Category: Market Update

Market Update February 2023

March 8, 2023 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased markedly again in February. Average spot prices for the month ranged from $142.5 in the central North Island to $153 in the upper South Island. High upper North Island rainfall and very low South Island rainfall broke the typical pattern of lower prices in the lower SI and higher in the Upper NI.

The following chart shows average weekly spot prices over the last 2 years. The rapid increase in prices over the last 2 months can be clearly seen.

Electricity Demand

Electricity demand in February rose early on before falling away towards the end of the month. As noted for the last few months, demand levels have reduced to close to the lowest levels seen in the last few years.

Electricity Generation Mix

Low SI hydro inflows meant that during February thermal generation remained at the higher levels seen towards the end of January as shown below.

HVDC Transfer

Power transfers on the HVDC link connecting the North and South Islands are important in showing relative hydro positions and 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.

February saw substantially reduced northward transfer and increased southward transfer throughout the month.

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 February. CY 2024 finished at $174 (-5%). CY 2025 decreased, ending the month at $174.5/MWh – a 4% loss. CY 2026 prices also dropped 3% to $175.

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 remained well above average in the North Island during February particularly in the middle of the month when Cyclone Gabrielle rolled through. The South Island picked up a week of higher inflows before returning to the very low levels seen in recent months

Energy storage levels in New Zealand’s main hydro storage lakes increased in February. Storage ended the month at 3,590GWh or 81% full, up 194GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.

Security of supply risks has reduced slightly through February with some mixed inflows resulting in storage staying close to what we typically expect to see for this time of year. We are still well above the risk zones, however, if storage returns to dropping at rates seen recently it will not take long to eliminate this buffer. 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 25^th 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 February.

Climate outlook overview (from the MetService)

Climate Drivers — La Niña is almost out the door, with climate models predicting neutral El Niño Southern Oscillation (ENSO) conditions through autumn. This means that local climate drivers close to New Zealand will be in charge of our weather maps in the coming months. The tropics remain active this week, with Tropical Cyclone Judy tracking southeast out of the tropics but staying well clear, to the northeast of New Zealand. Another tropical low also has a high chance of developing into a tropical cyclone from Friday 3 March. This system is expected to then follow a similar path to TC Judy. At the time of writing, neither system is expected to have significant impacts on New Zealand (but keep up to date at www.metservice.com/warnings/tropical-cyclone-activity). Instead, the major player for New Zealand for March will be the Southern Annular Mode (SAM), a measure of Southern Ocean storminess. The SAM is forecast to change to a negative phase for most of March, meaning a major regime shift to unsettled westerlies over the country. Sea surface temperatures remain well above average around the South Island but have yo-yoed in the vicinity of the North Island recently (from above average to below average and back again).

March 2023 Outlook — Southerlies prevail this week, with an unsettled westerly regime predicted for the 2nd and 3rd week of March. By the end of the month, we may see a High across New Zealand (lower confidence). The westerlies result in increased March rainfall across the west and south of the South Island (normal or above normal totals), with near-normal monthly totals predicted for western parts of the North Island. In contrast, below-normal March rainfall totals are forecast for northern and eastern areas of the North Island – welcome news for these saturated regions for the ongoing cleanup. Near normal monthly tallies are forecast for eastern Otago and Canterbury. Above-average March temperatures, overall, are forecast for all South Island regions – noting that this is the time of year when fogs and frosts make themselves felt. In contrast, North Island temperatures are forecast to end up slightly cooler than average (near average to below average).

The Gas Market

Gas prices increased at the start of February, peaking at around $12.8/GJ before falling later in the month, closing at $10.1/GJ – 5% down on January close. Prices are currently about 19% lower than they were at the same time last year.

On the supply side Maui continued its strong level of production through February. Average output was 110TJ/day – up 10%, while it peaked at 130TJ on the 22^nd. Pohokura had a period of reduced production at the start of the month before returning to around 95TJ/day – down 5% from average January levels.

McKee / Mangahewa output increased to around 73TJ/day (up 11 from last month). Kupe maintained the higher levels seen towards the end of January – averaging 53TJ/day in February.

Hopefully, we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Todd Energy is more than halfway through a drilling programme at Mangahewa, and once completed they plan to move the drilling rig to Kapuni in early 2023. OMV is also continuing its Maui drilling program, expected to continue into the second quarter of 2023.

A big announcement at the end of February was that OMV is looking to divest its NZ assets. OMV currently owns 100% of Maui and 74% of Pohokura – the 2 biggest producing fields making up more than 50% of NZ’s current production. This raises concerns about who will buy them and what level of investment will be put into maintaining output into the future? If a buyer cannot be found how motivated will OMV be to maintain current investment levels?

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 maintained the high levels seen since towards the end of November last year, averaging just under 180TJ/day. Huntly power station maintained the increased gas usage seen at the end of January, averaging 63TJ/day through February.

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 sharply in February, ending the month at $21.75/GJ – down 35% from last month. Forecast 2023 netback prices are $22.18 – down a further 14% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $19.71 – down 13% compared to January.

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices continued recent falls during February ending the month at $US187/T, down over 20% and down more than 50% from what it was at the start of the year.

These prices still 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 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 a continuation 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 $70 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 February prices decreased $6.75 to $65.75/t – slightly below the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 increased again in February to 91 Euro/tonne – up 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.

Market Update January 2023

February 8, 2023 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased markedly in January. Average spot prices for the month ranged from $109 in the central North Island to $122 in the upper South Island. High upper North Island rainfall and very low South Island rainfall broke the typical pattern of lower prices in the lower SI and higher in the Upper NI.

The following chart shows average weekly spot prices over the last 2 years. The rapid increase in prices over the last month can be clearly seen.

Electricity Demand

As people returned from summer holidays, electricity demand in January started to increase. As noted last couple of months, demand levels have reduced to close to the lowest levels seen in the last few years.

Electricity Generation Mix

The increase in demand, low SI hydro inflows and poor wind all contributed to increased levels of thermal generation being needed through January 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.

January saw substantially reduced northward transfers and even some southward transfers at the end of the month.

The Electricity Futures Market

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 January. CY 2024 finished at $183 (-5%). CY 2025 decreased, ending the month at $182/MWh – a 2.5% loss. CY 2026 prices also dropped 1.3% to $180.6.

There were no new supply announcements this month, but there were stories of problems with getting new projects up and running, with either budget blow-outs or delays, or both. Known new-generation projects are shown below.

