Dry summer pushes up power prices
Major users see potential to damage productive sector
The dry start to summer has pushed hydro lake levels down and spot electricity prices up as generators use more expensive fuel. A group representing big users warns that higher prices had the potential to damage the productive sector.
The Major Users Electricity Group says the high spot prices continue the trend for the year when there was a dry winter, the driest since 2008.
“If the current drier than usual inflows continue we expect to see individual suppliers and retailers modify their behaviour and mitigate any need for emergency measures. However, higher prices hurt the productive sector and we’ll be watching the dry risk closely,” the group says.
While not approaching risk levels, the long-range forecast was for a dry summer for the hydro lakes.
In November, inflows into southern hydro lakes were 68 per cent of average.
Spot prices of electricity yesterday spiked at $227 a megawatt hour and averaged around $150MWh during the past week. Throughout the year the spot price is typically around $70 to $80MWh.
About 60 per cent of New Zealand’s electricity comes from hydro generation, mostly based in the South Island. When generators use gas or coal the price of power increases.
Meridian generates nearly a third of the country’s power and its general manager of wholesale, Mike Roan, said his company had exercised a “swaption” arrangement it had with fellow gentailer, Genesis, unusually early this year. This allowed Meridian to get power from Genesis — which owns the Huntly gas and coal plant — below the spot rate.
By doing it before Christmas if conditions remained dry over the holiday period “we come back to a situation that is entirely manageable”.
Roan said heavy rain in the South Island — which could happen in the middle of summer — could change the storage picture within days.
“You find in a couple of weeks’ time a massive storm takes away from any challenge. We’re watching it but drought is a part of our industry and this one is no bigger than what we’ve seen before.”
More expensive generation would feed into higher prices for big users on the spot market in the first half of next year but residential customers on long term contracts would not be affected, he said.
Flick Electric has about 24,000 small customers exposed to the spot market and says there have been “colliding factors” which had pushed up prices, including the dry weather and generation equipment out for maintenance.
Chief executive Steve O’Connor said because energy costs were a relatively small part of bills, cus- tomers were not badly affected by the spot price spikes and his customers were in contracts for long term benefits. While spot prices were high in winter for nine weeks, customers were worse off for an average of $12 each and they recovered that with savings over the next 11 weeks.
Transpower convenes dry winter planning and John Clarke, general manager of system operations, said power from thermal generation in the North Island was being sent back to the South Island at off-peak times, such as weekends.
“We’re still in a good position to avoid security of supply issues provided people pick up early on the signals that it may be appropriate to rely on other forms of generation — gas and coal rather than hydro.”
Figures from the Ministry of Business, Innovation and Employment show the dry winter to the September quarter led to a lower proportion of renewable electricity generation and higher levels of gas-fired generation compared to last year.