Category: Market Update
Market Update January 2024
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased again in January. Average spot prices ranged from $183 in the lower South Island (up from $169 in December), up to $204 in the upper North Island (up from $184).
The following chart shows average weekly spot prices over the last 2 years. Prices rose steeply at the start of January before falling towards the end of the month. The recent see-sawing in prices can be clearly seen to the right of the graph.
Electricity Demand
Electricity demand in January is at the high end compared to recent years as shown below.
Electricity Generation Mix
Lower holiday period demand meant that hydro generation could be reduced allowing for storage to be conserved early in January. As demand picked up later in the month thermal generation increased as did hydro reflecting some increased inflows.
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.
January saw northward transfer reduce and southward transfer increase to conserve SI hydro storage .
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 2024, 2025, 2026 and 2027 at Otahuhu (Auckland) for the last 2 years.
Note that $100/MWh equates to 10c/kWh.
Forward prices were flat in January for all future years. CY 2025 was down slightly at $162 (-0.5%). CY 2026 price was unchanged at $152 while CY 2027 closed up slightly at $140/MWh (+0.5%).
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were above average in the NI at the start of January and below average in the SI as shown in the following charts. SI Inflows did increase towards the end of the month (not shown in the charts).
Above average January inflows resulted in energy storage levels in the NI’s main hydro storage lake (Taupo) increasing through the month to close to maximum levels. In the SI, low inflows at the start of the month caused storage to fall before some substantial inflows later in the month brought storage back above average levels for this time of the year. NZ storage ended the month at 3,734GWh or 85% full, up 734GWh. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks decreased in January with storage levels increasing. We are currently slightly above the level we would typically expect to see for this time of year; and remain well above the risk zones. This is shown in the following risk curves.
Snowpack
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 that the snowpack in the important Waitaki catchment is currently below mean levels seen in the last 30 years for this time of year.
Climate outlook overview (from the MetService)
Climate Drivers — As expected, the Madden-Julian Oscillation (MJO) became active over the tropics during the second half of the month and helped fire up TC Kirrily, which moved onto Australia’s Queensland coast late on the 25th. Ultimately, high pressure over the Tasman Sea kept this system away from NZ, but we did see sub-tropical moisture feed onto NZ at times during the second half of January, aiding some large rainfall events later in the month. The tropics look likely to remain active until mid-February and further named storms are possible over coming weeks, but there are increasing signs that these systems will remain well to the north of NZ. Warm sea surface temperatures associated with El Nino in the central Pacific have now peaked and the atmosphere could now play catch up through late summer and autumn.
February 2024 Outlook — As kids across NZ head back to school, it looks like the weather maps have been studying hard over the summer break with a textbook El Nino month on the cards this February. After El Nino impacts stuttered a bit through the first couple months of summer an enhanced westerly regime, with high pressure ridging persistent across northern NZ and regular fronts washing through south of the high (this is a classic signal during an El Nino summer), is likely to dominate over the next month. The high might win out across South Island at times too, but not as much as we have seen through early summer, and a more unsettled, windier outlook is favoured for the SW corner of New Zealand than over recent months. Near to above normal rainfall is expected for the west and south of the South Island, with the strongest signal for wetter conditions in Fiordland. Fronts should occasionally intrude into the dominant high pressure over the North Island, but any moisture these bring to western areas will likely be rapidly sucked out of the ground by persistent windy days. Eastern and northern areas are expected to be drier than normal, especially during the first half of the month. A cool start to the month, but temperatures should rebound around Waitangi Day. The second half of the month should see regular fluctuations with plenty of warm days still, but interspersed with cooler outbreaks, before an overall downwards trend towards the tail end of summer.
The Wholesale Gas Market
Spot gas prices increased again in January averaging $15.2/GJ – up 5% in the month. Wholesale prices are now about 43% higher than they were at the same time last year.
On the supply side the gradual decline in output across most fields continued through January. Maui started the month producing just under 100TJ per day, reducing to mid to low 80s by the end of the month. Pohokura started at around 62TJ, reducing to high 50s by months end. McKee / Mangahewa went from 70+TJ per day down to mid 60TJs across January. Kupe was the exception with production increasing from 40TJ at the start of the month, jumping to 50TJ and then again to 55TJ at the end of the month.
The following graph shows production levels from major fields over the last 4 years.
On the demand side, Methanex Motonui’s usage was flat through January at just below 150TJ/day for most of the month. Huntly power station gas use was also static during the month, averaging 44TJ/day, while TCC averaged around 35TJ per day until the end of the month when high inflows enabled it to be shut down.
The following graph shows trends in the major gas users over the last 4 years.
Methanex reported earnings during January when it was noted that their NZ production was forecast to be lower this year, at least partly due to expected gas supply constraints.
Internationally, LNG netback prices ended the month at $13.95/GJ – down 27% from last month. Forecast prices for 2024 fell again to $13.95 – down another 5% compared to December. Forecast prices for 2025 were also down 3% at $14.5/GJ.
New Zealand does not have an LNG export market, so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices, and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices.
LPG is an important fuel for many large energy users, particularly in areas where reticulated natural gas is not available. The contract price of LPG is typically set by international benchmarks such as the Saudi Aramco LPG – normally quoted in US$ per metric tonne.
The following graph shows the Saudi Aramco LPG pricing for the last 3 years as well as forecast pricing for the year ahead.
The other main contributing factor to LPG prices in New Zealand is the exchange rate against the USD. As shown below this has been falling over the last few years adding to domestic LPG 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 in January decreased, ending the month at US$116/T – a 22% drop on the December close. These prices are finally returning to levels close to 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 several 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. These increased in December 2023 to $173 and $64 respectively. Carbon prices increased 7% in January to $73.1.