Hydro Storage

Inflows remained well above average in the North Island during January, however South Island inflows plummeted to very low levels – less than 50% of average for this time of the year at the end of the month.

Energy storage levels in New Zealand’s main hydro storage lakes decreased again in January. Storage ended the month at 3,559GWh or 81% full, down 439GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.

Security of supply risks has increased through January with very low SI inflows resulting in storage falling to close to what we typically expect to see for this time of year. We are still well above the risk zones, however if storage continues to drop at current rates it will not take long to eliminate this buffer. This is shown in the following risk curves.

Snow Pack

Climate outlook overview (from the MetService)

Climate Drivers — Sea surface temperatures in the central Pacific Ocean continue to gradually warm, and expectations are that the El Niño Southern Oscillation (ENSO) will finally move into neutral territory during February with the current La Niña event drawing to a close. However, the atmosphere typically has a lagged response to the oceans, so we will still see the fingerprints of La Niña on our weather maps into Autumn, with more north-easterly winds than normal the most obvious signature of this. The Southern Annular Mode (SAM) remained strongly positive last month, but signs that we may be headed towards some more variability through February with negative phases signalled. This gives us a good chance of seeing an uptick in rainfall across South Island, much of which has been running dry for several months under persistent belts of high pressure.

February 2023 Outlook — Tropical moisture streams across the country from the north for the start of February, with the South Island getting involved in the heavy rainfall action for the first time in some while. Indeed, the West Coast may well see impacts from heavy and thundery rain through the end of this week, whilst useful rainfall will spread across and east of The Divide at times too for the thirsty soils here. The final front in this barrage crosses North Island on Monday, flushing away the tropical moisture to the east and heralding a much cooler, less humid and drier week for both islands next week. However, this more settled spell won’t last for long, and the back half of February looks rather volatile with systems approaching the country from both the sub-tropics and the Southern Ocean. Expect both islands to pick up rainfall with prolonged settled spells at a premium. The upper and central North Island remain most at risk of seeing further bursts of very heavy rainfall too, recalling we are still well within the tropical cyclone season.

The Gas Market

Gas prices decreased through much of January before rebounding at the end of the month, closing at $10.7/GJ – 1% up on December close. Prices are currently about 7% lower than they were at the same time last year.

On the supply side Pohokura continued at the increased production levels seen over the last few months – consistently producing just under 100TJ per day. Maui production increased significantly – averaging just under $100TJ/day – up from 68TJ/day last month, and peaking at 115TJ/day at the end of the month.

McKee / Mangahewa output reduced to around 62TJ/day (down 8 from last month). Kupe decreased production for the first half of the month to 40- 50TJ per day before increasing to about 56TJ/day at the end of January.

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 maintained the high levels seen towards the end of November, averaging 180TJ/day. Huntly power station increased gas usage through the month rising to over 70TJ/day towards the end of the month. Stratford Peaker also started up in the middle of the month, at times using more than 30TJ/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 12 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 reversed the price increases of last month, decreasing in January, ending the month at $33.42/GJ – down 19% from last. Forecast 2023 netback prices are $25.76 – down 25% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $22.61 – down 27% compared to December.

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices dropped considerably during January ending the month at $US236/T, down over 40%.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

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 $70 and $30 respectively. Over the last few years the Carbon Price through the ETS has climbed as shown in the following graph. In January prices decreased $2.25 to $72.5/t – still above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 increased again in January to 87.76 Euro/tonne – up 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

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.

Market Update December 2022

January 9, 2023 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased again in December. Average spot prices for the month ranged from $12.5 in the lower South Island ($29.5 in November), to $19 in the upper North Island ($47 in November).

The following chart shows average weekly spot prices over the last 2 years. Prices are currently as low as they have been over the last 2 years – particularly in the South Island.

Electricity Demand

As the weather warmed up and businesses closed up for the festive season, electricity demand in December continued to drop. As noted last month demand levels have reduced to close to the lowest levels seen in the last few years.

Electricity Generation Mix

The fall in demand as we headed into December meant there was a reduced requirement for generation overall. Hydro generation remained high and with improved wind there was less requirement for thermal generation.

HVDC Transfer

December saw high northward transfer with no requirement for any southward transfer during the month.

The Electricity Futures Market

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 increased significantly during December. CY 2023 prices closed at $200 – a 20% decrease for the month. CY 2024 finished up at $193 (+9%). CY 2025 increased ending the month at $186.5/MWh – a 6.5% gain. CY 2026 prices also rose 6.5% to $183.

There were some announcements for new solar farms planned to be on-line by 2024. Known new generation projects are shown below – with additions highlighted in bold.

Hydro Storage

Inflows remained above average in the North Island during December. In the South Island inflows were slightly below average for the month

Energy storage levels in New Zealand’s main hydro storage lakes decreased through December. Storage ended the month at 3,998GWh or 91% full, down 274GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments (from when it was last reported in mid-Dec).

Security of supply risks are minimal at the moment with high levels of water storage, reduced demand, and as we move through the period where hydro inflows are typically higher. 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, published by Meridian, has not been updated since what we presented it last month.

Climate outlook overview (from the MetService)

Climate Drivers — La Niña conditions continue in the tropical Pacific and are expected to persist in January with the weather maps true toLa Niña conditions continue in the tropical Pacific and are expected to persist in January with the weather maps true to form; think higher than normal pressure across South Island and more frequent humid, north-easterly winds nationwide. A gradual warming of sea surface temperatures in the central Pacific has occurred over recent weeks though and neutral conditions are forecast by the end of Summer, waving goodbye to La Niña slightly earlier than normal. La Niña normally peaks in late Summer. The Southern Annular Mode (SAM) continues to be overwhelmingly and strongly positive this month, re-enforcing the La Niña signal for higher than normal pressures across southern NZ.

January 2023 Outlook — The tropics have fired up for the start of January and a couple of notable weather systems from the north mean the fine summer weather of late December has abandoned us…for now. Humid northeast winds have brought showers and rain across the country over recent days, with spots in the Coromandel seeing over 200mm of rain in the last couple days and parts of the Peninsula cut off due to road closures. Northland, and parts of northern Tasman have also recorded notable totals. This system clears away on Sunday, but the reprieve will be brief for North Island. Another significant sub-tropical low is likely to cause more disruption across northern and central New Zealand next week with gales and heavy rain threatening similar areas on Tuesday and Wednesday. The wet theme continues for North Island next week then, whilst the lower South Island sees the best chance of more settled and drier weather with a ridge developing tomorrow and clinging on here.

