Energy crunch respite? Spot market power price crashes to almost zero

Friday, 30 August 2024

At spot market prices early on Friday afternoon, a two-bar heater such as the one above would have cost less than fifth of a cent to run for a day.

The price at which businesses and power retailers can buy electricity on the spot market crashed from frequent peaks above $800 a megawatt-hour earlier this month to just a few cents at times on Friday.

Electricity was trading on the spot market at 3c/MWh across the country early on Friday afternoon — a price that would let a buyer run 1000 heat pumps full bore all day for less than the price of a flat white — before picking up somewhat ahead of the evening peak.

The price slump comes in the wake of ministers’ voicing concern over wholesale power prices and as recent heavy rain starts to materially boost hydro lake levels.

Transpower reported that hydro lake levels were 63% of their average level for the time of year on Thursday night, up from 54% of their normal level a week prior, meaningfully reducing the chance of power shortages in the months ahead.

Major Electricity User Group chairperson John Harbord said lower spot market prices would be a relief to big businesses, but noted most power users bought electricity on longer terms contracts so few would directly benefit.

“What we're looking to see is sustained, low wholesale prices, not wholesale prices that are low for part of one day,” he said.

The move is one of several steps the Government is taking to address the energy crunch.

“If you are in heavy industry, you are looking at your electricity price 24 hours a day, seven days a week, so while a low price for a few hours is very welcome, it doesn't change the fundamental reality a lot of businesses are struggling with high prices.”

Harbord said it was possible to be cynical about the reasons for the sudden price swing, given lakes were still relatively depleted and “normal wholesale pricing would not be close to zero”.

“The Government’s announcements this week show it is taking the matter of wholesale-electricity affordability extremely seriously.

“They are deeply unhappy with the market and they have signalled their willingness to intervene. In that context, it's good to see the gentailers are responding,” he said.

The Government’s announcements included a decision to facilitate imports of liquefied natural gas, which can be burnt for electricity, and to ease restrictions on local lines companies generating power.