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 decreased in January to 64 Euro/tonne – down 21%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2024. Smart Power Ltd
Market Update December 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased through December. Average spot prices ranged from $169 in the lower South Island (up from $127 in November), up to $184 in the upper North Island (up from $154).
The following chart shows average weekly spot prices over the last 2 years. The recent increase in prices can be clearly seen to the right of the graph.
Electricity Demand
Electricity demand in December was on a par with recent years, falling as we head into the warmer summer period.
Electricity Generation Mix
Attempts to conserve hydro storage led to increased thermal generation through December as shown below, though reduced demand means this remains well below winter levels.
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.
December saw northward transfer reduce to conserve SI hydro storage. Later in the month there was even some significant southward transfer.
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 2024, 2025, 2026 and 2027 at Otahuhu (Auckland) for the last 2 years.
Note that $100/MWh equates to 10c/kWh.
Forward prices were up in December for all future years. CY 2024 closed at $185/MWh (+8%), while CY 2025 was at $163 (+2%). CY 2026 price was up 5% at $152 and CY 2027 closed at $139/MWh (+2%).
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were below average in both the North and South Island through December as shown in the following charts. Inflows did increase towards the end of the month (not shown in the charts).
Below average December inflows resulted in energy storage levels in New Zealand’s main hydro storage lakes decreasing through the month, though there was an uplift due to increased inflows at the end of the month. Storage ended the month at 3,000GWh or 68% full, up 162GWh. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks decreased in December with storage levels increasing. We remain slightly below the level we would typically expect to see for this time of year; but 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 that the snowpack in the important Waitaki catchment is currently below mean levels seen in the last 30 years for this time of year.
Climate outlook overview (from the MetService)
Climate Drivers — El Nino conditions remain in place through the equatorial Pacific, peaking this month. However, despite these oceanic conditions, weather across New Zealand may end up quite different to what we usually regard as typical El Nino conditions as other shorter term climate drivers dictate. One of these is the Madden-Julian Oscillation (MJO) which may become active again over the tropics north of New Zealand towards the latter parts of the month. This may help drive an unsettled Tasman Sea which brings the risk of rain to northern and western parts of the country. However, this progression of the MJO is not set in stone, and a longer, more typical El Nino dry period should be seen through to the middle of January at least.
January 2023 Outlook — The month of January may very well end up with two distinct periods. A large and slow-moving high pressure system is likely to dominate over New Zealand through to about mid-month. This generally means sunnier days, pleasant temperatures and lighter winds. There may be the odd front here and there, but overall, these should not result in much severe weather. That said, they could increase temperatures and humidity, and in turn create conditions favourable to showers and potential thunderstorms for some inland places. These should be somewhat isolated and as a result, soil moisture deficits could increase quickly over the next week or two for most places. There are signs of these settled conditions departing during the last two weeks of the month as Tasman Sea systems may become more common again. This will be very dependent on the high that needs to give way first, and this battle between the high and an incoming Tasman Sea system can be tricky to pin down this far in advance. However, there are hints of north to northwesterly rain for northern and western parts of the country, potentially flipping a dry month to normal or slightly wetter than normal for some there. Confidence decreases for the South Island where places like Canterbury and West Coast lies borderline with incoming rain, while it may run drier in the deep south. Temperatures and humidity should increase next week, making for some unpleasant nights in particular. Humidity is likely to remain a factor later in the month for northern parts of the country, while southern regions could see a cooler period or two.
The Wholesale Gas Market
Spot gas prices increased again in December averaging $14.5/GJ – up 8% in the month. Wholesale prices are now about 38% higher than they were at the same time last year.
On the supply side Kupe resumed production at the end of the first week of December – averaging close to 50TJ per day when it returned from an extended outage. Maui output was flat – averaging about 93TJ/day. Pohokura had declining output, averaging 63TJ/day, as was McKee / Mangahewa, down slightly at around 69TJ/day in December.
The following graph shows production levels from major fields over the last 4 years.
On the demand side, Methanex Motonui’s usage increased in December to around 150TJ/day for most of the month. Huntly power station gas use increased during the month, averaging 44TJ/day, while TCC started up in the middle of the month, averaging around 30TJ per day once operating.
The following graph shows trends in the major gas users over the last 4 years.
Internationally, LNG netback prices ended the month at $19/GJ – down 13% from last month. Forecast prices for 2024 fell sharply to $14.7 – down 21% compared to November. Forecast prices for 2025 were also shown for the first time – $15/GJ.
New Zealand does not have an LNG export market, so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices, and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices.
LNG is an important fuel for many large energy users, particularly in areas where reticulated natural gas is not available. The contract price of LNG is typically set by international benchmarks such as the Saudi Aramco LPG – normally quoted in US$ per metric tonne.
The following graph shows the Saudi Aramco LPG pricing for the last 3 years as well as forecast pricing for the year ahead.
The other main contributing factor to LPG prices in New Zealand is the exchange rate against the USD. As shown below this has been falling over the last few years adding to domestic LPG 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 in December increased, ending the month at US$148/T – an 11% increase on the November close. 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 several 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. These increased in December 2023 to $173 and $64 respectively. Carbon prices fell 10% in December to $68.5.
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 increased in December to 80 Euro/tonne – up 11%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2024. Smart Power Ltd
Market Update November 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased through November. Average spot prices ranged from $127 in the lower South Island (up from $106 in October), up to $154 in the upper North Island (up from $133).
The following chart shows average weekly spot prices over the last 2 years. The sudden drop in prices in the middle of September can be clearly seen as is the recovery in prices since then.
Electricity Demand
Electricity demand in November was on a par with recent years, falling as we head toward the warmer summer period.
Electricity Generation Mix
The lower level of demand and increased wind generation saw thermal generation remain at the low levels observed last month.