As we head towards mid-month there is promise of more typical settled summer weather. High pressure looks likely to become well established right across the country and the tropics quietens down. Much like late 2022, widespread sunshine and plenty of dry weather is on the cards but beware of afternoon showers popping up on the hills and ranges. High pressure could well hold into the final week of the month, but the expectation is that it will gradually slide to the south-east, so we may open the door to a weather system from the Tasman Sea.

Temperatures continue to run warmer than average overall, with western and inland areas most likely to see bigger departures from normal. Onshore eastern areas, often more exposed to winds, rain and cloud may be cooler at times, especially by day over the first half of the month.

The Gas Market

Gas prices decreased through December ending the month at $10.5/GJ – 17% down on November. Prices are currently about 9% higher than they were at the same time last year.

Note in the following supply and demand information, data was only available until the 20^th December.

On the supply side Pohokura continued at the increased production levels seen over the last few months – consistently producing just under 100TJ per day. Maui production reduced, averaging 68TJ/day, down from 80.

McKee / Mangahewa maintained output, up to close to 70TJ per day for most of the month. Kupe increased production to about 56.5TJ/day up from 40-50TJ/day at the end of November.

Hopefully we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Todd Energy is more than halfway through a drilling programme at Mangahewa, and once completed they plan to move the drilling rig to Kapuni in early 2023. OMV is also continuing its Maui drilling program, expected to continue into the second quarter of 2023.

The following graph shows production levels from major fields over the last 3 years.

On the demand side, Methanex Motonui’s usage dominated all other gas users. Consumption maintained the high levels seen towards the end of November, averaging 180TJ/day. Huntly power station was the next biggest user averaging only 18.5TJ/day. TCC has not used any gas since the middle of August.

The following graph shows trends in the major gas users over the last 3 years.

LNG netback prices increased in December ending the month at $41.11/GJ – up 22% from last month but not as high as some were expecting as we move through the northern hemisphere winter. Forecast 2023 netback prices are $34.37 – down 20% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $31.09 – down 6% compared to November.

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 were flat during December ending the month unchanged at close to $US400/T.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Like gas, the price of coal can flow through and have an impact on the electricity market.

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 $70 and $30 respectively. Over the last few years the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In December prices decreased $6.25 to $74.75/t – still above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 increased in December to 83.75 Euro/tonne – up 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

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.

Market Update November 2022

December 5, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased in November. Average spot prices for the month ranged from $29.5 in the lower South Island ($68 in October), to $47 in the upper North Island ($76 in October).

The following chart shows average weekly spot prices over the last 2 years. Prices are currently as low as they have been over the last 2 years – particularly in the South Island.

Electricity Demand

Electricity demand in November continued to drop but was close to what we would normally expect to see for this time of year. At the end of the month demand dropped to below levels seen over the last few years. We expect demand to continue to decline as we head towards the Xmas break.

Electricity Generation Mix

The fall in demand as we headed into summer meant there was a reduced requirement for generation overall. Hydro generation was lower to start the month resulting in an increase in thermal generation, but higher inflows in the middle of the month meant that thermals could back off as shown in the following graph. Wind generation was low in the middle of November also impacting thermal generation.

HVDC Transfer

November saw increased SI inflows and storage, resulting in increased northward transfer and very little southward transfer during the month.

The Electricity Futures Market

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 continued the decline that began in the middle of October. CY 2023 prices closed at $166 – a 22% decrease for the month. CY 2024 finished down at $177 (-11%). CY 2025 decreased ending the month at $175/MWh – a 4% drop. CY 2026 prices also dropped through the month, closing down 8.5% at $172.

There were some announcements of new or changed supply during the month – including NZ Windfarms looking to repower its Te Rere Hau windfarm increasing capacity from 46MW to 126MW, and Eastland Energy announcing a pipeline of solar and geothermal projects adding around 200MW. However, these projects are not confirmed as yet. Known new-generation projects are shown below.

Hydro Storage

Inflows remained above average in both Islands during November with some very high inflows occurring in the South Island in particular at the start of the month.

These high inflows meant that energy storage levels in New Zealand’s main hydro storage lakes increased through November. Storage ended the month at 3,661GWh or 96% full, up 141GWh over the month.

Security of supply risks are minimal at the moment with high levels of water storage, reduced demand, and as we enter the period where hydro inflows are typically higher. 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 that the snow pack reduced sharply during the month. Storage is now below the mean level seen in the last 30 years for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity).

Climate outlook overview (from the MetService)

Climate Drivers — La Nina conditions in the tropical Pacific persist and will continue to influence our weather maps, with a tendency for higher than normal pressure across South Island, and warm, humid northeasterlies nationwide. The Southern Annular Mode (SAM) is set to be mainly positive through much of December encouraging higher-than-normal pressure across the South Island. Sea surface temperatures around our coasts have dipped out of marine heatwave conditions but remain well above average and are likely to climb again where high pressure persists.

December 2022 Outlook — High pressure in the Tasman Sea holds a southwest regime across the country in the first week of December. Whilst this is fairly typical for the time of year, the orientation of the high and the prevailing winds make for a cool start to the summer months. Rainfall will be limited to passing showers until around the 8th when low pressure from the Tasman Sea is expected to bring a bout of wind and rain across the country. This system should also introduce a little warmer air too.

High pressure is then set to edge across of the country, promoting settled conditions. As this high edges east, and increasingly northeasterly wind bias is likely to develop with warmer weather and showers moving into eastern regions, especially in the north, and afternoon showers are likely to develop across inland North Island. We may see a brief unsettled interlude at this point before the next high moves in from the west with the same pattern, cool southwesterlies giving way to increasingly warm northwesterlies, mainly settled with a few showers.

As we look towards the new year, high pressure looks likely to remain in place across South Island, with warm, dry, settled conditions prevailing. Further north this is likely to be the case much of the time as well, although showers may punctuate an otherwise settled start to summer.

The Gas Market

Gas prices increased through November ending the month at $12.6/GJ – 10% up on October. Prices are currently about 14% higher than they were at the same time last year.

On the supply side, Pohokura continued at the increased production levels seen over the last few months – consistently producing around 100TJ per day. Maui production was also consistently close to 80TJ/day throughout the month.

