EMA adds voice to power market concerns as analyst warns winter looking 'shaky'

Friday, 16 April 2021

Energy Minister Megan Woods told Parliament in April she was taking the situation in the electricity market very seriously.

The Employers and Manufacturers Association has added its voice to concerns over power prices saying it has heard “shocking” reports of businesses facing a tripling in their power bills.

Spot market prices have peaked above 70 cents a kilowatt-hour at times this year and have frequently sat above 30c/KWh – several times their normal historical levels.

Low hydro inflows brought about by La Nina weather conditions, a decline in gas production and a long period of low investment in new generation capacity has put the sector on the edge of crisis, amid a warning from an analyst that there is no cover for any unexpected supply outages.

Employers and Manufacturers Association strategy head Alan McDonald said wholesale prices were starting to bite big industrial companies, but forecast it might be a year before that prompted a response from the Government.

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“It probably won't go through to the residential market for another 12 months or so, but it will get there, and that's the point at which the Government tends to pay attention.”

Energy Minister Megan Woods has said she is expecting advice from officials within weeks on wholesale prices but indicated little near-term appetite for a structural reform of the industry in an interview with Stuff.

Enerlytica analyst John Kidd said the situation was quite serious.

“We are short of hydro and we are short of gas.”

Coal imports would “blow out of the water” this year, but the market would still be vulnerable to any unexpected outages, Kidd said.

“This winter is looking very shaky because there is no redundancy across the system; our thermal plant is running hard, we are running three units on coal and there is nothing more to give.

With Huntly burning as much coal as it can, there is no ‘redundancy’ to meet an unexpected supply outage, an analyst warns.

“So if you have an outage somewhere along the system, whether it’s upstream at the Pohokura gas field, mid-stream with the HVDC Cook Strait link for example, or downstream with one of the major thermal units, the redundancy is not there to be able to accommodate that.”

The weather over next few weeks would be very important, he said, as it was still a time precipitation in the major hydro catchment areas could fall as rain, rather being more likely to be locked up until later in the year as snow.

“Who knows, we might get two very large events over the next few weeks that might make us all breathe much more easily.

“But Niwa tells us we are in La Nina and the chances of significant rainfall are lower.”

Spot market prices eased back under 20c/KWh for much of Friday, providing a period of respite.

National Party energy spokeswoman Barbara Kuriger was encouraged by reports Austrian oil company OMV had firmed up plans for a drilling programme to extend production from the Māui and Pohokura gas fields.

“It is very welcome development,” she said.

But she said that would not happen quickly enough to assist with the current situation.

OMV is also reported to be planning to further test the potentially significant Toutouwai-1 prospect off Taranaki where it struck hydrocarbons last year.

Kuriger said she was concerned about the impact high wholesale prices were having on independent electricity retailers.

“They are having to pay huge amounts just like the industrial heat processors and some at point unless we get lots of rain, those electricity companies are going to have to pass those costs on to their customers.”