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.
November saw northward transfer continue at the reasonably high levels seen through October at the start of the month, before reducing in the second half of the month. Southward transfer remained minimal.
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 2024, 2025, 2026 and 2027 at Otahuhu (Auckland) for the last 2 years.
Note that $100/MWh equates to 10c/kWh.
Forward prices were up for near future years but fell for latter years. CY 2024 closed at $171/MWh (+6%), while CY 2025 was at $159.5 (+1%). CY 2026 prices was down 6% at $145 and CY 2027 closed at $136/MWh (-3.5%).
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were below average in both the North and South Island through November as shown in the following charts.
Below average November inflows resulted in energy storage levels in New Zealand’s main hydro storage lakes decreasing through the month. Storage ended the month at 2,838GWh or 64% full, down 177GWh. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks increased in November with storage levels decreasing. We are now slightly below the level we would typically expect to see for this time of year; but 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 that the snowpack in the important Waitaki catchment is currently slightly below mean levels seen in the last 30 years for this time of year.
Climate outlook overview (from the MetService)
Climate Drivers — Whilst El Nino remains an important player for NZ, the Madden-Julian Oscillation (MJO), a climate driver tracked across the equator, looks set to help shake up the weather maps early in December, much like it did in November. A pulse of the MJO will move from the Maritime Continent (Southeast Asia) into the Western Pacific during the first half of the month. This will lead to more low pressure across the Australasian/NZ regions, with the belt of higher pressure likely displaced further southwards across South Island, similar to November, at least initially. El Nino is expected to peak in January 2024, continuing through into the autumn months. NZ typically sees the strongest effects of El Nino during late summer/early autumn.
December 2023 Outlook — As noted above, the MJO looks likely to help drive a rather unsettled opening to December, although the South Island might tap into drier weather under that southern ridge more often than not. A couple separate Tasman Sea low pressure systems from the weekend of the 2nd/3rd into the following week look likely to bring rainfall right across the country, but especially across North Island. If the second of these makes a connection with an increasingly active tropics to the north, we may well see some notably heavy falls for northern and northeastern portions of North Island too, but this remains far from certain at this early stage. Keeping a close eye on tropical developments to our north will be important through the first half of December. Heading beyond mid-month, higher than normal pressures are gradually favoured to return across the Tasman Sea, and to the north of New Zealand, with a more westerly pattern redeveloping across the South Island. This pattern is much more typical of El Nino, as the MJO pulse departs eastward. This will be welcome news for those of us across central and northern NZ who are hoping for some more prolonged sunshine as the summer holidays get started and hay-making season ramps up. These synoptic patterns even offer some early hope of a dry Christmas Day BBQ in these regions! Rainfall should become more frequent again for western and southern South Island though. With a predominantly westerly flow, eastern sections of South Island may well be in for some very hot early summer days alongside long dry runs too.
The Wholesale Gas Market
Spot gas prices jumped in November averaging $13.5/GJ – an increase of 27% in the month. Wholesale prices are now about 7% higher than they were at the same time last year.
On the supply side the major constraint was the outage at Kupe taking production to zero for the whole of the month. All other fields had declining production through the month – Maui output averaging 97TJ/day (down 3%). Pohokura was down, averaging 66TJ/day (-7.5%), as was McKee / Mangahewa, down slightly at around 71.5TJ/day in November (-3% from October levels).
The following graph shows production levels from major fields over the last 4 years.
On the demand side, Methanex Motonui’s usage decreased in November to around 140TJ/day for most of the month. Huntly power station gas use reduced during the month, averaging 21TJ/day. TCC remained switched off all month.
The following graph shows trends in the major gas users over the last 4 years.
Internationally, LNG netback prices ended the month at $21.91GJ – up again 22% from last month. Forecast 2023 netback prices were also up marginally at $20 – + 1% on what the ACCC was forecasting in October. Forecast prices for 2024 fell sharply to $18.6 – down 20% compared to October.
New Zealand does not have an LNG export market, so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices, and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices.
LPG is an important fuel for many large energy users, particularly in areas where reticulated natural gas is not available. The contract price of LPG is typically set by international benchmarks such as the Saudi Aramco LPG – normally quoted in US$ per metric tonne.
The following graph shows the Saudi Aramco LPG pricing for the last 3 years as well as forecast pricing for the year ahead.
The other main contributing factor to LPG prices in New Zealand is the exchange rate against the USD. As shown below this has been falling over the last few years adding to domestic LPG 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 in November increased, ending the month at US$133.5/T – a 14% decrease on the October close. 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 several 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 $82 and $33 respectively, however they are going to increase in December after the Government recently accepted the Climate Change Commission’s recommendations to tighten the auction scheme. Carbon prices continued to increase in November, climbing a further 8% to $76.
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 decreased further in November to 72.5 Euro/tonne – down 9%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
Market Update October 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market were relatively unchanged through October. Average spot prices ranged from $106 in the lower South Island (down from $110 in September), up to $133 in the upper North Island (up from $127).
The following chart shows average weekly spot prices over the last 2 years. The sudden drop in prices in the middle of September can be clearly seen as is the recovery in prices since then.
Electricity Demand
Electricity demand in early October was on a par with recent year before dropping to lower levels at the end of the month.
Electricity Generation Mix
Lower demand and increased wind and hydro generation saw thermal generation reduce to very low levels through October. The last week saw almost 95% of generation coming from renewable sources.
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.
October saw northward transfer continue at the reasonably high levels seen at the end of September. Southward transfer was minimal.
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 2024, 2025, 2026 and 2027 at Otahuhu (Auckland) for the last 2 years.
Note that $100/MWh equates to 10c/kWh.