McKee / Mangahewa improved output, up to close to 70TJ per day for most of the month – up 10%. Kupe was shut down for most of November, and when it returned late in the month it only produced 40-50TJ/day.

The following graph shows production levels from major fields over the last 3 years.

On the demand side, Methanex Motonui’s usage dominated all other gas users. Consumption averaged 150TJ/day, however towards the end of the month it was consistently using 185TJ/day. Huntly power station was the next biggest user averaging only 14TJ/day and dropping to even lower levels at the end of November. TCC has not used any gas since the middle of August.

The following graph shows trends in the major gas users over the last 3 years.

LNG netback prices dropped again in November ending the month at $33.74/GJ – down 24% from last month. Forecast 2023 netback prices are $42.97 – down nearly 30% on what the ACCC was forecasting 2 months ago. Prices for 2024 are also now being published, sitting at $31.09 at the moment.

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices increased during November ending the month back up close to $US400/T – up 14%.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Like gas, the price of coal can flow through and have an impact on the electricity market.

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 prices that act as the minimum and maximum prices. Currently, these are set at $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In November prices decreased $4 to $81/t – still well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 also reduced in November to 81 Euro/tonne – down 3% as demand for permits fell.

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

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.

Market Update October 2022

November 8, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased in October. Average spot prices for the month ranged from $68 in the lower South Island ($49 in September), to $76 in the upper North Island ($59 in September).

The following chart shows average weekly spot prices over the last 2 years. The significant drop in prices in the last few months is clearly visible on the far right of the graph, with an increase in the last few weeks also apparent.

Electricity Demand

Electricity demand in October remained close to the top end of what we have seen in recent years. We expect demand to continue to decline as we head towards summer.

Electricity Generation Mix

The fall in demand as we head into summer meant there was a reduced requirement for generation. This coincided with reduced inflows compared to recent months allowing hydro to reduce through the month as shown in the following graph. Thermal generation remained at the low levels seen in recent months.

HVDC Transfer

October saw reduced SI inflows and storage, resulting in reduced northward transfer and a small amount of southward transfer during the month.

The Electricity Futures Market

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 increased at the start of October and then fell back later in the month. CY 2023 prices closed at $214 – a 1% decrease for the month. CY 2024 finished higher at $199 (+1.5%). CY 2025 also increased ending the month at $182/MWh – an 8% increase. CY 2026 prices were produced for the first time in October. After starting at $154 they increased during the month to close at $188 – a 22% increase.

Known new-generation projects are shown below.

Hydro Storage

Inflows remained above average in the North Island during October, but below average in the South Island.

Despite reasonable inflows, energy storage levels in New Zealand’s main hydro storage lakes decreased through October. Storage ended the month at 3,520 GWh or 80% full, down 273 GWh over the month.

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 that snow pack stayed largely flat during the month. Storage remains close to the 75^th percentile level seen in the last 30 years for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity).

Climate outlook overview (from the MetService)

Climate Drivers — La Nina conditions in the tropical Pacific continue to influence our weather maps, with reduced incidence of usual spring westerlies, and a tendency for higher than normal pressure across South Island. In the short term, the Southern Annular Mode (SAM) has swung strongly negative of late, providing strong westerlies across the country as is classic for the time of year. Indian Ocean Dipole influence is expected to wane over the coming weeks with the more temporally variable Madden Julian Oscillation (MJO), a pulse of enhanced shower activity which migrates around the globe every 60 days or so, coming to the fore. Sea surface temperatures remain well above average around New Zealand and look likely to increase further under high pressure.

November 2022 Outlook — SAM – the Southern Annular Mode has swung strongly negative with a bang, bringing classically spring-like strong westerlies across Aotearoa. As these pile in with torrential rain for the West Coast, eastern regions will also see some spillover rain. The rain comes with humid air and elevated temperatures by both day and night. SAM swings back strongly positive late in the week, with high pressure returning to South Island bringing settled weather and lower temperatures.

Next week an area of low pressure from the northern Tasman Sea looks likely to bring a spell of wet and windy weather to North Island, whilst South Island hangs on to the high pressure which became so familiar in October. Once again the weather maps look heavily La Nina influenced.

The second half of the month likely sees a balancing act play out between the high pressure and settled weather in the south, and the more unsettled, showery conditions further north. Expect warmer-than-average conditions thanks to an increase in northeasterly winds. Those areas exposed to the north will likely pick up sporadic showers, or possibly bouts of rain tied to Tasman lows as the skirt the northern flank of the high. Just how far rain spreads across the country will come down to the relative strength of the highs as lows attempt to move in, and any boost that the MJO deigns to give lows forming to our northwest.

The Gas Market

Gas prices remained flat through October ending the month at $11.5/GJ – 2% down on September. Prices are currently about 4% higher than they were at the same time last year.

On the supply side, Pohokura continued at the increased production levels seen over the last few months but with more consistent daily output. Output averaged 104TJ – a 1% decrease on last month. Maui production, which had been constrained due to an extended outage, increased at the back end of October from around 60TJ/day up to closer to 80TJ/day at the end of the month. This is still well below the 100plus TJ/day achieved earlier this year.

McKee / Mangahewa output experienced some issues during the month with production down to close to 30TJ on some days. Overall it averaged around 63TJ/day – down 10%. Kupe maintained output at around 60TJ/day.

Hopefully, we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Apart from Pohokura, drilling programs are also currently ongoing at Maui and Mangahewa which will hopefully increase supply further in the coming months.

The following graph shows production levels from major fields over the last 3 years.

On the demand side, Methanex Motonui gradually increased consumption during October from around 155TJ/day at the start, up to 175TJ/day at the end of the month. Huntly’s gas usage decreased further during October. Its usage averaged 40TJ/day, down 26% on September. TCC did not generate at all for the second month in a row. Methanex Waitara was consuming around 6TJ per day at the start of the month but was shut down from the 12^th of October on. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during September as the ongoing lack of supply in Europe, brought on by the strong post-COVID lockdowns economic recovery, followed by the war in Ukraine, has continued to result in elevated wholesale prices for gas and electricity.

LNG netback prices dropped considerably in October ending the month at $44.32/GJ – down 34% from last month. Expected prices for the rest of 2022 have fallen slightly, the average for the year down now to 41.92/GJ (a 4% decrease on last month). Forecast 2023 netback prices dropped 23% to $46.95/GJ as fears of shortages during this European winter subsided – however, these prices are still well above historical levels as shown below.

