The Government’s move to open up the big three partially state-owned power generators to fresh capital, with a plan to import liquefied natural gas (LNG), has drawn a mixed reaction from market participants.
Finance Minister Nicola Willis said she had written to Genesis, Mercury and Meridian to advise the Crown was prepared to support capital funding requests for “strategic and commercially rational investments” that support energy security.
A review undertaken by Frontier Economics said the mixed ownership model (MOM) companies, in which the Crown has a 51% stake, had faced constraints in their ability to invest in larger generation projects, due to a perception that the Government would not provide equity injections to support those investments.
“We wish to correct that perception,” Willis said.
“The Government is committed to maintaining its legally mandated 51% stake in the MOM companies, and we accept we would need to participate in any equity raise required for major new investments.”
The Government’s energy package would include launching a formal procurement process for a LNG import facility to make up for New Zealand’s dwindling gas reserves.
The big power companies’ share prices rallied on the announcement.
By late morning, Meridian Energy was up 16c (2.8%) at $5.73, Contact Energy was up 17c (1.8%) at $9.27, Mercury firmed 10c (1.5%) to $6.78 and Genesis rallied by 6c (2.5%) to $2.41.
Meridian Energy, the country’s biggest power company, said the move to allow raising new capital was “bold”.
“There’s been a huge amount of speculation about what the Government would propose, and it’s great to now have clarity,” Meridian chief executive Mike Roan said.
Meridian welcomed the Government’s willingness to participate in equity capital raisings by the MOM companies as a means of bringing forward investment in new generation and firming capacity.
“This is bold,” Roan said.
“It’s the biggest change to our capital investment settings since we were listed in 2013,” he said.
Meridian expects to invest more than $350m in new and existing assets during the 2026 financial year and $2 billion over the next three years.
Roan said the freedom to raise capital would add greater momentum to its development pipeline.
Meridian also supported the Government’s focus on addressing gas supply issues.
“The unexpected loss of gas has been clearly identified as the key factor behind fuel shortages in winter 2024 and Meridian is pleased to see the Government is looking at initiatives to remedy this, such as improving transparency around gas supply and the procurement of an LNG import facility,” he said.
The Electricity Authority, the industry regulator, welcomed the announcement.
“The proposed changes endorse and strengthen the work the authority is currently progressing to boost competition, encourage new generation investment, and put downward pressure on power prices for consumers,” the EA said.
Contact Energy, the only one of the big four to not have partial Government ownership and the country’s second biggest power company, supported any initiatives that accelerate electrification.
Chief executive Mike Fuge said the company would review the Government’s proposals over the coming weeks.
“We welcome the clarity that today’s announcement has provided and look forward to constructive engagement,” Fuge said.
Contact has committed more than $2b to building critical energy infrastructure.
The Major Electricity Users’ Group (MEUG) - a vocal critic of current market settings - saw positives in the reforms. However, it was disappointed they did not address affordability and the risk of deindustrialisation.
“There are helpful elements, but no bold action – we cannot see how it will materially support struggling businesses in the short term,” MEUG chair John Harbord said.
“There are positives in the package around generation and supply, such as a strong commitment to support the development of renewable energy and the much-needed back-up firming capacity.
“It’s also encouraging to see that the Government will move quickly to leverage its own purchasing power to support new energy projects, and its decision to explore how a LNG import facility could assist the country.
“But the package is lacking strong action on affordability and competition, to tackle immediate concerns facing businesses and households.”
Power prices for industrial users have risen 45% over the past two years.
“Prices are too high now and any further increases may result in more of our industrial businesses closing.”
Last winter’s power price spike to $820 a megawatt hour forced some energy intensive industries to close.
Harbord said many of the recommendations were very familiar such as strengthening the Electricity Authority, encouraging efficiency among 29 lines companies, and stripping away regulatory hurdles to build new generation.
“These aspects of the package are déjà vu for the sector – we have seen these before and so we are unsure if it will make any difference in the long-term. In the short-term, definitely not,” Harbord said.
“In summary, the package includes changes in the long term to boost generation and firming, but there’s not enough in the short term that will support households and industry, and keep jobs in our regions,” he said.
The EMA, a business association, said the Government’s response to the Frontier report was “almost predictably” underwhelming, given a number of recommendations in the report were never likely to go ahead.
The Government has rejected eight of the 10 recommendations from the much anticipated and delayed release of the report, commissioned after significant price spikes in electricity pricing during last winter.
“Options such as selling off the remainder of the Government’s share in the gentailers and then investing, owning and running a ThermalCo (combining coal, diesel and gas assets), to provide the firming options to back new wind and solar generation, were never likely to fly,” says EMA head of advocacy Alan McDonald.
“Nor was it likely to force the 29 electricity distribution companies to amalgamate into five entities, although some voluntary consolidation in that sector is often raised but yet to materialise,” he said.
Energy Resources Aotearoa - which represents energy users and oil and gas explorers - said it was a “measured and pragmatic package” that struck the right balance between stability and action.
Chief executive John Carnegie said the decision not to embark on wholesale reform will provide the sector with the predictability it requires to invest with confidence.
“The Government has rightly avoided plunging the sector into uncertainty by focusing on surgical, targeted changes,” he said.
“You don’t rebuild investor confidence by smashing market settings and starting again,” he said.
“For a sector building billions in new generation, stability matters.”
The BusinessNZ Energy Council (BEC) said it was a positive step.
Acting executive director Ben Young said it was pleased to see the Government had not moved to amalgamate the 29 electricity distributors down to just five.
“The suggestion as part of the Frontier Economics review would have introduced unnecessary costs and uncertainty at a time where rapid investment, at scale, is critical,” Young said.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.