Future prices increased for CY 2024, but was down for all other years. CY 2024 closed at $162/MWh (+6%). CY 2025 was at $158 (-2%) while CY 2026 prices was down 4% at $155. CY 2027 has just been started to be published in October – currently it is at $141/MWh (-11%).
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were close to average or above average in the South Island through October. Transpower has not updated NI inflows since July, however we can assume by how Taupo storage has slightly increased through the month that inflows were close to or above average for the time of year.
Close to or above average October inflows resulted in energy storage levels in New Zealand’s main hydro storage lakes increasing through the month. Storage ended the month at 3,051GWh or 69% full, up 124GWh. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks decreased in October with storage levels increasing. We remain slightly above the level we would typically expect to see for this time of year; and 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 that the snowpack in the important Waitaki catchment is currently slightly above mean levels seen in the last 30 years for this time of year.
Climate outlook overview (from the MetService)
Climate Drivers — Sea surface temperatures in the equatorial Pacific Ocean NINO3.4 area continue to exceed 1.5C degrees above average, meeting the strong El Nino criterion. All climate models strengthen the event further, between now and its likely peak around Christmas, with most models forecasting an intense El Nino event for summer. Additionally, the positive Indian Ocean Dipole event also enhances the westerly flow of weather across New Zealand, alongside the El Nino.
November 2023 Outlook — November starts off with the remnants of ex-tropical cyclone Lola quickly moving away to the east, although another Tasman Sea low is likely to bring rainfall back onto the country later this week. This rain should particularly favour northern and western parts of the North Island, although some places like Southland and inland Otago could also see brief, but useful bursts for a time as well. Once this low clears away, a longer period of drier and more settled weather is expected country-wide, as a large high builds over New Zealand from the Tasman Sea. Isolated showers could occur under this high, but overall rainfall should be limited for most places. Around mid-month, we may see westerlies returning, resembling October’s predominantly westerly pattern. Fronts might move up the South Island but are likely to weaken quickly as they encounter the high over the North Island. Some of these fronts should bring slightly wetter than normal conditions to the west of the South Island, with the south seeing more uncertainty, coinciding with the return of bursts of gusty westerly winds for many places. Temperatures are forecast run warmer than average through much of the month, although a cooler period might be seen during the start to mid-month under more settled skies.
The Gas Market
Gas prices were flat again in October closing unchanged at $10.6/GJ. Prices are still about 8% lower than they were at the same time last year.
On the supply side, Maui output had a boost in October – averaging just over 100 TJ/day (up 10%). Pohokura was down, averaging 71.5TJ/day (-7%) as was Kupe where preparation work for further drilling resulted in shutdowns and an average 20TJ/day production – down 62%. McKee / Mangahewa was also down slightly at around 74TJ/day in October (-6% from September levels).
The following graph shows production levels from major fields over the last 4 years.
On the demand side, Methanex Motonui’s usage increased in October to around 150TJ/day for most of the month. Huntly power station gas use reduced during the month, averaging less than 30TJ/day. TCC dropped early in the month before being switched off on the 6th October.
The following graph shows trends in the major gas users over the last 4 years.
LNG netback prices ended the month at $17.99GJ – up again, 8% from last month. Forecast 2023 netback prices were also up at $19.78 – + 2% on what the ACCC was forecasting in September. Forecast prices for 2024 are now sitting at $23.3 – up 15% compared to September.
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 in October reduced significantly, ending the month at US$117.5/T – a 24% decrease on the September close. 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 several 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 $82 and $33 respectively, however they are going to increase in December after the Government recently accepted the Climate Change Commission’s recommendations to tighten the auction scheme. Carbon prices reversed last month’s drop, increasing 7% back to $70.
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 decreased a little further in October to 79 Euro/tonne – down 3%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
Market Update September 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market eased through September. Average spot prices ranged from $110 in the lower South Island (down from $131 in August), up to $127 in the upper North Island (down from $149).
The following chart shows average weekly spot prices over the last 2 years. The sudden drop in prices in the middle of September can be clearly seen.
Electricity Demand
Electricity demand in September was lower than it has been in recent years as shown in the graph below.
Electricity Generation Mix
Lower demand led to reduced hydro generation at the start of September, but higher inflows in the later part of the month saw hydro generation pick up. Thermal generation maintained the higher output observed in August until those inflows increased. There was also increased wind generation throughout most of September.
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.
September saw northward transfer decrease at the start of the month and increased southward transfer, until the rain came mid-month increasing the level of northward transfer and stopping southward transfer.
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 2024, 2025, 2026 and 2027 at Otahuhu (Auckland) for the last 2 years.
Note that $100/MWh equates to 10c/kWh.
Future prices for all years were down during September but particularly CY 2024 which finished at $153/MWh (-9%). CY 2025 was at $162 (-1%) while CY 2026 prices was down 2% at $162. CY 2027 has just been started to be published in October – currently it is at $158/MWh
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were below average in the South Island at the start of September but then increased dramatically for the second half of the month. Transpower has not updated NI inflows since July, however we can assume by the rate that Taupo storage has increased that inflows were above average for the time of year.
High September inflows resulted in a significant increase in energy storage levels in New Zealand’s main hydro storage lakes – reversing the steep declines over recent months. Storage ended the month at 2,927GWh or 66% full, up 459GWh. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks decreased in September with storage levels increasing quickly. We are now back above the level we would typically expect to see for this time of year; and 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 that the snowpack in the important Waitaki catchment is currently slightly above mean levels seen in the last 30 years for this time of year. Note this has not been updated since the middle of September.