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices eased during October falling to close to $US350/T – down 13%. This is the lowest it has been in the past 6 months.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Like gas, the price of coal can flow through and have an impact on the electricity market.

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 guardrails” set up to prevent wild swings in carbon prices that act as the minimum and maximum prices. Currently, these are set at $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In October prices increased $2.5 to $85/t – still well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 rising carbon prices. 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 prices 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 rebounded in October to 81 Euro/tonne – up 22% as demand for permits increased.

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

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.

Market Update September 2022

October 11, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased in September. Average spot prices for the month ranged from $49 in the lower South Island ($40 in August) to $59 in the upper North Island ($49 in August).

The following chart shows average weekly spot prices over the last 2 years. The significant drop in prices in the last few months is clearly visible on the far right of the graph.

Electricity Demand

Electricity demand remained higher than in recent years through September, though dropped away toward the end of the month with some warmer weather. We expect demand to continue to decline as we head towards summer. Interestingly Transpower were quoted this month saying that peak demand increased this past winter and they are not sure why given it was a milder winter than normal. Possible reasons given were an increase in people working from home and/ or some fuel substitution occurring – switching from burning fuel for heating to electricity.

Electricity Generation Mix

High levels of hydro generation continued through September as hydro inflows and storage remained high. This backed off later in the month as demand declined and with some increased wind generation. Thermal generation remained at the low levels seen last month as shown in the following graph.

HVDC Transfer

September saw high SI inflows and storage resulting in high northward transfer at the start of the month, but reducing in the second half of the month as inflows declined and demand reduced. There was even a small amount of southward transfer at the end of the month.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) for the last 2 years.

Note that $100/MWh equates to 10c/kWh.

Future prices jumped at the start of the month, especially for CY2023 and CY2024. This followed the announcement at the end of August that Genesis was launching a new market security option (MSO) for the use of Huntly power station running on coal as a back-up for security of supply. The MSO mechanism is complicated but based on current coal and carbon prices it is estimated that it would cost around $480/MWh – more than 2.5 times the swaption that Genesis currently has in place with Meridian and Contact that expires at the end of the year. The sharp increase in futures prices may be, at least in part, due to this increased cost that would be required to be paid in the event of a dry year.

CY 2023 prices closed at $216 – a 17% increase for the month. CY 2024 finished higher at $196 (+9%). CY 2025 also increased ending the month at $168/MWh – a 6% increase.

There were some more solar and wind projects announced over the last month. Known projects are shown below (new entries in bold).

Hydro Storage

Inflows remained high during September. In the NI inflows were lower than last month but still around 150% of average levels throughout the month. SI inflows started the month well above average but reduced to be slightly below average for the rest of the month.

Despite the high inflows, energy storage levels in New Zealand’s main hydro storage lakes decreased through September. Storage ended the month at 3,793 GWh or 86% full, down 370 GWh over the month.

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 that snow pack stayed largely flat during the month, falling towards the end of September. Storage is now at close to the 75^th percentile level seen in the last 30 years for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity).

Climate outlook overview (from the MetService)

Climate Drivers — La Nina was declared again on 13 September and has officially become a rare “triple dip” event, only the fourth time this has been recorded over the past century. This pattern typically sees a low-pressure anomaly across the North Island, while high pressure builds south and east of the South Island with typically drier conditions. La Nina will likely persist through the start of summer with a gradual weakening trend early in 2023. A strongly negative Indian Ocean Dipole (IOD) event continues to bolster the frequency of north Tasman Sea lows across the North Island, before weakening away later this spring. Sea surface temperatures remain about 0.5C above average around the New Zealand coastline.

October 2022 Outlook — An unseasonably cold and potentially record-breaking Antarctic air mass spreads up the country this week, delivering a wintry blast across much of New Zealand. Hard freezes across the South Island are likely to impact spring greenery over the coming days – with potential hardship to animals, while snow is likely to very low levels across southern and eastern South Island. The North Island isn’t out of the woods either, with temperatures falling to near freezing as far north as Whakatane and a risk of snow in Wellington. This cold blast loses steam over the weekend as high pressure moves onto the country.

Next week sees a Tasman low make its way towards the South Island and bring some rain to western regions, while temperatures continue their warming trend in a northwest flow. Another low could herald a northerly rain event to the upper South Island, along with northern and eastern North Island, areas which have been heavily impacted by recent rain events.

The third week of October sees high pressure emerge across South Island, helping to keep potential weather makers further north across northern and eastern North Island. While the odd cold front could bring deliver a brief cold spell, a northerly wind flow is conducive to warmer than average temperatures across the board, albeit with a few chilly nights for South Island under clear skies.

High pressure remains across parts of the South Island during the final week of the month, though this could weaken and allow a return to more seasonable springtime weather with a mobile westerly flow. Meanwhile, the weather situation heats up across North Island. The north Tasman Sea becomes more active under a combined La Nina and negative IOD regime, bringing a potential low with a warm and moisture-laden air mass onto the country, with yet more rain possible from Northland to Bay of Plenty and Gisborne.

The Gas Market

Gas prices were largely flat through September ending the month at $11.8/GJ – 1% down on August. Prices are currently on a par with what they were at the same time last year.

On the supply side Pohokura continued at the increased production levels seen over the last couple of months. Output averaged 105TJ – a 2% increase on last month. OMV announced that the unplanned outage at Maui which has reduced output by about 20TJ per day will continue until the end of October.

McKee / Mangahewa maintained output – averaging around 70TJ/day. Kupe’s also maintained output at around 60TJ/day.

Hopefully we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Apart from Pohokura, drilling programs are also currently on-going at Maui and Kapuni which will hopefully increase supply further in the next few months.

The following graph shows production levels from major fields over the last 3 years.

On the demand side, Methanex Motonui completed maintenance work in the middle of September. Consumption averaged 95TJ/day for the first half of the month, then increased to close to 160TJ per day at the end of September. Huntly’s gas usage decreased during September. Its usage averaged 54TJ/day, down 17% on August. TCC did not generate at all through the month. Methanex Waitara was consuming around 6TJ per day for the month. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during September as ongoing lack of supply in Europe, brought on by the strong post-COVID lockdowns economic recovery, followed by the war in Ukraine, has continued to result in elevated wholesale prices for gas and electricity.

