By Charlotte Cook of RNZ
National grid operator Transpower says the hydro lake levels are at 67 per cent of where they would normally be at this time of year, but there is no cause for worry yet.
New Zealand's biggest energy consumer, the Tiwai Point aluminium smelter, today agreed to cut down how much power it uses for a month to secure supply for the country.
The smelter consumes about 13 per cent of the country's power and it will reduce its hourly use by up to 30.5MW.
A spokesperson said the decision would ensure there was enough supply for the rest of New Zealand.
"We are pleased to now be in position to be able to do more to assist New Zealand's security of supply for all customers should the lake levels not be replenished in the short term."
Niwa meteorologist Ben Noll said dry weather had left the hydro lakes in the South Island significantly below where they normally were.
"Rainfall at Mount Cook has just been 68 per cent of normal from January through April this year and the inflows at the Waitaki Lakes are certainly below normal because of that.
"A little bit further south, Manapōuri, another important catchment area, just 77 per cent of normal rainfall so far this year."
A La Niña weather pattern is partly to blame for the dry conditions which were forecast to continue for a couple of weeks but might stretch months, he said.
"A large ridge of high pressure moving over New Zealand over the next week or two will continue these patterns of below normal rainfall across much of the country.
"As we look ahead further into the early part of winter, there's an indication that it could be relatively dry and mild start."
Energy analyst Geoff Bertram said there was always a looming threat of a 'dry year' hanging over the electricity market.
The way the market was set up left consumers exposed, he said.
"It will mean price hikes that may very well mean blackouts, that'll mean a lot of screaming and crisis mongering from the industry to try to justify yet more subsidies and yet more abilities to unload higher prices on consumers."
Bertram said the country would have to turn to alternatives if it did not rain soon.
"If lakes levels don't rise in the short term, New Zealand will have to burn a large amount of coal and gas to keep the electricity flowing.
"And that will cost a lot and the owners of the lakes will pull in enormous profits on the back of the fact that it costs them nothing to put water through their turbines, but they'll be getting a big scarcity rent on their electricity."
Bertram said the Tiwai agreement was not significant but was a signal of what was to come.
"The announcement of Tiwai Point cut back seems to be very much just a ripple on the pond, there's not much of substance there.
"But two or three months from now unless it rains quite a bit we could be facing shortages and therefore facing a big coal burn at Huntley, using as much gas as can be got out of Papakura, and passing through the cost of that to consumers."
Transpower said lake levels were at 67 per cent of where they would normally be for this time of year.
The situation was not being helped by a shortage of natural gas.
Transpower general manager of operations Dr Stephen Jay said they would welcome wet weather, but there was no cause for worry yet.
"If it doesn't rain at all, and we will run out of hydro, but the information we have shows based upon the years of history that it does rain at some point in time.
"To provide assurance, the monitoring that we're doing at the moment shows that there will be sufficient generation to meet demand looking forward into the future."
Jay said as autumn and winter progress people would use more electricity which meant they would keep a close eye on the demand for electricity and available supply.