The energy markets across Australia and New Zealand in 2025 demonstrated both the promise and pain of the renewable energy transition, with substantial new clean generation coming online even as price volatility created ongoing challenges.

Australian wholesale electricity prices in the National Electricity Market averaged around $85 per MWh for 2025, down from the extreme levels of 2022-2023 but still well above the $50-60 range that prevailed through most of the 2010s. The price reduction from peak levels reflects increased renewable generation capacity, but the remaining premium indicates the system is still adjusting to the new generation mix.

Price volatility remained a defining characteristic of the market. Individual settlement periods saw prices spike above $1,000 per MWh on dozens of occasions across different regions, typically during periods when renewable generation was low and demand was high. The system is learning to manage these periods, but it’s not yet fully mastered the challenge.

New renewable generation capacity additions in 2025 totalled approximately 4.5 GW across solar and wind projects. This represents solid growth, though below the peak installation years of 2023-2024. The pace of new projects is moderating partly because of grid connection challenges—there’s more generation seeking to connect than the transmission network can readily accommodate.

Battery storage installations accelerated significantly in 2025, with approximately 2.5 GW of new battery capacity commissioned. This is starting to make a material difference to grid stability and price volatility. Several large-scale batteries demonstrated their value during high-demand periods, charging when prices were low and discharging when prices spiked.

Coal generation retirements proceeded roughly on schedule, with the Liddell power station in NSW completing its closure and Yallourn in Victoria announcing accelerated retirement plans. Each closure removes reliable baseload capacity from the system, increasing the challenge of maintaining supply security during periods when renewable generation is limited.

Gas generation played a critical bridging role in 2025, filling gaps when renewable output was insufficient to meet demand. However, gas prices remained elevated, contributing to high electricity prices when gas plants were dispatched. The east coast gas market dynamics continue to create challenges for electricity generators dependent on gas supply.

New Zealand’s electricity market followed a different trajectory in 2025. Hydro storage levels were generally healthy throughout the year, avoiding the crisis conditions that emerged in 2024. Wholesale prices averaged around NZD 115 per MWh, down from the extreme levels of the previous year but still elevated by historical standards.

The Huntly power station’s units continue to play a role in New Zealand’s generation mix despite the planned transition away from coal. The units operated more frequently than anticipated during dry periods when hydro output was constrained. The government’s timeline for coal exit at Huntly has been pushed back from 2025 to 2026, recognising the practical challenges of replacing that capacity.

Wind generation in New Zealand increased with several new projects commissioned during 2025. The Waverley wind farm in Taranaki and the Mill Creek expansion in Southland both came online, adding approximately 250 MW of combined capacity. However, wind output variability remains a challenge for system operation.

Retail electricity prices for consumers increased in both countries during 2025. Australian residential customers saw average price increases of 8-12% depending on state and retailer, with regulated price determinations in some states limiting increases below the levels retailers requested. New Zealand residential prices increased 6-9%, driven primarily by higher wholesale costs and network charges.

The transmission network upgrade pipeline advanced slowly in 2025. Projects identified as critical for renewable energy integration continue to face planning and approval challenges. The lack of transmission capacity is becoming a genuine constraint on further renewable deployment in some regions.

Renewable energy zones (REZ) in Australia are developing but not as quickly as initially hoped. The Central West Orana REZ in NSW made progress with transmission infrastructure construction commencing, but other REZs remain in planning stages. The coordination required between generation proponents, network operators, and governments is proving complex.

Demand response programs expanded in 2025, with more large industrial and commercial customers participating in schemes that reduce consumption during high-price periods. The Australian Energy Market Operator’s demand response mechanism facilitated approximately 800 MW of demand reduction capacity, providing a useful tool for managing supply tightness.

Behind-the-meter solar generation continued expanding, though growth rates are moderating. Rooftop solar installations added approximately 3.5 GW of capacity across Australia in 2025, while New Zealand added around 200 MW. The increasing penetration of rooftop solar is creating new challenges for network management, particularly managing minimum daytime demand.

Electric vehicle adoption implications for electricity markets are starting to become visible, though still relatively minor. EV charging contributed an estimated 0.3% of total electricity demand in Australia and about 0.2% in New Zealand during 2025. However, the rate of growth suggests this will become material within 3-4 years.

Energy policy uncertainty continued to plague investment decisions in 2025. Changes in government renewable energy targets, emissions reduction commitments, and market design rules all create uncertainty that affects investment timing and project economics. Several major projects experienced delays partly attributable to policy uncertainty.

The capacity market design debate intensified during 2025, with NSW committing to implement a capacity mechanism while other states remained undecided. The fundamental question of whether the energy-only market design can adequately ensure supply reliability during the transition continues to divide experts and stakeholders.

Looking at emissions outcomes, the electricity sector in both countries reduced emissions in 2025 as renewable generation displaced fossil fuel generation. Australian electricity sector emissions fell approximately 8% year-on-year, while New Zealand’s emissions declined about 6%. Both countries are making progress toward decarbonisation goals, though the path remains challenging.

The outlook for 2026 suggests continued price volatility and ongoing system adjustment challenges. Additional renewable capacity is expected to come online, which should help moderate average prices, but the variability in prices will likely persist. The energy market transition remains a work in progress with several difficult years still ahead.