Gas key to lowering electricity prices

4 December 2025

By strengthening its gas market, securing backup fuel for electricity and continuing to build renewables at pace, New Zealand could significantly lower wholesale electricity prices, according to a recent report from Boston Consulting Group.

The independent report – Energy to Grow: Securing New Zealand's Future – was commissioned by gentailers Contact, Genesis, Mercury and Meridian.

“In our managed transition scenario, wholesale electricity prices decline from $160 per MWh today to $140 per MWh in 2027 (in today’s dollars), and $100–120 per MWh in 2030,” the report says.

“To strengthen the domestic gas market, the government and energy sector can look to actions across supply, demand and storage.

“To reduce the imbalance between gas supply and demand, the most effective actions are to accelerate drilling efforts in existing fields and support users to transition an incremental 10 PJ of gas to biomass and electricity by 2030, on top of ongoing and planned conversions.” 

In addition, the energy sector should take steps to secure backup thermal fuels to more affordably replace the reduction in hydro during dry periods, the report says.

Options include new gas storage, imported LNG and alternative liquid fuels (condensate or diesel).

“New Zealand has enough solid fuel in storage to mathematically produce enough energy in a dry year, but solid fuel power plant capacity alone cannot meet all demand at peaks – hence gas, and potentially liquid fuels, are also required.

“While batteries are essential for hours-scale balancing and addressing price spikes, they can’t economically cover multiweek dry periods; they complement, rather than replace, seasonal firming.”

The report says it is highly preferable for New Zealand to have a well-functioning domestic gas market, rather than one that relies heavily on imported LNG.

“Despite this, LNG may still be a prudent backstop if gas supply continues to decline rapidly.

“While LNG provides reliable supply of gas, it is more expensive than a combination of new gas storage and liquid fuels for electricity and may take longer to develop.

“New LNG infrastructure would cost $400–800 million, excluding fuel costs, while infrastructure for gas storage and condensate or diesel would be $150–300 million.

“The average domestic spot gas price for the last 12 months was $16–18 per GJ (including carbon), while landed LNG would have been $25 per GJ (including carbon).

“This does not necessarily mean that LNG should not be pursued – it could be a valuable insurance policy against further gas supply decline, mitigating de-industrialisation risk and acting as a backstop to a well-functioning domestic gas market.

The report notes that if LNG is pursued, it is still important to pull all levers to strengthen the domestic gas market, as this will deliver more affordable average gas prices.

Read full report: https://www.bcg.com/publications/2025/energy-to-grow-securing-new-zealands-future