The greatest risk now to the electrification of our economy – and all the consumer and environmental benefits that will flow from it – is any sense of uncertainty around the future of our electricity market. Investor confidence is critical.

To frame the picture, notwithstanding high winter spot prices, we must remember that nearly 100% of the electricity market was hedged in 2024 at globally competitive electricity prices.

The electricity price for a commercial business in New Zealand was about the same as the average for businesses in the United States, at about 13.1c per kWh[1] in USD (or 21.5c in NZD). This should not be a surprise, as including carbon pricing and rising gas prices is a global phenomenon.

All markets have volatility; our market has always been one where you dare not go unhedged. Each year, the risk of energy constraints from low lake levels and an uncapped spot price should lead all electricity users to the same conclusion: hedge for as long into the future as you can. And last year, thankfully, nearly everyone did.

The other side of the same coin is the high pricing signalled to everyone that it’s time to build more. In fact, that signal was evident way back in 2020 when companies like Lodestone launched its ambitious utility-scale solar plan. Over the last five years, the market has been sending consistent and crystal-clear signals about when, how, and where new energy sources should be added as demand rises.

The best and most obvious way to ensure fairly priced hedge products is to foster new competition and encourage the development of innovative energy products and offers.

The ultimate evidence the market is working is that there are now renewable energy projects under development, totalling nearly three times NZ’s total installed capacity – much of this coming from new-to- market, independent developers.

More innovation and consumer choice

Major users are lining up to partner with Lodestone through long-term supply contracts that underpin our investment in new solar farms and anchor their long-term energy prices. Our energy market and the positions of the long-established generator retailers are being disrupted from the inside, and consumers are beginning to benefit.

We must maintain momentum.

The next two years will see new wind farms, battery installations, and larger-scale solar farms ahead of demand increases. All of this materially reduces the risk of low hydro lakes, as much of that energy will be generated and consumed in summer, allowing our lakes to function as the energy batteries they really are.

Already, there is more innovation and consumer choice in the market than ever before. We are at the beginning of the energy transition.

Solar, wind and batteries will now undercut the cost of coal, gas and peaking plants for the rest of time. The cleanest energy is now by far the cheapest. The price of electricity will be increasingly defined by low-cost, 100% renewable energy.

As an example, using solar electricity to power an EV for 100km is 10 times cheaper than petrol at the pump and represents the lowest cost form of automotive fuel in history – twice as cheap as petrol ever was at its lowest price. [2]

So, what about the outlook for 2025?

First of all, electricity users need to take heed as we should be ready for another bumpy ride in 2025.

There is no guarantee we won’t have another dry year. As we observe the climate catastrophe in California, climate change will exacerbate the dry-year risk at home, and everyone should be thinking nothing but hedge, hedge, hedge.

Ensuring the market and regulatory settings continue to support increased competition and lower-cost hedging is now vital to protecting the operation of the market and ensuring continued investor confidence. We also need to use the market and regulation to fix the problem of our peak demand periods once and for all.

Our political leaders need to be on board, too. Our leaders are holding the keystone to a multi-generational shift. Their enthusiasm and support will be part of luring in the tens of billions needed to meet the growing demand for electricity.

It’s not doom-and-gloom; it is the land of plenty. We have a world-class market with market-leading sophistication. We have players with the ability to manage the interplay between solar, wind, hydro and battery storage to provide low-cost hedge options for well into the future.

We are entering an energy transformation that will benefit all NZers in the near future. The outcome of lower electricity prices is now inevitable.

The market foundations we need to drive the transformation of our electricity system and our economy are firmly in place and, subject to its continued evolution, are generally working well.

[1] Source: 2024 Statista and EIA data

[2] 12c per kWh in a 17kWh per 100 km EV = 20 cents per litre equivalent in 10 L/100 km petrol car.