Dry-year risk: What critics get right, and wrong

This is the third post in our Energy Future Series.

New Zealand’s electricity system faces a real challenge. In dry years, when inflows into hydro lakes are low, the system can come under pressure, particularly through winter. This is a well-understood risk, and it deserves to be taken seriously.

But how we respond to that risk is a different question.

What critics get right

Recent experience reinforces both the reality of dry-year risk, and the importance of how we respond to it.

In 2024, hydro lake levels fell to their lowest in years, while wind generation was also weak. Electricity prices rose sharply as stored water became more valuable and was conserved for winter. Industrial users faced higher costs, and the impact flowed through to households and the wider economy.

The system continued to operate, but at a significantly higher cost. Dry years do not just create supply risk. They create price volatility.

Those advocating for new fossil fuel infrastructure, such as an LNG import terminal, are right about several things.

1. Dry-year risk is real. New Zealand relies heavily on hydro generation. When lake inflows are low over an extended period, stored energy declines, system resilience is reduced, and the risk of shortages increases.

2. It is a long-duration problem. Dry-year risk is not about a few cloudy days. It is about: weeks or months of low inflows, sustained pressure on storage, and the need to manage energy over time.

3. Winter peaks are challenging. Electricity demand is highest in winter, especially winter evenings. At the same time, solar generation is lower, and heating demand increases. This creates a genuine system challenge.

Where the argument goes too far

From these points, some conclude, “because solar cannot solve dry-year risk on its own, we need LNG.” This is where the reasoning becomes incomplete.

The real choice is not between LNG or blackouts. It is between:

• A single, fossil-fuel-based solution, or
• A coordinated system of multiple solutions

What solar actually does

Solar is sometimes dismissed because it produces less in winter and it does not meet evening peaks. Both are true. But this misses its most important contribution. As discussed in earlier posts, when solar generates electricity, hydro stations can reduce output. Lake levels are maintained for longer, effectively creating storage.

Solar does not eliminate dry-year risk, but it reduces it.

Part of a wider system

Dry-year resilience does not depend on a single technology. It depends on how the system works together. Key elements include:

• Wind generation –often stronger in winter and at night
• Battery storage  –helps manage short-term peaks
• Geothermal – creates a constant baseload supply
• Demand flexibility  – shifting when electricity is used
• Energy efficiency  – reducing overall demand, especially at peak times
• Targeted backup sources  –including bioenergy and other transitional solutions

One of the most overlooked solutions is also one of the simplest. Reduce the amount of energy the system needs to supply. Better buildings, more efficient heating, and smarter energy use lower winter demand, reduce peak pressure, make dry-year risks easier to manage.

Energy security is not just about supply. It is also about demand. The cheapest power is the power you don’t use.

New Zealand is not currently in an immediate energy emergency. Periods of strong hydro inflows, such as the 2025-2026 summer, and improved storage provide a window of opportunity.

The question is how we use that time.

Do we:

• invest in solutions that strengthen the system over time, or
• commit to infrastructure that locks in long-term fossil fuel dependence?

Dry-year risk is real. But the response does not need to be singular.

A more robust approach is a portfolio of measures that:

• reduce demand
• increase renewable supply
• preserve hydro storage
• improve system flexibility

So, where to from here? Do we rely on imported fuel to solve a local system challenge?

Or do we design a system that reduces the risk in the first place?

Next in the series

Imported gas or local energy? Reframing the LNG debate.