Climate outlook overview (from the MetService)
Climate Drivers — Sea surface temperatures in the equatorial Pacific Ocean NINO3.4 area now exceed 1.5C degrees above average, meeting the strong El Nino criterion. All climate models strengthen the event further, between now and its likely peak around Christmas, with the majority of models forecasting an intense El Nino event for summer. In addition, a positive Indian Ocean Dipole event is now underway, which typically enhances the westerly flow of weather across New Zealand. The Southern Ocean should also periodically throw some stormy, cold, and unsettled bursts of wind and weather across the South Island through October, reinforcing the westerly pattern. Due to the windy September, the local Tasman Sea marine heat-wave has now ended, with sea surface temperatures currently near average, to a touch cooler than average, around the New Zealand coastline. This means that a marine heatwave will NOT be factor in our late spring or early summer weather patterns.
October 2023 Outlook — The hallmark of El Nino in New Zealand is a cold spring. August ran much colder than usual, nationally, and the forecast for October is also much colder than usual. Expect a colder than average October across the country, with the exception of Nelson, Marlborough, Canterbury, Gisborne and Hawkes Bay. In those regions, monthly temperatures likely end up ‘about average’ BUT expect abnormal spring temperature swings between extreme heat during foehn warming in the westerlies, and intermittent cold blasts and even some high-country snowfalls. This week, high pressure brings a relatively dry week. For the rest of October, a stronger than normal ridge is predicted over Northland, coupled with stormy, unsettled westerlies across the South Island. In between, stronger than usual westerlies are forecast – it looks likely to be a windier than normal October. Rainfall is expected to be normal to above normal along the West Coast South Island, and in Southland. For regions in the northeast of both Islands, below normal rainfall is forecast (Northland, Auckland, Coromandel, Bay of Plenty, Taupo, Waikato, and Waitomo, also Nelson, Marlborough and Coastal Canterbury). For Gisborne and Hawkes Bay, a burst of rain this weekend is then followed by drier westerlies (e.g. normal to below normal rainfall for October as a whole). Elsewhere, near normal October rainfall is forecast.
The Gas Market
Gas prices were flat in September closing unchanged at $10.6/GJ. Prices are still currently about 10% lower than they were at the same time last year.
On the supply side, Maui output was down again in September – averaging just over 90 TJ/day (down 10%). Pohokura was also down slightly, averaging 77TJ/day (-4%) as was Kupe averaging 51TJ/day – also down 4%. Offsetting some of that loss, McKee / Mangahewa was up at around 79TJ/day in September (+3% from August levels).
The following graph shows production levels from major fields over the last 4 years.
On the demand side, Methanex Motonui’s usage remained lower than usual at the start of September, increasing to around 135TJ/day later in the month. Huntly power station gas use averaged around 87TJ/day early before dropping back to less than 60TJ/day when the rain came through later in the month. TCC continued to be used at similar levels to August, averaging 34.5TJ/day.
The following graph shows trends in the major gas users over the last 4 years.
After their recent falls, global energy prices flattened out and were quite stable in September. They continue to be at levels above what we would have considered to be high only 2 years 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 ended the month at $16.63GJ – up almost 20% from last month, however forecast 2023 netback prices are $19.78 – down 2% on what the ACCC was forecasting in August. Forecast prices for 2024 are now sitting at $20.27 – down 14% compared to August.
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 in September were flat, ending the month at US$155/T – a 0.6% decrease on the August close. 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 several 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 $82 and $33 respectively, however they are going to increase in December after the Government recently accepted the Climate Change Commission’s recommendations to tighten the auction scheme. Carbon prices eased through September falling to $65.6 – down 8% over the month.
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 decreased in September to 82 Euro/tonne – down 3%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
Market Update August 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased again through August. Average spot prices ranged from $131 in the lower South Island (up from $108 in July), up to $149 in the upper North Island (up from $120).
The following chart shows average weekly spot prices over the last 2 years. The gradual increase through August can be clearly seen.
Electricity Demand
Electricity demand in August was higher than it has been in recent years as shown in the graph below.
Electricity Generation Mix
Higher demand led to increased hydro generation in August while thermal generation maintained the higher output observed in July.
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.
August saw northward transfer maintained at similar levels to July with a small amount of southward transfer also occurring.
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 up during August but particularly CY 2024 which finished at $168.5 (+10%). CY 2025 was at $164/MWh (+1%) while CY 2026 prices was up 3% at $165.
All the big generators presented their annual reports in August at which they discussed their plans for new generation. A number were already known about while others are yet to have firm commitments. Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were below average in the South Island through August. Transpower has not updated NI inflows since the last market report in July, however we can assume by the rate that Taupo storage has fallen that inflows are well below average for the time of year.
Energy storage levels in New Zealand’s main hydro storage lakes continued the sharp fall that we have observed since the middle of June. Storage in August has dropped quickly, ending the month at 2,468GWh or 55% full, down 727GWh. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks increased in August with storage levels falling quickly. We are now below the level we would typically expect to see for this time of year; however, we remain well above the risk zones. This is shown in the following risk curves. Note that the risk curves for next year are much higher than they are this year. There are a number of factors that would have contributed to this change, but one is likely to be the retirement of TCC gas fired generation due early next year, while another could be the unplanned outage at Huntly unit 5, with repairs not expected to be completed until May 2024. Increasing winter demand may also be contributing.
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 that the snowpack in the important Waitaki catchment is currently close to mean levels seen in the last 30 years for this time of year. Note this has not been updated since the middle of August.
Climate outlook overview (from the MetService)
Climate Drivers — The United States weather agency NOAA declared the start of El Niño conditions with the potential for a significant event by summer, while their Australian counterpart BoM is likely to confirm onset over the coming weeks. Despite this discrepancy, New Zealand is likely to see continuing El Niño-related impacts over the coming months, which include a more active and volatile westerly flow. This may be bolstered by a Positive Indian Ocean Dipole event, which is now looking likely to develop this spring which would enhance the westerly flow of weather across the country.
