Energy Minister Megan Woods concerned high electricity prices may 'persist'

Wednesday, 14 July 2021

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

Energy Minister Megan Woods has revealed she is concerned electricity prices will remain high, amid speculation that the Government’s appetite for an early overhaul of the power market is growing.

Transpower is reporting that hydro lake levels have recovered to 89 per cent of normal thanks to warm, wet weather, and said it would be monitoring the impact of further rain forecast for this weekend.

But Major Electricity User Group (MEUG) chairman John Harbord said he was concerned that wholesale prices remained high and prone to sharp spikes.

Transpower said average prices drifted down to $192 a megawatt-hour over the past week, with “only three spikes” above $400/MWh.

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But Harbord said the Interim Climate Change Committee had found prices above $115/MWh were “unaffordable for the economy”.

Major Electricity Users Group chairman John Harbord believes requiring the country’s biggest power firm, Meridian Energy, to shed some of its power plants could be helpful.

Woods said in a June letter to retailer ElectricKiwi that she was concerned about the current performance of the electricity market “and whether the current shift towards higher electricity prices will persist and continue to adversely affect smaller retailers and consumers”.

The Electricity Authority is currently conducting a review of the wholesale market, which it expects to complete in September.

Independent retailers ElectricKiwi and Flick Electric have previously said they have lost confidence in the regulator.

ElectricKiwi chief executive Luke Blincoe told Woods the authority had sought to “put a positive spin on the market it has designed, even when it’s failing”.

Meridian chief executive Neal Barclay and then Electricity Authority strategy manager James Tipping discuss action to correct the 'undesirable trading situation' in 2019.

But the Electricity Authority is believed to be considering options that include some significant structural reforms.

Flick Electric has been petitioning the Government to “structurally separate” the major gentailers into separate generation and retail businesses.

National Party energy spokeswoman Barbara Kuriger last month opened the door to it potentially supporting such a change.

There is speculation the Electricity Authority’s wholesale review may instead suggest that Meridian Energy – the country’s largest power company – should be forced to relinquish some of its generation assets to reduce its market power.

Blincoe called in a letter he sent to Woods in April for her to “consider structural reforms which can address concentration in the generation market, particularly regarding the size of Meridian”.

Harbord said the MEUG’s view was that the market was not working as it was intended when it was originally designed in 1996.

The Electricity Authority should acknowledge in its review that the market was producing “perverse outcomes that are not in the best interest of New Zealand”, he said.

Woods has previously hinted the Government might want to wait for more information about the likely outcome of its NZ Battery Project before considering the shape of any market reforms.

That project aims to add 5 terawatt-hours of renewable “dry year” electricity storage to the country’s energy supply by about 2030, and is expected to smooth out wholesale prices if successful.

But Harbord said that from its members’ perspective, there was an “absolutely urgency” for progress.

“Our members have been absorbing very high prices for three years now, and they can’t keep doing it.”

Requiring Meridian to shed some of its power plants “could well be a good solution”, Harbord said.

But the MEUG was “not quite there yet” in terms of advocating for that option, he said.

“It comes down to the devil in the detail; what assets would you swap, who would they go to, and what would be the effect of that?”

Enerlytica analyst John Kidd indicated there was some justification for current wholesale prices.

While lake levels in the South Island were returning to “closer to normal”, the North Island was still dry, which meant there was continuing reliance on higher-priced thermal generation, he said.

“We don’t have a lot of redundancy in the system – that’s the problem.”

Kidd said there was a lot of uncertainty in the industry, which was affecting futures prices out until 2024.

“What is a unit of carbon going to cost in three or four years? There is compounding uncertainty which is contributing to big premiums being built into prices at the moment,” he said.