Meridian Faces Risks from Declining Hydro Storage Despite Generation Gains
Meridian Energy's July report reveals a notable decline in hydro storage levels alongside a surge in retail electricity sales, highlighting a complex energy landscape in New Zealand.
- National hydro storage fell from 104% to 87% of historical average by mid-August
- South Island hydro storage dropped to 79%, North Island remained higher at 119%
- Retail electricity sales volumes rose 9.4% year-on-year across all customer segments
- Generation increased 9.6% driven by hydro and wind, despite a 70%+ drop in average generation prices
- July was the fourth warmest on record with mixed rainfall impacting catchment inflows
Hydro Storage Trends and Weather Impact
Meridian Energy's latest monthly operating report for July 2025 paints a nuanced picture of New Zealand's renewable energy environment. National hydro storage levels have declined significantly, dropping from 104% to 87% of the historical average by 11 August. This decrease is more pronounced in the South Island, where storage fell to 79%, while the North Island maintained a relatively robust 119% of average storage.
The weather played a pivotal role in these dynamics. July 2025 was the fourth warmest July on record, with temperatures above average nationwide. Rainfall patterns were uneven – the North Island and northern South Island experienced above-normal rainfall, whereas central and southern parts of the South Island saw below-normal precipitation. These conditions contributed to total inflows being 89% of the historical average, with the Waiau catchment notably low at just 60% of average inflows.
Generation and Market Prices
Despite the drop in hydro storage, Meridian's generation output increased by 9.6% compared to July 2024, buoyed by higher hydro and wind generation. However, the average price Meridian received for its generation plummeted by over 70%, reflecting broader market price softness. Correspondingly, the average price paid to supply customers also fell by nearly 71%, indicating a challenging pricing environment for electricity producers.
Hedging activities remain a key part of Meridian's risk management, with detailed volumes and costs disclosed. Capital expenditure for the month stood at $14 million, reflecting ongoing investment in maintaining and expanding operational capacity.
Retail Sales and Customer Growth
On the retail front, Meridian reported a 9.4% increase in sales volumes year-on-year, with all customer segments showing growth. Residential sales surged 15.9%, large business sales jumped 21.7%, and small to medium businesses rose 8.6%. Customer connections also grew by 1.4% in July and 11.2% over the past year, signaling expanding demand and market penetration.
Interestingly, national electricity demand was marginally lower by 0.3% compared to July 2024, suggesting that Meridian's retail growth may be capturing market share or benefiting from other factors such as increased consumption per customer or shifts in customer mix.
Looking Ahead
Meridian's detailed reporting offers valuable insights into the interplay between weather, hydro storage, generation output, and market conditions. The decline in hydro storage, particularly in the South Island, could pose challenges if dry conditions persist, potentially impacting future generation capacity and pricing. Meanwhile, robust retail sales growth underscores Meridian's strong position in the competitive New Zealand electricity market.
Bottom Line?
As hydro storage tightens and prices remain subdued, Meridian’s next moves will be critical for balancing supply, demand, and profitability.
Questions in the middle?
- How will continued low inflows in the Waiau catchment affect Meridian’s generation in coming months?
- Can Meridian sustain retail sales growth amid flat national electricity demand?
- What strategies will Meridian deploy to manage the sharp decline in average generation prices?