September 2023 Outlook — Spring begins with a subtropical low driving southwards across the upper North Island, with heavy easterly rain likely for those regions. Meanwhile, high pressure reigns supreme further south with below average rainfall likely over the South Island. Temperatures should trend well above average in the north, while southern regions see cold and frosty mornings followed by pleasant afternoons under largely blue skies. The second week of September sees high pressure depart eastwards, which allows a build-up of westerly fronts to sweep across the country. These features will generally be quick-moving, with most regions seeing near-average rainfall and temperatures. However, the southern part of the South Island may trend slightly drier (and warmer) as weak ridging attempts to build in-between the fronts. A weak low pressure anomaly returns across the South Island and part of the North Island during the third week of the month, indicating a slightly more active southwesterly weather pattern. An uptick in quick-moving fronts bringing bursts of heavy rain, wind and potentially late-season snow about higher-levels is possible, along with temperatures trending a bit below average with a possible cold snap. This anomaly moves offshore during the final week of the month, with New Zealand likely to see a mix of weak westerly fronts and drier weather. Cool mornings are likely to persist as the month of September comes to an end.
The Gas Market
Gas prices increased 20% in August closing at $10.6/GJ. Prices are still currently about 11% lower than they were at the same time last year.
On the supply side, Maui output was down – averaging just under 100 TJ/day (down 10%). This included a 2-day total shutdown in the middle of the month. Offsetting some of that loss, McKee / Mangahewa was up at around 77TJ/day in August (+7% from July levels).
Pohokura’s output was flat, averaging 80TJ/day while Kupe maintained its July output of around 53TJ/day.
The following graph shows production levels from major fields over the last 3 years.
On the demand side, Methanex Motonui’s usage remained lower than usual with the gas swap agreement they have with Genesis (owner of Huntly) over winter reducing the amount of gas it has available to produce methanol. Consumption was steady in August averaging 94TJ/day – slightly more than half of June usage. Huntly power station gas use averaged 72TJ/day, slightly down from 76TJ/day used in July. TCC continued to be used but at slightly reduced levels through August, averaging 34.5TJ/day, down from about 40TJ/day in July.
The following graph shows trends in the major gas users over the last 3 years.
After their recent falls, global energy prices reversed the trend and increased slightly in August. They continue to be at levels above what we would have considered to be high only 2 years 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.
Australian LNG netback prices ended the month at $13.93GJ – down 5% from last month. Forecast 2023 netback prices are $20.17 – up 4% on what the ACCC was forecasting in July. Forecast prices for 2024 are now sitting at $23.67 – up 17% compared to July.
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 in August drifted higher, ending the month at US$156/T – a 15% increase on the July close. 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, though the gap is closing.
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 several 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 $82 and $33 respectively however they are going to increase in December after the Government recently accepted the Climate Change Commission’s recommendations to tighten the auction scheme. Carbon prices continued to climb through August reaching $70.85 – up a further 24% over the month.
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 decreased in August to 85 Euro/tonne – down 4%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
Market Update July 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased significantly in the last 2 months. Average spot prices for July ranged from $108 in the lower South Island (up from $54 in May), up to $120 in the upper North Island (up from $65).
The following chart shows average weekly spot prices over the last 2 years. The big price drop through May can be clearly seen, with prices recovering since then.
Electricity Demand
Electricity demand in June and July remained in line with recent years – at expected winter levels.
Electricity Generation Mix
Increasing demand in June was initially largely picked up by more hydro generation as inflows and storage remained high, however later in the month and through July hydro started to reduce, with thermal generation picking up to meet demand.
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.
June saw increasing northward transfer at the start of the month, however this dropped away steeply at the end of June and into July, with a small amount of southward transfer also occurring in July. This reflects reduced SI inflows and lower storage resulting in less 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 June / July. CY 2024 finished at $153 (+0.5%). CY 2025 was flat at $162/MWh (0%). CY 2026 prices were also flat at $160.
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were high in both the North and South Islands at the start of June but fell to close to expected levels in the North Island for the rest of June and through July. The South Island followed a similar pattern but dropped to below average levels later in June and in July.
Energy storage levels in New Zealand’s main hydro storage lakes increased at the start of June, briefly going above the nominal full level across all catchments. From there storage has dropped quickly, ending July at 3,195GWh or 70% full, down 1,297GWh over the 2 months. The following chart shows the latest breakdown of storage across the main hydro catchments.
Security of supply risks increased in June / July with storage levels falling quickly but remaining above what we typically expect to see for this time of year. We 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 that, with some unseasonably warm weather, the snowpack levelled off during June / early July before increasing again in the middle of July. Snowpack in the important Waitaki catchment is currently close to mean levels seen in the last 30 years for this time of year.
Climate outlook overview (from the MetService)
Climate Drivers — The United States weather agency NOAA declared the start of El Niño conditions with the potential for a significant event by summer, while their Australian counterpart BoM is likely to confirm onset over the coming months. Despite this discrepancy, New Zealand is likely to see El Niño-related impacts over the coming months, which include a more active and volatile westerly flow. This may be exacerbated by a developing Positive Indian Ocean Dipole, which also promotes a westerly flavour across the country.
August 2023 Outlook — August starts with a bang (as July did), with yet another cold southwesterly outbreak over the next couple of days. Generally stormy and wintry weather with severe westerly winds are possible for many regions of the country, and snow to low levels for the bottom of the South Island. Cold southwesterlies should slowly ease during the second half of this week as a large high pressure system builds across the country from the west. Chilly mornings are in store for many places, as this high locks in the cold through much of next week too, and settled conditions dominate for an extended period. However, just how strong this high pressure holds will determine how dry it remains around the upper North Island, as some models hint at a wetter interlude around the 10th and 11th of this month due to a north Tasman Sea low. If this low ends up closer to our shores, that could result in a nearer normal rainfall for the upper North Island. This large, slow-moving high could start to move away to the east around mid-month, opening the door to Tasman Sea and Southern Ocean weather makers again. These westerly features should favour the South Island West Coast in terms of active weather, weakening as they move northwards across New Zealand with rainfall returning to near-normal conditions for much of New Zealand for this time of the year. A few cold outbreaks remain possible during the last couple of weeks of August as well, with late season snow a distinct possibility.
