9%.

Late July 2024

Perfect storm: Hydro storage at 6-year low + gas shortage + low wind generation. Wholesale prices climb rapidly.

Early August 2024

Storage hits 55% of historic average — one of the lowest on record. Spot prices exceed $800/MWh. Some businesses shut down.

Mid-August 2024

Methanex shuts methanol plants, releasing gas for power generation. Tiwai demand response increased to 185MW, then 205MW.

Late August-Sept 2024

Heavy rainfall and increased gas availability. Prices drop below $100/MWh. By mid-September, storage back to 78% of average.

What made 2024 different: It wasn't just low hydro — gas production has declined 22% year-on-year due to depleting Taranaki fields. When hydro was low, there wasn't enough gas to run thermal plants at full capacity. This gas-hydro "double squeeze" is a new vulnerability.

What Helped

Tiwai demand response — smelter cut 36% of consumption
Methanex gas deal — freed up gas for power
New geothermal — Tauhara came online in May
Coal stockpile — Huntly increased generation 118%
Eventually, rain — weather broke in late August

What Went Wrong

Gas shortage — Taranaki fields depleting faster than expected
Low wind — calm conditions when most needed
Timing — gas deal made after prices peaked
Some businesses closed — couldn't afford spot prices
Renewable share dropped — 85.5% in 2024 vs. 88% in 2023

Sources: Electricity Authority, MBIE, MartinJenkins, Russell McVeagh, Chambers 2024

Solutions & Mitigations

How the system is adapting to manage dry year risk

🏭 Tiwai Point Demand Response

NZ's largest single load (12% of demand) can now reduce consumption by up to 185MW under contract with Meridian and Contact. Used extensively in 2024.

Equivalent to 20-25% of what Lake Onslow was projected to provide.

✓ Active

🔋 Grid-Scale Batteries

Multiple large BESS projects coming online — Meridian's 100MW Ruakākā (2025), Genesis 100MW Huntly (2026), Contact 100MW Glenbrook (2026).

Good for peak shifting and frequency, but limited for multi-week dry spells.

⚡ Building

♨️ New Geothermal

Contact's Tauhara (174MW) and Te Huka 3 (51MW) added 225MW of reliable baseload in 2024. Government wants to double geothermal by 2040.

Key advantage: runs at near-full capacity 24/7, regardless of weather.

✓ Active

🌬️ Wind Expansion

1,400MW of new generation under construction (as of Oct 2025). Wind nearly doubled since 2020 and continues rapid growth.

Challenge: wind can be low when hydro is low (calm, dry conditions).

⚡ Building

🏔️ Lake Onslow Pumped Hydro

Proposed 4,500 GWh pumped storage — would double NZ's hydro storage. Government cancelled in 2023, but private consortium formed in Oct 2025.

Est. $16B+ cost. Would take 10+ years to build if revived.

🔄 Private revival

🏔️ Lake Pūkaki Expansion

Meridian exploring raising Pūkaki's operating range to increase storage. Faster and cheaper than Onslow but environmental concerns.

Would require dam rebuild. "Not a quick fix" — potentially 10 years.

📋 Under study

⚫ Huntly Coal Stockpile

Genesis maintains coal stockpile as last-resort backup. Major generators agreed in 2025 to collectively fund enlarged stockpile.

Carbon-intensive but necessary while transition proceeds.

✓ Active

🚢 LNG Imports

Government exploring liquefied natural gas imports to address declining domestic gas production.

Would require new infrastructure. Procurement process underway.

📋 Exploring

The transition challenge: NZ needs to manage dry year risk while also transitioning away from fossil fuels. The 2024 crisis highlighted that as gas declines, we need to build new renewable capacity faster to maintain the same level of security.

Sources: MBIE, Electricity Authority, NZ Herald, Newsroom, Energy Storage News

Outlook & Monitoring

Where things stand and how to track the situation

Winter 2025 outlook: National hydro inflows in early 2025 were the lowest on record for that time of year. While some recovery occurred, storage remains below average and the system faces another potentially tight winter. However, new contingency arrangements and additional generation capacity mean NZ is better positioned than 2024.

What's Improved Since 2024

Measure	Status
New geothermal capacity (Tauhara, Te Huka 3)	✓ Online
Enhanced demand response arrangements	✓ In place
Enlarged coal stockpile (industry-funded)	✓ Completed
Transpower enhanced information powers	✓ Code amendment passed
Updated scarcity pricing settings	✓ Effective April 2025
First grid-scale batteries	⚡ Coming online

Track It Yourself

Electricity Authority EMI

Real-time and historic data on storage, prices, generation mix.

emi.ea.govt.nz →

Transpower Hydro Information

Weekly storage updates, inflows, contingent storage status.

transpower.co.nz →

Long-term outlook: Climate change may increase rainfall variability, making dry years more severe when they occur. At the same time, electrification of transport and heat will increase demand. Building diverse, flexible generation — and potentially large-scale storage like Onslow — remains critical for long-term energy security.

Sources: Electricity Authority, Transpower, MBIE, MartinJenkins