Market Update April 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market dropped significantly in April compared to March. Average spot prices for the month ranged from $76 in the lower South Island (down from $135), up to $98 in the upper North Island (down from $158).
The following chart shows average weekly spot prices over the last 2 years. The price drop through April can be clearly seen with prices dropping to near $50 before picking up again towards the end of the month.
Electricity Demand
Electricity demand in April remained in line with recent post-Covid years and increasing as the weather becomes cooler. Reduced demand over Easter was apparent at the start of the month.
Electricity Generation Mix
Higher SI inflows at the start of the month meant that hydro generation increased during April while thermal generation was able to back off over the Easter period as shown below.
HVDC Transfer
Power transfers on the HVDC link connecting the North and South Islands are important both in showing relative hydro positions and the reliance on thermal power to meet demand. High northward flow tends to indicate a good SI hydro position, whereas the reverse indicates a heavy reliance on thermal power to make up for hydro shortages.
April saw increased northward transfer and very little southward transfer throughout the month indicating high SI inflows and healthy storage resulting in strong SI hydro generation.
The Electricity Futures Market
The Futures Market provides an indication of where market participants see the spot market moving in the future. They are based on actual trades between participants looking to hedge their positions (as both buyers and sellers) into the future against potential spot market volatility. They are also a useful proxy for the direction of retail contracts.
The following graph shows Futures pricing for CY 2023, 2024, 2025 and 2026 at Otahuhu (Auckland) for the last 2 years.
Note that $100/MWh equates to 10c/kWh.
Future prices for all years were flat during March. CY 2024 finished at $168 (no change). CY 2025 was also unchanged, ending the month at $172/MWh. CY 2026 prices dropped 1% to $170.
Known new generation projects are shown below (additions / removals highlighted in bold). Sky Solar went into liquidation in March putting some doubts around the planned solar farm at Ongaonga in the Hawkes Bay.
Hydro Storage
Inflows were high in the SI at the beginning of April before reverting to being below average later in the month. NI inflows were close to average or slightly above average for most of the month.
Energy storage levels in New Zealand’s main hydro storage lakes decreased in April. Storage ended the month at 3,693GWh or 83% full, down 348GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.
Security of supply risks increased slightly in April with high hydro generation resulting in storage decreasing, however storage levels are still well above what we typically expect to see for this time of year. We also remain well above the risk zones. This is shown in the following risk curves.
Snow Pack
Snowpack is an important way that hydro energy is stored over the winter months and released as hydro inflows in the spring. The following graph shows how snowpack in the important Waitaki catchment is currently close to mean levels for this time of year, meaning that there is close to the usual amount of water stored as snowpack as we would expect to see in April.
Climate outlook overview (from the MetService)
Climate Drivers — Neutral El Niño Southern Oscillation (ENSO) conditions are expected to continue for May, with most forecast models pointing to El Niño development during winter. Tasman Sea lows continue to be our primary climate driver for the first half of May, with stormy weather across the entire North Island and the north of the South Island this week and next week. The second half of May is predicted to be ‘somewhat quieter’, with some Highs in the mix – noting at this time of year, any dry spells are likely to be brief, with further rainbands in the mix. Sea temperatures around the South Island remain much warmer than usual as we enter May, with somewhat more muted (average to above average) sea temperatures around the North Island.
May 2023 Outlook — An extremely mild May is forecast across New Zealand – expect some locations to break May temperature records. Temperatures run phenomenally warm for the time of year this week, with weekly average temperatures expected to run between 3 and 6 degrees above the May norm. Next week is also forecast to run much warmer than usual, until a cold southerly outbreak kicks in mid-week. For the back half of May, South Island temperatures should remain well above average, while North Island temperatures are predicted to settle back closer to average. Overall, an extremely mild May is expected right across New Zealand. However, this does not rule out some cold events, frosts and even snowfalls. The entire North Island, as well as Westland, Buller, Nelson and Marlborough, and also Banks Peninsula and Christchurch, should expect a wet May, with normal to above normal rainfall totals. Central Otago and Southland are predicted to run a touch drier than usual, while near normal rainfall is forecast for all remaining areas.
