Genesis Energy and the three other big power generators have signed agreements to establish a strategic energy reserve centred on Genesis’ Huntly Power Station.
The deals – aimed at supporting national security of power supply – have been settled by Genesis, Meridian Energy, Mercury NZ and Contact Energy.
The parties intend for the agreements to take effect from January 1, 2026.
Subject to Commerce Commission review, these agreements will support critical back-up electricity generation and fuel being available to support the security of the electricity system and price stability.
The deal follows on from last winter’s power price spike, which saw wholesale prices exceed $800 per megawatt hour, forcing the closure of some energy-intensive manufacturing plants.
“The parties identified the need for a security of supply solution in response to the market conditions during winter 2024, when a combination of a faster-than-expected decline in the national supply of natural gas, low hydro lake levels and low wind conditions created a pinch point in the nation’s energy supply,” Genesis said.
The medium-term outlook for gas supply was also a key factor.
Huntly is the country’s largest power-generation site and plays a critical role in national energy security when hydro lakes are low and wind generation is reduced.
The station includes three steam turbine-driven Rankine units, each with a capacity of 240 MW or combined 720 MW in total, able to run on gas and coal.
Genesis is actively progressing its investigation of biomass as a fuel to gradually displace coal.
Genesis chief executive Malcolm Johns said one of the Rankine units was due to be decommissioned in February 2026.
“To keep this unit in service out to 2035 requires significant investment,” he said.
“The agreements announced today are essential to making that investment and ensuring a fuel reserve is in place for energy security.”
The agreements are for 10-year Huntly Firming Options (HFOs) covering 150 MW, 50 MW each for Contact, Mercury and Meridian.
In addition, the agreements support Genesis’ establishment of a solid fuel reserve of up to 600,000 tonnes for dry winters with low hydro inflows.
This will initially be made up of coal; however, the reserve may transition to biomass as it becomes available in coming years.
The new 10-year HFOs support Rankine capacity remaining in the market, which will enable Genesis to offer future HFOs and other risk products to the wider market.
Genesis said its intention is for the HFOs to be available to all market participants including independent retailers and generators, trading houses and industrial customers.
In 2024, 85 MW of short-term HFOs were bought by several market participants.
Johns said HFOs are a contract for generation capacity, not a contract for energy.
“HFOs are designed to provide buyers with access to virtual generation 24 hours a day across the purchased time period.
“This enables Huntly to support energy security while maintaining price competition.”
The market saw the effect of HFOs during the first half of 2025 when hydro lakes were low.
“Holders of the existing 85 MW of HFOs bought last year called on their virtual generation options, preserving water in the hydro lakes for winter 2025.
“This helped ensure wholesale prices did not spike this winter in the way they did last year,” Johns said.
Genesis said the parties will now engage with the Commerce Commission to undertake the appropriate review of the agreements.
The Major Electricity Users’ Group (MEUG) welcomed progress towards a strategic energy reserve but asked whether it would be enough to address the problems facing the national grid.
MEUG noted the firming deal is for 150 megawatts, which is a relatively small amount compared to winter peak demand of around 7000 MW.
“MEUG will be asking about the potential impact of the firming deal on supply, and therefore the impact on prices in the wholesale electricity market.
“And while the coal reserve of 600,000 tonnes sounds impressive, market participants would like to know how much electricity this will create, especially in the context of New Zealand demand of about 40,000 gigawatt hours.
“While MEUG supports today’s announcement, we doubt they are enough, so encourage generators and regulators to keep working on solutions to support peak load and dry year risk,” it said.
A Government-commissioned review of the electricity market is due out next month.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.