Flick Electric CompanyThe Blog

The #CleverFlickers Market Update - 1 April 2021

Kia ora, Flicksters,

There’s been lots of talk in the media about the high cost of electricity on the wholesale market at the moment, and what this might mean for the cost of power over the coming months. We love a good power chat, but more importantly, we want to keep our Flick whānau in the loop - so here’s what we know!

Low lake levels lingering

The La Niña trend of the last few months continues, with low rainfall in the catchment areas of Aotearoa’s hydro lakes and lower-than-average inflows. That’s meant a decline in lake levels in both the North and the South Island - overall, hydro storage sits at 71% of average (57% total full) for this time of year. Let’s keep our fingers crossed for some decent rain in the right spots soon!

Where art thou, gas?

Nothing new to see here, unfortunately, with ongoing declining gas output levels at Pohokura (New Zealand’s largest gas field). Pohokura’s operator, OMV, has advised that the problem stems from a build-up of scale on the walls of an offshore well which is limiting the flow of gas. But it’s a big and costly problem to fix, and a rig will need to be brought in from Singapore to do the job (and it won’t arrive until 2022). Overall, gas production has been down 20% this year, and is expected to be down by around 44% across 2021.

What about wind?

Along with lowered gas output and hydro storage, the last couple of weeks have also seen very low wind generation output (when it rains, it pours!). According to Transpower, the week ending 21 March saw wind generation at its lowest for 2021, producing only 23 Gwh of power rather than the usual 51GWh.

Then there’s thermal

The tight supply of cleaner, renewable generation has meant we’ve had to rely upon costly thermal generation to keep things running. Whirinaki, a diesel-powered plant, was brought on board, and three coal-fired units at Huntly have been made available (rather than just two units, which was the original plan). There’s also an scheduled outage at the Huntly 5 unit from 1 April - 26 April, which will remove around 385 MW from the generation mix.

Spot prices push higher

With all of the above going on, we’d naturally expect to see spot prices rise, and since our last market update in February we’ve seen spot prices move even higher still. There have been numerous price spikes over $300 MWh (or 30c/kWh) and for the 4 week period from 3 March through until 30 March, wholesale prices across NZ sat at an average of 25.2c/kWh.

The weather ahead

According to NIWA, the autumn months are likely to see rainfall levels that are near normal or below normal in the west of the South Island, which might mean we don’t get the rain that we’d like in the catchment areas for South Island hydro lakes. Near normal rainfall is most likely in all other regions, so we’re keeping our fingers crossed for some decent rainfall around Lake Taupō!

The price of power

As we’ve already mentioned, prices on the wholesale market are high and they’re likely to stay that way for some time, thanks to the forecasted lower rainfall levels combined with declining gas output at Pohokura. This is now having a flow-on effect on futures pricing (where electricity hedges are bought or sold for future delivery at a specific price, over a specific period of time - sort of like fixed rates for mortgages), which is also high.

So what will this mean for Kiwis? Unfortunately we’re already starting to see some power companies increase their fixed-term prices for customers, and things will be particularly tough for some businesses that are big users of electricity. We also know that it’s been a difficult time for customers on our wholesale pricing plan, Freestyle, too. So we’re actively reaching out to them to help them make the switch to our fixed generation price plan, FIXIE (if they want) which gives them peace of mind with a fair and simple generation price set for 6 months (if this is you and you want to make the switch right now, head to the account tab in your dashboard!).

It’s also for this reason that, in good faith, we’ve made the decision to suspend Freestyle as a pricing plan for new customers for the time being. While Freestyle is Flick’s OG pricing plan and we love it to bits for what it can deliver customers, current wholesale prices mean we simply can’t (and won’t) let unsuspecting new customers take that hit to their wallet. We’re continuing to keep Freestyle open for existing Flicksters because some of you love it and it works for you - and that’s awesome!

What next?

At the moment there’s lots of talk about the Climate Change Commission’s draft report and what that might mean for electricity in New Zealand. Submissions were due last Sunday, and ours reflected the same song we’ve sung for the last few years: that the current market structure won’t support the move to an economy that relies more heavily on electricity. Our concern is that it risks pushing costs even further beyond the affordability of many Kiwis - those who can’t afford to pay bigger electricity bills will be left behind in the transition, either pushed further into energy poverty or unable to afford to make the shift in the first place.

We also believe that the current barriers to market competition and the existing market power of gentailers, which keeps prices up, won’t do anything to help the investment in new infrastructure and technologies, both of which are needed if we’re serious about our move to a low-carbon economy.

It’s a lot to unravel, so if you’ve got a few questions, just flick us an email at hello@flickelectric.co.nz!