The Blog

The #CleverFlickers Market update - 11 June 2021

Kia ora, Flick whanau,

Welcome to winter! We’re on the icy slope towards the coldest weeks of the year, and as expected, there’s been a natural increase in the amount of electricity we’re using to stay warm with Aotearoa’s demand for power jumping from 801 GWh to 839 GWh last week.

Aside from this, there’s been lots of action on the electricity market since our last update back in April. If you follow our Facebook page, you’ll have seen the stories we’ve shared regarding the impact of high spot prices on Kiwi businesses as well as smaller, independent electricity retailers. So, where are things at? Let’s take a look.

Lake levels still low

Last week’s heavy rainfall down south did some big damage, but was in all the wrong spots to have any sort of major impact on the low storage levels in the South Island hydro lakes. Transpower has advised that current inflows into the Waitaki catchment are still below average, and as such South Island hydro storage sits at 77.5% of average for this time of year. Thanks to a continual bout of dry weather in the North Island, our northern lake levels sit at 26% of average for this time of the year. Overall, national storage is sitting steady at 74%.

In good news, Meridian reports that snowpack in the Waitaki catchment has started to build up and is currently at 106% of average (snow that falls here over winter will melt in the spring and summer to contribute to summer inflows). And the Electricity Authority’s (EA) data suggests that the tight supply situation for winter has almost passed (wahoo!), assuming there are no big, unexpected plant outages.

According to Transpower, South Island inflows across January-April were the eighth lowest in the last 96 years, and data from the last few decades shows a trend of declining inflows at this time of year.

Gas low, thermal generation on the rise

The gas output levels at Pohokura (New Zealand’s largest gas field) are still low, and with gas production down, poor wind conditions (last week’s wind generation dropped from 8% to 3%) and low lake levels, other non-renewable thermal generation has been needed to make up the shortfall.

Genesis has brought back its third coal-fired Rankine unit at Huntly (the second year in a row that it’s been needed to fill the gap), and diesel has also been providing some back-up generation cover in recent weeks.

This week we also saw an unplanned outage at Mercury’s Kawerau geothermal power station due to a mechanical fault, which is expected to take several months to fix.

Big users cut back use

To help our infrastructure cope with tight generation supply, two of NZ’s largest industrial users, Methanex and New Zealand Aluminium Smelters, have cut back the amount of power they’re using. The Tiwai Point aluminium smelter is reducing its power use by up to 30.5 MW an hour and will do so for another month, as well as shutting down potline 4 to free up another 50MW. And Methanex has temporarily halted one of its production lines which will provide the energy equivalent of up to 84% of the storage capacity of Lake Taupo. Whoop!

Power prices high

According to Energy News, short-term and long-term futures prices (also known as hedges - electricity bought in advance for a set price over a set period of time) hit record levels in May, and over the last 4 weeks prices on the spot market have averaged 31.6 c/kWh across the country. Futures prices are a good guide as to where power prices will sit in upcoming years, and at the moment the power delivered in 2024 is costing a little above 12 c/kWh.

For large industrial users and a number of retailers, the high price of power on the wholesale spot and futures markets is having a big impact. In Kawerau, high electricity prices have seen Norske Skog’s Tasman mill cut production and face possible closure. The New Zealand Steel mill at Glenbrook has also been limiting its production due to extreme prices.

Last month, independent electricity retailer ID power (located in Auckland) was close to closing its doors due to high prices, and Nau Mai Rā (New Zealand’s first Māori electricity retailer) has advised that it might need to lose some of its customers - many of whom are vulnerable and living in energy hardship - in order to stay afloat.

While there’s no doubt that the high power prices are linked to tight supply, we also firmly believe that our inadequate market structure, which stifles industry competition, is also playing a role. Until that issue is addressed, it’s likely that we’ll still encounter high prices and see competition forced out of the market.

What next?

The Climate Change Commission’s final report has been released, and we’re currently working our way through it. In our view, these current market conditions highlight the need to get things right from the very beginning, especially if Aotearoa is going to be relying on electricity to help us reach our carbon goals.

We’re planning something big behind the scenes to push for industry change - watch for an announcement next week!