LNG netback prices increased again in September ending the month at $66.99/GJ – up 19% from last month. Expected prices for the rest of 2022 have fallen slightly, the average for the year down now to 43.55/GJ (a 7% decrease on last month). Forecast 2023 netback prices increased 4% to $61.07/GJ – well above historical levels.

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices hovered around the $US435/T all of the month, dropping at the end of the month, closing at $US404/T – down 7%.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Like gas, the price of coal can flow through and have an impact on the electricity market. Genesis’s Market Security Option mentioned earlier in this report links the MSO’s to the international coal market price meaning any party contracting with Genesis using this mechanism will want to factor this in to their pricing. Genesis will still be using Huntly to manage its own retail book and will presumably be using stockpiled coal that it already has to provide this. However the longer high international coal prices remain around the more likely these high prices will feed through to NZ electricity prices.

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 prices that act as the minimum and maximum prices. Currently, these are set at $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In September prices decreased $4.5 to $82.5/t – still well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

EU Carbon Permits decreased to 67 Euro/tonne in September – down 26% on concerns that Europe is heading into a recession and the resulting declining manufacturing activity and hence reduced demand for permits.

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

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.

Market Update August 2022

September 6, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market dropped considerably once again in August. Average spot prices for the month ranged from $40 in the lower South Island ($98 in July), to $49 in the upper North Island ($107 in July).

The following chart shows average weekly spot prices over the last 2 years. The significant drop in prices in the last 2 months is clearly visible on the far right of the graph.

Electricity Demand

Electricity demand remained high in August as expected as we move through the winter period. It is at the high end of levels seen at the same time in the last three years.

Electricity Generation Mix

High inflows through August meant that hydro generation increased and allowed thermal generation to reduce even further than July levels as shown in the following graph.

HVDC Transfer

August saw high SI inflows and storage resulting in increased northward transfer and practically eliminating any southward transfers.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) for the last 2 years.

Note that $100/MWh equates to 10c/kWh.

Future prices remained relatively flat or declining through August, though there has been a sharp jump at the start of September. CY 2023 prices closed at $185 – a 2.5% decrease for the month. CY 2024 finished flat at $180. CY 2025 also decreased ending the month at $159/MWh – a 3% decrease. (Note – prices for CY 2023 and CY 2024 have both increased by $15 since the end of August)

All the major retailers announced their results in August including their plans for new generation. All talked about new wind and solar over the next few years but few hard dates were provided. Known projects are shown below.

Hydro Storage

Inflows remained very high in both islands during August. The NI maintained the 200% of average levels from the last couple of months while the SI inflows maintained the very high levels seen at the end of July.

As a result of these high inflows, energy storage levels in New Zealand’s main hydro storage lakes increased again through August. Storage ended the month at 4,163 GWh or 93% full, up 850 GWh over the month.

Security of supply risks eased further during August with the higher inflows and increased storage as shown in the following graph. There is now a high risk of spill over the coming, typically high SI inflow, months.

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 that snow pack has continued to increase over the last month. Storage is now at the maximum levels seen in the last 30 years for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity.)

Climate outlook overview (from the MetService)

Climate Drivers Negative IOD important for NZ — For the first month of spring, the most important climate driver will continue to be a negative Indian Ocean Dipole (IOD) event, which favours a more active north Tasman Sea, and in turn more frequent northerly rain events of New Zealand. High-pressure anomalies to the south and east of the country could help shift more of these systems over the North Island. El Nino/South Oscillation conditions are currently neutral but are likely to tip into La Nina territory during September or October, heralding a “triple dip” event. Frequent weather systems have helped lower sea temperatures around the New Zealand coastline, with values hovering about 0.5C above average, but increasing temperatures are likely as we head towards the summer months.

September 2022 Outlook — The first week of September sees a notable rain event unfolding across West Coast of South Island and to a lesser extent further north as it spreads up the country while weakening. A subtropical low moves across the upper North Island early next week bringing a relatively brief bout of rain and warm north easterlies to already sodden regions early next week. The bigger weather story for next week is the significantly cooler temperatures expected across the country as an influx of drier sub-Antarctic air spreads up New Zealand. High pressure settles in and brings colder overnight low temperatures, with widespread frosts possible across South Island and even locations further north, though afternoon highs are likely to rebound quite nicely. The third week of September sees high pressure build over the South Island, bringing below-normal rainfall and chilly morning minima. This also allows systems forming across the north Tasman Sea to occasionally spread southwards onto the North Island, accompanied by warmer and muggier conditions. A more normal spring-time pattern could emerge in the last week of the month as high pressure slides east of the country. A mix of northern lows and Southern Ocean fronts could bring a more volatile weather pattern, especially across the South Island.

The Gas Market

Gas prices continued to reduce through August ending the month at $11.9/GJ – 13% down on July. Prices are now 18% lower than they were at the same time last year.

On the supply side Pohokura continued at the increased production levels seen last month. Output averaged over 100TJ per day well up on the 80TJ per day prior to the recent drilling program starting. Maui started the month producing close to 90TJ per day but reduced output to closer to 70TJ per day for most of August – probably reflecting reduced demand rather than any production issues.

McKee / Mangahewa maintained output – averaging around 70TJ/day. Kupe’s also maintained output at around 60TJ/day.

Hopefully, we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Apart from Pohokura, drilling programs are also currently on-going at Maui and Kapuni which will hopefully increase supply further in the next few months.

The following graph shows production levels from major fields over the last 3 years.

On the demand side, Methanex Motonui has been conducting maintenance work that is planned to extend through into September. Consumption averaged 65TJ/day for the first half of the month, then increased to close to 100TJ per day at the end of August, well down on the pre Maui shutdown level of 150TJ/day. Huntly’s gas usage increased during August. Its usage averaged 65TJ/day, up 7% on July. TCC only generated the first 2 days of the month. Methanex Waitara was consuming around 5TJ per day for the first half of August then shut down for the rest of the month. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during August as on-going lack of gas storage / supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that the war in the Ukraine and the potential for Russia to use critical gas supplies to Europe to apply economic pressure on Ukraine’s allies has added to the uncertainty and therefore further added to energy prices.

LNG netback prices increased again in August ending the month at $56.26/GJ – up 15% from last month. Expected prices for the rest of 2022 and 2023 have also increased. 2022 netback prices are now expected to average $46.74/GJ (a 9% increase on last month) while 2023 netback prices also increased 19% to $58.89/GJ – well above historical levels.