The Gas Market
Gas prices decreased 6% in June and were flat through July, the 30-day rolling average price closing at $8.9/GJ. Prices are still currently about 35% lower than they were at the same time last year.
On the supply side, Maui output maintained close to 110TJ/day for most of June and July just dropping off to around 100TJ/day late in July. McKee / Mangahewa averaged around 72TJ/day in July (down 15% from May levels).
Pohokura’s output was flat, averaging 79TJ/day while Kupe bounced back from lower June levels back to around 53TJ/day for most of July.
We are now starting to see the benefits from recent and on-going drilling campaigns. Todd Energy has completed the drilling programme at Mangahewa and has now moved the drilling rig to Kapuni. OMV is also continuing its Maui drilling program, expected to continue until the end of 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 steady in June averaging 174TJ/day, however a planned shutdown reduced consumption to less than 100TJ/day in July. Huntly power station gas use picked up over the 2 months from less than 40TJ/day at the start of June, up to close to 90TJ/day at the end of July. TCC was also used in anger for the first time in almost a year – averaging about 40TJ/day in July.
The following graph shows trends in the major gas users over the last 3 years.
After their recent falls, global energy prices flattened out somewhat in June and July but continue to be at levels above what we would have considered to be high only 2 years 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 increased in July for the first time in several months. They ended the month at $14.71GJ – up 22% from last month. Forecast 2023 netback prices are $19.33 – up 3% on what the ACCC was forecasting in May. Forecast prices for 2024 are now sitting at $20.22 – up 19% compared to May.
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 in June and July stayed in a narrow band of US$125/T to $140/T. They ended the month at US$135/T – a 4% increase on the May close. 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, though the gap is closing.
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 several 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 $82 and $33 respectively.
After earlier rejecting them, in late July the Government accepted the Climate Change Commission’s recommendations to tighten the auction scheme. They have reduced the number of units available at auction annually from 23 million this year to 12.3 million in 2028. The guardrails have also been increased from $33 to $60 for the lower level, and the upper guardrail is split into 2 tiers – the first trigger is set at $173 (up from $82) and the new tier 2 level at $216. The new prices come into effect in December this year with the triggers rising each year. Before the announcement carbon prices had dropped to $35/t, immediately after they increased to $65 before falling back to $57/t as shown below.
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 increased in June to 88 Euro/tonne – up 9% and was flat in July.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
Market Update May 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market again dropped significantly in May compared to April. Average spot prices for the month ranged from $54 in the lower South Island (down from $76), up to $65 in the upper North Island (down from $98).
The following chart shows average weekly spot prices over the last 2 years. The price drop through May can be clearly seen with prices dropping to less than $20 at the end of the month.
Electricity Demand
Electricity demand in May remained in line with recent post-Covid years at the start of May but then increased with some unseasonably cool weather in the middle of the month before returning to normal later in May.
Electricity Generation Mix
Increasing demand in May was largely picked up by more hydro generation as inflows and storage remained high.
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.
May saw high northward transfer being maintained 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 reduced during May. CY 2024 finished at $152 (-10%). CY 2025 was also down, ending the month at $162/MWh (-6%). CY 2026 prices also dropped 6% to $160.
Known new generation projects are shown below (additions / removals highlighted in bold).
Hydro Storage
Inflows were high in both the North and South Islands through May continuing the trend of higher-than-expected inflows this year especially in the NI.
Energy storage levels in New Zealand’s main hydro storage lakes increased in May. Storage ended the month at 4,492GWh or 99.5% full, up 799GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.
Security of supply risks decreased in May with storage levels approaching maximum – 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 that there were some significant snow falls during May and that snowpack in the important Waitaki catchment is currently well above the maximum levels seen in the last 30 years for this time of year.
Climate outlook overview (from the MetService)
Climate Drivers — An El Niño signal has started to form in the tropical Pacific Ocean, but the atmosphere has yet to catch up. Almost all climate models predict a full-blown El Niño in place by the end of winter, with many models forecasting a potentially significant El Niño.
June 2023 Outlook — Meteorological winter starts on a very unsettled note, with a transition from unsettled westerlies to a deep Low over NZ and cold southeasterly rain (falling as snow at higher elevations). This Low continues to affect NZ next week before yet another Tasman Sea trough or low comes barrelling towards northern parts of the country around mid-month. These systems are expected to be large and slow-moving, impacting many regions around the country as northwesterly rain turns easterly, hence the wet outlook for the east coast. Throughout the month of June, New Zealand will continually look towards the Tasman for rainmakers, and the risk of severe weather continues. Meanwhile, the South Island should see a mixture of quiet spells and intermittent westerlies, particularly during the latter parts of the month. Large temperature swings are expected this June. A cold snap kicks in later this week, and continues through next week. Tasman Sea weather systems are then likely to inject milder air back onto the country, bringing a milder period mid-month. Overall, while June should end up on the warmer side of the ledger, frosts, snowfalls, and cold outbreaks remain part of the equation.
The Gas Market
Gas prices increased slightly in May closing at $9.3/GJ – 4% up compared to April close. Prices are currently about 62% lower than they were at the same time last year.
