Rivals say Meridian creating price spike
Meridian Energy is believed to be exploiting its dominance in the South Island to manipulate the price of reserve generation, causing a major disconnect between the two islands and prompting an investigation by the regulator.
Since early May, South Island wholesale electricity prices have typically been two to three times those of the North Island, and were above $500 a megawatt hour for extended periods last week.
While the problem has been caused at least in part by low hydro levels, the HVDC – the line which exports power between Haywards in Lower Hutt and Benmore in the Waitaki Valley – has been operating far below capacity.
Rivals are pointing at state-owned Meridian, New Zealand’s largest electricity generator.
Last week the Electricity Authority (EA) launched an investigation into the inter-island disconnect amid growing pressure from within the industry. Focusing on reserve prices, the EA called the situation ‘‘undesirable’’ because it meant more generation than necessary was coming from the South Island’s already depleted hydro lakes.
The South Island hydro lakes are well below average, with rainfall in the catchments in the December to April period the lowest in 80 years.
Wholesale electricity prices are a combination of the spot price and a reserve price. The market requires capacity equivalent to the largest risk facing the system to be held in reserve, either in the form of interruptible load (made up of users volunteering for potential power cuts) or reserve generation ready to start at short notice.
When power is being exported south on the HVDC, the biggest risk to the market is typically the sudden failure of the line, so as exports increase, so can the reserve price.
Analysts and sources at Meridian’s rivals say the company has been using its dominance to set reserve prices well above the usual level, cutting incentive to export electricity to the South Island.
Ralph Matthes, chief executive of the Major Electricity Users Group, said while it was unclear how manipulation might work ‘‘the suspicion is that somehow they [Meridian] are using the South Island reserve market ... to affect differentials between the islands,’’ but he was not saying Meridian was responsible.