Methanex had been planning on increasing production in NZ this year, however in July it announced that it expected to produce only 1.3 million tonnes of methanol – on a par with last year, due to decreased gas supplies. In January they had forecast 1.5 million tonnes for the year.

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 hovered around the $US400/T all of the month, increasing at the end of the month, closing at $US435/T – up 7%.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Like gas, the price of coal can flow through and have an impact on the electricity market. Genesis has been importing significant amounts of coal over the last 2 years for electricity generation at Huntly, though Genesis has pointed out that most of this has been purchased at contract prices significantly below international spot prices. When running, these units often set the marginal price. Even when Huntly is not setting the market price, hydro generators factor in increasing fuel costs in determining the prices they will offer into the market, again flowing through to higher electricity prices.

Genesis announced in July that it has coal stock at 8 year highs, sheltering it to some extent from high international coal prices.

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 $70 and $20 respectively. Over the last few years the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In August prices increased $10 to $90/t – well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 increased to 90 Euro/tonne in August – up 15%. Prices remain more than 50% more than the same time a year ago as concerns remain about the amount of coal that may be burnt in Europe if Russian gas is sanctioned or reduced in any other way.

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

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.

Market Update July 2022

August 4, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market dropped considerably in July. Average spot prices for the month ranged from $98 in the lower South Island ($153 in June), to $107 in the upper North Island ($177 in June).

The following chart shows average weekly spot prices over the last 2 years. The significant drop in prices in the last month is clearly visible on the far right of the graph.

Electricity Demand

Electricity demand remained high in July as expected as we move through the winter period. It is in line with levels seen at the same time in the last three years.

Electricity Generation Mix

High inflows through July meant that hydro generation increased and allowed thermal generation to reduce at the back end of the month as shown in the following graph.

HVDC Transfer

July saw reduced northward transfer early in the month as high North Island inflows depressed the need to use SI storage. High SI inflows in the middle of the month saw increased northward transfer later in the month. Southward transfer picked up early in the month but backed off in the middle of the month before picking up again later in the month.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) for the last 2 years.

Note that $100/MWh equates to 10c/kWh.

Future prices remained relatively flat through July with a small drop in CY 2023, offset by small rises in both CY 24 and 25. CY 2023 prices closed at $190 – a 2% decrease for the month. CY 2024 increased finishing at $180 – a 2% increase. CY 2025 also increased ending the month at $164/MWh – a 6% increase. Prices for all years have increased by almost 50% since the start of the 2022!

With new generation there were a few announcements during the month about potential solar projects, but nothing that provided a firm timeframe for completion. Known projects are shown below.

On the demand side, NZAS advised that it had started discussions with generators for supply to the Tiwai aluminium smelter post-2024. A number of distribution companies also noted that they had increased interest in changes to connection points due to efforts being made by industry to decarbonise. Eventually, these will flow through to increased demand as electricity replaces thermal fuels.

Hydro Storage

Inflows remained very high in the North Island during July, maintaining the 200% of average levels we observed last month. SI inflows were around expected levels for most of the month but picked up to about 400% of average later in July.

As a result of these high inflows, energy storage levels in New Zealand’s main hydro storage lakes increased through the month – particularly in the North Island where Lake Taupo is currently over 83% full. Storage ended the month at 3,313 GWh or 74% full, up 495 GWh over the month.

Security of supply risks eased further during July with the higher inflows and increased storage as shown in the following graph.

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 that snow pack has increased significantly over the last month. Storage is now approaching the maximum levels seen in the last 30 years for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity)

Climate outlook overview (from the MetService)

Climate Drivers — For late winter and early spring, the most important climate driver will be a negative Indian Ocean Dipole (IOD), which favours a more ‘active’ north Tasman Sea, and in turn more frequent northerly rain events over New Zealand. The 2021-2022 La Nina ended earlier this winter, but most climate models forecast a return to La Nina conditions around late spring; a so-called “triple dip” event. Sea temperatures around the New Zealand coastline have eased back towards average over winter, and are currently sitting around 0.5C above normal.

August 2022 Outlook — The first half of August is predicted to continue rather “stormy” for many regions. Expect active north-westerly fronts this week, then an unusually cold week next week under an unsettled south-easterly regime (with further lows). Another decent snow event is signalled next week, this time potentially affecting the higher ground of both Islands. The third week of August should see a slight ‘easing’ in the overall volatility of the weather patterns – with a brief High predicted to lie over the South Island. While this High is expected to bring a welcome break from mobile weather systems, and some drier weather, for the South Island, it is also likely to produce inland frosts and fogs there. In contrast, a wetter easterly regime is signalled for the northeast of the North Island. Looking further ahead in the ensemble models, the last week of August should see a return to relatively mild northerly winds and rain bands across NZ, as the High starts to shuffle away to the east of the country.

The Gas Market

Gas prices continued to reduce through July ending the month at $13.7/GJ – 26% down on June. Prices are now 34% lower than they were at the same time last year.

On the supply side, finally, we had some good news, with the drilling program currently underway at Pohokura providing some increased production after the last 2 years of falling output. Production increased to 116TJ on the 24th of July before dropping back to a steadier 90TJ per day – a significant increase from the 80TJ per day being produced last month, but still well below the 200+TJ per day produced in the middle of 2019.

Maui increased production in July back to close to 90TJ per day – significantly more than in June after its return from the planned shutdown, but still below the pre-shutdown level of over 100TJ per day.

McKee / Mangahewa maintained output – averaging around 70TJ/day. Kupe’s output reduced by 9% to around 60TJ/day.

Hopefully, we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Apart from Pohokura, drilling programs are also currently ongoing at Maui and Kapuni, which will hopefully increase supply further in the next few months.

The following graph shows production levels from major fields over the last 3 years.

Huntly’s gas usage increased during July. Its usage averaged 61TJ/day, up 11% in June. TCC increased usage again to 37TJ/day –up a further 64% on June consumption on top of a 50% increase the month before. Methanex Motonui has been conducting maintenance work that is planned to extend through to late August. Consumption averaged 73TJ/day, well down on the pre Maui shutdown level of 150TJ/day. Methanex Waitara was shut down for all of July. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during July as the ongoing lack of gas storage/supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that, the war in Ukraine and the potential for Russia to use critical gas supplies to Europe to apply economic pressure on Ukraine’s allies have added to the uncertainty and therefore further added to energy prices.

