There was a bit of chat on the radio this morning about the possible closure of Tiwai Point and what this means for the electricity industry (listen here).
The apparent accepted wisdom is that the big gentailers are busy gathering customers so that if Tiwai Point closes, and there is an oversupply of power in the market, they will have a guaranteed market for their electricity.
The extension of this thinking is that customers of the gentailers will then keep paying a price that maintains high profits for the company, not the lower market price that will result from an over-supply.
Carl Hansen, Chief Exec at the Electricity Authority, said: “You would see a pretty fast and sharp reaction in the wholesale market and a slower, more muted reaction at the retail level because they tend to try to smooth the ups and downs of the wholesale market.”
It’s a classic example of how customers are used as a financial hedge by most power companies.
Not Flick of course.
If Tiwai Point closes, analysts expect nine years of over-supply in the market which will drive wholesale prices down.
Flick customers will enjoy the benefit of a substantial price drop immediately because they pay the spot market price of generation when they use electricity. With us, the customer always wins, not the house!
So, when you hear people talking about Tiwai Point you should be asking yourself what you will get out of this looming shift in the electricity market. If you’re not with Flick, you’re not likely to get much.
An MBIE report suggests there will be a 10% reduction in wholesale electricity prices (against reference prices) if Tiwai Point closes. This represents about $140m of wholesale electricity costs.
With wholesale prices constituting around 35% of Flick customers’ bills, if MBIE’s estimates hold true, they should expect a 3.5% decrease in their total bill.
The big picture
What’s really exciting from a New Zealand Inc. perspective is that the closure of Tiwai Point (which takes about 12% of national electricity generation), and the resulting reduction in demand for, would lower the need to invest in new generation plant – to the tune of about $2billion! There’s a great economic, not to mention environmental, upside in that.
Chief Executive, Flick Electric Co. (aka Chief Flickster)