Electricity Authority's defence of power market prompts backlash
Thursday, 29 April 2021
An attempt by the Electricity Authority to “correct misconceptions” about the electricity market has prompted a backlash from Flick Electric chief executive Steve O’Connor who said the authority needed to “see things as they are”.
A statement issued by the EA earlier this week said New Zealand’s electricity market was well-regarded internationally and was “doing the job it is designed to do, reflecting lower levels of supply – hour by hour and day by day”.
It also noted the authority was investigating the spot market and “thinking and acting more broadly to ensure we respond to a changing electricity sector, and the imperatives of climate change and economic recovery”.
The authority issued the statement in the wake of criticism of its handling of a trading standards investigation into Meridian Energy and Contact, and concerns over the impact of high wholesale prices on industrial power users.
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Spot market prices sitting above 30 cents a kilowatt-hour for much of the year have seen New Zealand Steel and the Norske Skog paper mill in Kawerau reportedly curtail production, with the Tiwai Point aluminium smelter agreeing steps this week to potentially follow suit.
John Harbord, chief executive of the Major Electricity Users Group, said earlier this month that generators “are almost incentivised to keep the market on the ‘precipice of shortage’” while warning of the impact on jobs.
O’Connor said Flick had a growing conviction the electricity market was “fundamentally flawed and failing”.
“I have worries and concerns when the EA attempts to spend more time trying to suggest that the market is ‘okay’ than understanding what the issues are and dealing with them,” he said.
“I haven’t heard a single person in the industry go this market is delivering the right outcomes right here, right now, other than the EA.”
Electric Kiwi chief executive Luke Blincoe last week accused the authority of being “asleep at wheel” after it cleared Meridian and Contact of breaching its trading rules over an ‘undesirable trading situation’ during which the authority said Meridian withheld hydro generation to prevent a fall in wholesale prices.
O’Connor said he also believed the authority had “dropped the ball” and Flick had no confidence in the electricity market.
The issues went beyond high spot market prices, with the price that New Zealand electricity could be bought at on three-year futures contracts on the ASX “incredibly high”, he said.
“Purportedly, we have the highest three-year futures prices in the world now,” O’Connor said.
“Whether I buy energy short or long-term now, I am buying energy at a price where I know I cannot recover it from a Kiwi consumer.
“I think we are seeing the chickens come home to roost on issues that we have been communicating to the EA for quite some time now.”
Nova Energy blamed high wholesale prices for a 6 per cent hike in its electricity charges in March.
But Andrew Doube, general manager of market design at the EA, said that “in the near or medium term”, many consumers – and commercial and industrial companies on longer term supply contracts – “will likely not be impacted by current elevated spot prices if the wholesale price curve reverts back to a long-term average this year”.