Here at Flick, we firmly believe that knowledge is power - and when it comes to our electricity industry, that’s especially true. Understanding the ins and outs of our power, and the systems and processes that get it to our homes and businesses means we can make better choices about how and when we use it, and who we choose as our provider. When we know what’s going on, our consumer voice is louder, stronger and clearer - just as it should be!
So we’ve been pulling together a wee bit of info from winter 2019 to pass on to our #CleverFlickers. Things were fairly cool, calm and collected (no burst gas pipes or severely dry hydro lakes - phew!), but we reckon it still makes for an interesting read.
A warm and wet beginning
The late autumn and winter season started out with a hiss and a roar, bringing wet conditions and some healthy-looking hydro storage. May 2019 was the third warmest May on record, and rainfall was well above average, falling in all the right places for South Island storage catchments (wahoo!), although North Island lake levels did it a little tougher. At the end of May, hydro storage sat above average, at around 110%.
The Pohokura gas field was out of action until mid-May, with production cut while maintenance work was carried out. The lack of gas meant some thermal plants weren’t able to operate, while others switched things up and generated their power from imported and domestic coal (ewww).
Early June was great weather for ducks, with lots of rain and national storage lifting to 122% of average by mid-June. Then, heading into late June, temperatures dropped for a bit and electricity demand started to lift. It was also unusually dry across lots of the country later in the month, and these combined factors saw our hydro storage drop down to 108% of average.
While July 2019 was NZ’s second warmest July on record (with temperatures above average across the country), winter really kicked in by August, and demand lifted as folks around the country cranked up the heaters to combat frosty mornings. Supply was tight at times, and, as expected for this time of year, national hydro storage levels dropped, though still sat slightly above average.
By the end of September, a lack of decent rainfall in the right spots meant that storage was sitting down around 82% of average, with storage in some South Island lakes particularly low. Due to having no major downpours since the start of June, and the fact that we often see precipitation as snow (rather than rain) in the South Island through winter, a number of hydro operators began to conserve water. Eek!
The price of power
Take a look at the chart below and you’ll see that average spot prices were higher this winter compared with previous years, although they were pretty consistent from April to the end of July, moving up a notch as demand increased and hydro levels dropped towards the end of winter.
Interestingly, nationwide demand was slightly down compared to last year, and there were small differences between most months:
Why so high?
So, why have spot prices been higher than in previous years? Lots of that’s to do with the gas market, because the price of gas is a big driver in the price of electricity. With current uncertainty around gas availability, as well as exploration, gas prices have been moving upwards over the past year, and that’s had a flow-on effect on our electricity pricing.
We need to run thermal generators (or make sure we have them available) for those times when other forms of generation are limited, so a combination of increased demand for thermal generation, plus higher gas prices, have meant that 2019’s electricity prices have been higher.
What will prices do going forward? There are lots (and we mean LOTS) of moving parts in the machine that is the electricity industry, so it can be tricky to make a call either way, but it’s likely that wholesale and hedge market prices will stay at a similar level while gas availability remains an issue.
In saying that, there’s lots of new generation planned, especially in the way of wind farms, which could alter pricing, and it’s also likely there’ll be times when our hydro storage is chocka-block and prices will drop, too.
The Electricity Price Review
As we’ve previously mentioned (just once or twice!), in early October the Government released their response to the Electricity Price Review (EPR), and it includes a couple of changes that might influence pricing on the wholesale and hedge markets.
How so? Well, they’re aiming to strengthen the wholesale market overall, recommending that wholesale electricity and gas market info is more readily and easily available. They’ve also suggested enforcing the currently voluntary market-making process in which NZ’s four biggest gentailers help to set market prices in the hedge market (unless the industry can effectively bring in an incentive-based scheme). And, there’s also a recommendation that gentailers be required to release info about the profitability of their retailing activities. How big an impact will these have on the market, and when will they come into play? Only time will tell. But rest assured, we’ll continue to push for quick, effective change.
It’s an ever-changing landscape here in the world of electricity, but sit tight, #CleverFlickers - we’ll keep up the good fight, put the pressure on where it’s needed and share what we know as we go!