Wholesale power price hike the largest since 2018 due to low lake levels

Wednesday, 19 May 2021

Lake Benmore, part of the Waitaki power scheme controlled by Meridian Energy. Low lake levels have been blamed for the high price of wholesale electricity.

Wholesale power prices, paid by electricity and gas suppliers, rose over 28 percent in the March 2021 quarter, the biggest jump since 2018.

Statistics New Zealand said that while the jump was “nowhere near the magnitude” seen during the 2008 power crisis, it was still expensive for power and gas suppliers who were receiving just 17.4 per cent more for the prices they received.

Electricity prices for residential customers rose a much smaller 0.4 per cent, as reported in the Consumer Price Index.

The price hike has been driven by low lake levels and an unexpected fall production at the Pohokura gas field, Stats NZ business prices delivery manager Bryan Downes said.

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

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“In general, electricity retailers do not pass on wholesale pricing to households unless they are on a spot price contract,” he said.

Other reasons for the differences included transmission charges, demand from industrial users responding to peak-hour pricing, and companies hedging to manage the volatility in prices.

While manufacturers were not paying as much as generators, many power users have also expressed concern about the prices and their relative cost of power to other countries.

Some, including NZ Steel and Norske Skog paper mill, are understood to have cut or altered production when spot prices peaked.

John Harbord, chairman of the Major Energy Users Group (MEUG), said power prices were explicitly blamed by Whakatane mill’s general manager for its initial decision to close the mill (the mill has since attracted a potential buyer).

”We know it’s causing a lot of hardship,” he said.

Lake levels and the gas shortage were part of the picture but Harbord said those two factors alone did not fully explain why the prices had been high for three years, and market futures suggested they would be high for at least another three.

However, MEUG had been gratified to hear the Electricity Commission had widened its scope of its market review to include the structure of the market and the influence of the big retailers.

”We’re quite hopefully that that will lead to some improvements in the market and if nothing else, give assurance about what’s happening in the market, because the moment we're a little bit in the dark.”