The Gas Market
Gas prices decreased significantly throughout April closing at $8.9/GJ – 28% down compared to March close. Prices are currently about 59% lower than they were at the same time last year.
On the supply side Maui continued its strong level of production through April. Average output was 120TJ/day – up 16.5%. McKee / Mangahewa also maintained its increase in production, averaging around 90TJ/day.
Pohokura reduced output slightly, averaging 77TJ/day while Kupe was also down slightly averaging 48TJ/day in April.
We are now starting to see the benefits emerging from the drilling campaigns currently underway. Todd Energy has almost completed the drilling programme at Mangahewa, and once completed they plan to move the drilling rig to Kapuni in May. OMV is also continuing its Maui drilling program, expected to continue into the second quarter of 2023. Beach Energy plans further drilling at Kupe starting in the September quarter of this year.
The following graph shows production levels from major fields over the last 3 years.
On the demand side, Methanex Motonui’s usage once again dominated all other gas users. Consumption was slightly up in April averaging 177.5TJ/day. Huntly power station had slightly reduced gas usage during April – averaging 62TJ/day.
The following graph shows trends in the major gas users over the last 3 years.
Global energy prices continued the falls we have seen in recent months but continue to be at levels well above what we would have considered to be very high only 18 months ago. Lack of investment in new gas supply internationally over several years had already resulted in price increases, before the conflict in Europe accelerated those impacts.
LNG netback prices continued to decline in April, ending the month at $15.65GJ – down 10.5% from last month. Forecast 2023 netback prices are $21.17 – down 7% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $21.9 – up 0.4% compared to March.
New Zealand does not have an LNG export market, so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices, and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices.
The Coal Market
The global energy crisis has been as much about coal as it has gas. The war in the Ukraine has driven energy prices, including coal, up. Prices over the last couple of months have levelled off at around the US$190/T mark. These prices, though well below the highs of the last 12 months, remain above what we expect to see as shown in the following graph of prices over the last 10 years.
Like gas, the price of coal can flow through and have an impact on the electricity market. However, coal stockpiles at Huntly are at the highest they have been for many years helping to assure the market that there is plenty of fuel available in the event of dry conditions in the hydro catchments.
Carbon Pricing
NZ has had an Emissions Trading Scheme (ETS) in place since 2008. It has been subsequently reviewed by a number of governments and is now an “uncapped” price scheme closely linked to international schemes. However, there are “upper and lower guard-rails” set up to prevent wild swings in carbon price that act as minimum and maximum prices. Currently these are set at $78 and $30 respectively. Over the last few years, the Carbon Price through the ETS has climbed, though it has fallen back in recent months as shown in the following graph. In April prices decreased a further $6 to $53.25/t.
As the carbon price rises, the cost of coal, gas or other fossil fuels used in process heat applications will naturally also rise. Electricity prices are also affected by a rising carbon price. Electricity prices are set by the marginal producing unit – in NZ this is currently typically coal or gas or hydro generators, with the latter valuing the cost of its water against the former. An increase in carbon price can lead to an increase in electricity prices in the short to medium term (as the marginal units set the price). A carbon price of $50/t is estimated to currently add about $25/MWh (or ~2.5c/kWh) to electricity prices. In the long term the impact should reduce as money is invested in more low-cost renewables and there is less reliance on gas and coal fired generation.
EU Carbon Permits eased slightly in April to 86 Euro/tonne – down 5%.
About this Report
This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.
Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.
All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.
Further information can be found at the locations noted below.
- Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data
- The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/
- Weather and Climate data – The MetService publishes a range of weather-related information which can be found here: https://www.metservice.com/
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