On the supply side, most fields had slightly declining production through May, largely due to reducing demand for power generation. Maui output declined from around 120TJ/day to 105TJ/day at the end of the month. McKee / Mangahewa averaged around 85TJ/day (down 6%).
Pohokura increased output slightly, averaging 79TJ/day while Kupe was down slightly averaging 47TJ/day in May.
We are now starting to see the benefits from recent and on-going drilling campaigns. Todd Energy has completed the drilling programme at Mangahewa and has now moved the drilling rig to Kapuni. OMV is also continuing its Maui drilling program, expected to continue until the end of 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 steady in May averaging 177.5TJ/day. Huntly power station declined through the month – starting at 72TJ/day and ending the month at less than 40TJ/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 May, ending the month at $13.77GJ – down a further 12% from last month. Forecast 2023 netback prices are $18.77 – down 11% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $17 – down 22% compared to April.
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 in May fell steeply ending the month at close to US$130/T – a greater than 30% drop. 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, though the gap is closing rapidly.
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 several 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 May prices increased slightly to $55/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 again in May to 81 Euro/tonne – down 6%.
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
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/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2023. Smart Power Ltd
Market Update March 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market were relatively flat in March compared to February, however they returned to the more typical pattern of lower prices the further South you went. Average spot prices for the month ranged from $135 in the lower South Island to $158 in the upper North Island.
The following chart shows average weekly spot prices over the last 2 years. The recent price separation between the lower SI and the NI can be clearly seen.
Electricity Demand
Electricity demand in March remained low compared to recent years until the end of the month when demand increased markedly coinciding with some cooler weather.
Electricity Generation Mix
Low hydro inflows meant that during March thermal generation remained at the higher levels seen over the last couple of months 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 also 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.
March saw increased northward transfer and very little southward transfer throughout the month indicating reduced NI hydro inflows and increased SI hydro generation to compensate.
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 decreased slightly during March. CY 2024 finished at $168 (-3.5%). CY 2025 decreased, ending the month at $172/MWh – a 1.4% loss. CY 2026 prices also dropped 1.7% to $172.
There were a few new supply announcements this month – mainly solar. Known new generation projects are shown below (additions highlighted in bold).
Hydro Storage
Inflows were above average for the South Island during March and returned to close to average in the North Island after the very high levels we have seen in the last few months.
Energy storage levels in New Zealand’s main hydro storage lakes increased in March. Storage ended the month at 4,041GWh or 91% full, up 451GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.
Security of supply risks reduced through March with some high inflows resulting in storage increasing to well above what we typically expect to see for this time of year. We are well above the risk zones and not far from spilling in some catchments. This is shown in the following risk curves.
Snow Pack
Snow pack 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 snow pack in the important Waitaki catchment has fallen to below the 25th percentile for this time of year, meaning that there is not the same amount of water stored as snow pack as we would normally have in March.
Climate outlook overview (from the MetService)
Climate Drivers — La Nina has officially ended. Neutral El Niño Southern Oscillation (ENSO) conditions are expected to persist through autumn, allowing our local climate drivers close to New Zealand to exert their influences through the remainder of autumn into early winter. This includes the Southern Annular Mode (SAM), a measure of Southern Ocean storminess, which point towards continued westerlies for the South Island but interspersed with periods of settled conditions under slow-moving high pressure. Climate prediction models are increasingly pointing towards El Nino developing towards the latter half of winter and into spring, which would signal a colder and more unsettled spring as frequent southwesterlies spread across the country.
April 2023 Outlook — April temperatures are expected to yo-yo, likely ending up on the warmer side of the ledger, overall, for the South Island and lower half of the North Island, but near average for Taupo northwards. A front crossed over the country during the weekend of 1,2 April, bringing brief rainfall to western regions and a risk of thunderstorms in the north. Generally settled weather follows as high pressure takes hold over the country, with warm afternoons but cooler mornings, and the possibility for frosts before sunrise. A more potent low with accompanying northerly fronts moves slowly onto the country from the south Tasman Sea during week two, and could bring notable rainfall accumulations to the West Coast of the South Island with diminishing amounts elsewhere. Variability increases from mid-month onwards, as westerly systems become more commonplace again, interspersed with narrow ridges of high pressure. Temperature flips will become more likely as warm northerlies change cooler southwesterlies. The final week of April shows hints of a more southwesterly flavour to the weather maps, which could bring about an increased risk of wintry cold snaps and snow events. Overall, near normal April rainfall totals are forecast for many regions, with the exception of the northeast of both Islands (with normal to above normal totals forecast).
The Gas Market
Gas prices increased throughout March closing at $12.3/GJ – 19% up on February close. Prices are currently about 32% lower than they were at the same time last year.
On the supply side Maui continued its strong level of production through March. Average output was 103TJ/day – down 6%, however the last week of the month it averaged 124TJ/day. McKee / Mangahewa also had a step increase in production, increasing from around 70TJ/day at the start of the month, to well above 90TJ/day in the middle of March.
Pohokura reduced output slightly, averaging 86TJ/day while Kupe maintained the higher levels seen towards the end of January – averaging 54TJ/day in March.
Hopefully we are now starting to see some of 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 down in March averaging just under 170TJ/day. Huntly power station maintained the increased gas usage seen in February, averaging 66TJ/day through March.
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 a number of years had already resulted in price increases, before the conflict in Europe accelerated those impacts.
LNG netback prices continued to decline in March, ending the month at $17.5GJ – down 20% from last month. Forecast 2023 netback prices are $22.83 – up 3% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $21.82 – up 11% compared to February.
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 flattened out during March ending the month at $US194/T, up 4%.
These prices remain well 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 stock piles 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 March prices decreased $6.5 to $59.25/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 $75/t is estimated to currently add about $37.5/MWh (or ~3.75c/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 March to 90.5 Euro/tonne – down 1%.
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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