Government backs down on levy to fund new LNG import terminal

The government has backed down on paying for its LNG import terminal through a levy, and is imposing steeper fines on power companies to shore up energy supply.

The government has also agreed to proceed with a terminal, and the Ministry of Business, Innovation and Employment is beginning consultation on new regulations for power companies' dry year supply backups.

Energy Minister Simeon Brown announced the moves in a speech to the Auckland Business Chamber on Tuesday morning.

LNG power bill levy scrapped

"I have asked MBIE (the Ministry of Business, Innovation and Employment) and NIFFCO (the National Infrastructure Funding and Financing company) to work through the detail of how the facility will be paid for, including engaging with the gentailers on a fair funding model, and will have more to say in due course," Brown said.

"Kiwis can be certain of one thing - it will not be funded by a levy on power bills. Responsibility for keeping the lights on sits squarely with the electricity sector, and that is the principle guiding our decisions on funding."

Energy Minister Simeon Brown.

Photo: RNZ / Louis Dunham

His predecessor in the role, Simon Watts, announced in October the government would begin procurement for a liquefied natural gas (LNG) facility with the aim of completing construction by winter 2027.

In February, Watts and Prime Minister Christopher Luxon said the $1 billion facility would be paid for through a levy of between $2 and $4 /MWh, saying power companies would pay it and the terminal would cut future prices by at least $10 /MWh.

They also confirmed a likely delay to construction, with the facility set to finish in 2027 or early 2028.

Former Energy Minister Simon Watts.

Photo: RNZ / Samuel Rillstone

The opposition attacked the levy as a 'gas tax', saying there was nothing to stop the costs being passed on to consumers, and warning that relying on LNG imports to protect against dry year risk would tie New Zealand's energy market to international fossil fuels vulnerable to price shocks.

The Iran conflict and Strait of Hormuz closure later that same month led to soaring prices, and documents later revealed the government had not considered the effects that would have when modelling the value of the terminal.

Alternative renewable energy solutions were also "considered but not advanced" due to "factors such as expected time to construct, feasibility of generating power reliably on the required scale, and effects on electricity market incentives".

Brown on Tuesday said renewable energy was now "booming" - crediting the government's fast-track consenting regime, national policy statements, and regulatory changes - but said without LNG to fall back on a dry year would mean skyrocketing power prices or business closures.

"Recent events in the Middle East are a timely reminder that New Zealand needs secure, diversified fuel supplies. Despite the conflict, LNG remains the fastest, cheapest, and most flexible dry-year solution that can be put in place this decade," he said.

He also confirmed the government had narrowed down its options for who would build the import facility to two providers, and intended to sign a deal this year.

Luxon had previously said the facility would only be built if the business case stacked up, but maintained that the government was "very interested" - dismissing an OECD report that said it risked locking in fossil fuel dependence.

Prime Minister Christopher Luxon.

Photo: RNZ / Louis Dunham

Higher penalties for power companies, new regulations, bigger role for Electricity Authority

Brown also announced plans to increase the fines power companies would have to pay for failing to secure enough generation in a dry year.

Currently at $2 million, the penalty would increase to the whichever was the highest of three options: Three times the commercial gain, 10 percent of the company's turnover, or $10m.

This would be paid by companies that failed to meet regulations - called the Winter Energy Reliability Obligation.

The obligation requires electricity buyers to secure dependable winter cover where a shortfall is forecast in years ahead; and in the short term to show they have enough firm fuel cover if hydro storage runs low before winter.

Brown said MBIE would begin consultation "today", saying it would make the system "more resilient, reducing the risk of outages and sharp price spikes".

"Kiwis should not be paying more because the big power companies run the system on the edge - those days are over," he said.

Law changes would also give the Electricity Authority a "clear role in ensuring dry-year risk is effectively managed," he said, with the authority required to report annually to the minister on supply risks.

Changes to the Government Policy Statement on electricity would also set expectations that it prioritise dry-year and supply risk alongside reliability and affordability.

Not a retreat from renewables - Brown

Speaking to Auckland Business Chamber on Tuesday, Brown said the energy system needed to be reliable, saying it underpinned the rest of the economy.

"That places a heavy responsibility on everyone in the sector to understand how their decisions ripple through the wider economy."

He said having an LNG import facility, combined with "a lasting obligation on the gentailers to manage the dry year risk themselves" would prevent potential shortages.

Brown said investments in new generation had doubled in the last few years thanks to a "renewables boom", but renewables had gaps in supply.

"Much of the new renewable energy being built is intermittent by nature and needs a backup for those winters when the lakes are low, the wind is not blowing, the sun's not shining, and geothermal cannot meet peak demand. This is the so-called dry year scenario.

"2026 is not likely to be one, but 2024 was. It was only two years ago, and I was the minister of energy then, as I am again now. MBIE advises me that in a dry year the shortfall we need to cover is around three terawatt hours over three months. Assuming that coal can fill 1.5 terawatt hours, thanks to the Huntly firming options that have been put in place, this leaves a remaining 1.5 terawatt hours required to be covered.

"This is not a gap that you can plug with a few days of stored water or a handful of batteries. It is a sustained gap lasting weeks and months, and something has to fill it.

"Our electricity market performs well in average conditions, but it does not reward investment in the firm capacity that is used only in rare, high-impact dry years."

Brown said in 2024 coal was used to cover the shortfall, but prices still spiked.

Simeon Brown talks to the Auckland Business Chamber, 9 June 2026.

Photo: RNZ

"Coal cannot come close to covering the gap" in serious dry years, he said, and New Zealand was running out of local gas supplies. In 2024 prices still spiked despite coal being burned "at its maximum".

"Worse still, the gas-fired plant that would normally pick up the slack would sit idle for want of fuel. We would have generators, but not the gas to turn them on."

Brown said LNG remained the obvious choice, even with the war in the Middle East putting supplies at risk.

"Importing LNG as a firming fuel is not a retreat from our commitment to renewable energy - it supports it... LNG will not replace renewables. It is the transitional tool that lets the system become overwhelmingly renewable without outages, price spikes and economic shocks. It will help more wind and solar get built because developers know there is a reliable backup when the weather does not cooperate."

Two providers had been shortlisted to build the new facility, "both with global expertise in building LNG facilities"

He brushed off concerns about the Strait of Hormuz bottleneck, saying global energy officials expected an oversupply over the next decade that would "outweigh anything lost through the Strait of Hormuz".

Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.