Power customers damn the dryness
Low hydro-lake levels are prompting concerns that wholesale power prices may spike this year but affected retailers say it’s too soon to worry.
Forsyth Barr’s latest Power Points update notes that dry conditions in December pushed up wholesale electricity prices, and the sector was starting this year with below-average hydrolake storage and minuscule snow pack storage.
‘‘If it stays dry, 2018 is shaping up to be more of a challenge than 2017.’’
Wholesale price rises do not immediately affect customers who are locked into traditional fixed-price power contracts, where they pay a set fee for power regardless.
But if prices were to rise for a sustained period, those retailers might increase their rates to cover the cost.
Other customers will be affected straight away as a number of new operators, such as Flick and Paua to the People, pass on wholesale spot prices, plus a margin.
Flick customers went through a pricey period in the middle of last year when spot prices surged to almost triple what they were during summer.
An estimated 1 per cent to 2 per cent of households are on this sort of contract.
Jenny Cameron, chief executive of the Electricity Retailers Association of New Zealand, said it was too early to say what the effect would be on wholesale prices.
‘‘It will depend on rainfall over the next few months,’’ she said.
‘‘However, low lake levels can have an impact on wholesale electricity prices because of the way our electricity supply is generated, predominantly from renewable hydro generation.’’
A spokeswoman for Flick said the current low levels – at 81 per cent of normal – were not yet a concern or affecting prices because there was not as much demand for electricity in summer.
‘‘But big generators, who sell contracts in advance, are speculating there will be high prices because that’s how they make money from retailers who buy contracts in advance,’’ she said.
‘‘And, ultimately, if retailers are paying more for contracts, this will be passed through to consumers in the pricing of their plan.’’
Electricity Authority acting chief executive John Rampton said New Zealand relied on hydro generation for about 60 per cent of its power.
‘‘Currently, the water level in the South Island hydro lakes is below average. There is still plenty of time for this to change before we head into winter when electricity demand peaks.
‘‘In contrast, storage in the North Island hydro lakes is above average. There have been similar situations in previous years where we have started the year with lower than average hydro storage. However, it has not impacted consumers – the market effectively managed the storage situation.
‘‘Since its establishment in 2010, the authority has placed a lot of emphasis on ensuring the electricity sector can manage ‘dry winters’ and has made a number of changes to its rule book, the code, in this regard.’’