LNG netback prices increased sharply in July ending the month at $48.91/GJ – up 75% from last month. Expected prices for the rest of 2022 and 2023 have also increased. 2022 netback prices are now expected to average $43.01/GJ (a 5% increase on last month) while 2023 netback prices also increased 34% to $49.30/GJ – well above historical levels.

Methanex had been planning on increasing production in NZ this year, however, in July it announced that it expected to produce only 1.3 million tonnes of methanol – on a par with last year, due to decreased gas supplies. In January they had forecast 1.5 million tonnes for the year.

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices hovered around the $US400/T all of the month, closing at $US408/T – up 6%.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Genesis announced in July that it has coal stock at 8-year highs, sheltering it to some extent from high international coal prices.

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 the minimum and maximum prices. Currently, these are set at $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In July prices increased to $80/t – well above the $70 upper guard rail requiring the Government to release additional units in an attempt to dampen prices.

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 reduced to 78 Euro/tonne in July – down 8%. They are still almost twice the price they were a year ago, as concerns are raised about the amount of coal that may be burnt in Europe if Russian gas is sanctioned or reduced in any other way.

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

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.

Market Update June 2022

July 8, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market dropped considerably in June. Average spot prices for the month ranged from $153 in the lower South Island ($207 in May), to $177 in the upper North Island ($225 in May).

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in the last six months are clearly visible on the far right of the graph, with the dip in prices in the middle of June contributing to the lower average prices this month.

Electricity Demand

Electricity demand increased in June as expected as we head through the winter period. It is in line with levels seen at the same time in the last three years.

Electricity Generation Mix

Some improved inflows meant that hydro generation increased in the last month, however the increase in demand meant that thermal generation also increased as shown in the following graph.

HVDC Transfer

June saw continued stronger northward transfer as SI inflows remained closer to average and higher demand required greater levels of north transfer. Southward transfer continued to occur throughout the month but to a lesser extent than a couple of months ago.

The Electricity Futures Market

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 that snow pack has increased significantly over the last month. Storage is now well above the mean level we would expect for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity.)

Note that $100/MWh equates to 10c/kWh.

The increase in prices observed over the last few months reversed slightly through June. CY 2023 prices closed at $194 – a 4% decrease for the month. CY 2024 also decreased throughout the month finishing at $176 – a 3% decrease. CY 2025 ended the month flat at $155/MWh. Prices for all years have increased by almost 50% since the start of the 2022!

With new generation there were a few announcements during the month with some delays in expected completion dates and some minor changes in capacity at Mainpower’s Mt Cass project. Known projects are shown below.

It was also announced by Contact Energy that its Te Rapa gas cogeneration plant (44MW) decommissioning is being brought forward from 2024 to winter 2023, however, more than offsetting that, Contact is delaying its decommissioning of TCC (377MW) from 2023 until late 2024.

Hydro Storage

Inflows recovered through June with slightly above average inflows in the SI and almost 200% of average inflows in the NI.

As a result of these higher-than-average inflows, energy storage levels in New Zealand’s main hydro storage lakes increased through the month. Storage ended the month at 2,818 GWh or 62% full, up 320 GWh over the month.

Security of supply risks eased during June with the higher inflows and increased storage as shown in the following graph.

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 that snow pack has increased significantly over the last month. Storage is now well above the mean level we would expect for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity).

Climate outlook overview (from the MetService)

Climate Drivers — The 2021-2022 La Nina has ended, with most indicators showing the tropical Pacific Ocean is now at neutral levels. However, many climate models forecast a return to La Nina conditions in spring; a so-called “triple dip” event. A more important factor for New Zealand through late winter and spring is the likely formation of a negative Indian Ocean Dipole event, which favours a more ‘active’ north Tasman Sea, and in turn more frequent northerly rain events over New Zealand. Sea temperatures around the New Zealand coastline have moderated recently, during the windy and unsettled June. Sea temperatures around our coastline are now sitting at about 1C above normal.

July 2022 Outlook — The first few days of July offer a ‘relatively quiet’ pause in our weather. An active Tasman Sea low then approaches the country from about the 5th, and although there is large uncertainty about timing and details, it is likely to bring a wet and windy regime to most places. There is also a decent potential for further South Island snowfall – keeping ski fields smiling. This recipe of ‘stormy’ Tasman lows and Southern Ocean fronts continues through until about mid-month, keeping rainfall and snowfall totals ticking along for most regions. Once we hit mid-month, expect a major pattern change to colder weather (southerlies and high pressure). The back half of July is predicted to be slightly colder than average, and precipitation should favour eastern areas of both Islands (including risk of further decent snowfalls in the South Island).

The Gas Market

Gas prices continued to climb at the start of June with the monthly average price peaking at close to $25/GJ before dropping, ending the month at $18.5/GJ – 24% down on May. Prices are now 4% lower than they were at the same time last year.

On the supply side, the following graph shows a significant drop again in June. Maui’s planned shutdown ended up being extended twice, not coming back online until the 20^th June and then at reduced output of around 60TJ/day – down from over 100TJ/day in March.

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 81TJ per day – a further 1% drop. McKee / Mangahewa increased output – averaging around 70TJ – a 9% increase from May. Kupe’s output was steady at around 66TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur late 2022. Drilling programs are also currently on-going at Maui and Kapuni, however we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.

Huntly’s gas usage reduced further during June. Their usage averaged 55TJ/day, down 7% on May. TCC increased usage to 22.5TJ/day –up 50% on May consumption. Methanex Motonui was most impacted by the Maui shutdown reducing to 60TJ/day while the full shutdown occurred and only increasing to around 90TJ/day when Maui came back. Methanex Waitara operated at around 6TJ/day at the start of the month but shutdown from the 9^th June. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during June as on-going lack of gas storage / supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that the war in the Ukraine and the potential for sanctions on critical gas supplies from Russia has added to the uncertainty and therefore further added to energy prices.

LNG netback prices were mainly flat in June ending the month at $27.91/GJ. However expected prices for the rest of 2022 and 2023 have increased sharply. 2022 netback prices are now expected to average $40.90/GJ (a 17% increase on last month) while 2023 netback prices also increased 26% to $36.80/GJ – well above historical levels.

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. For example Methanex announced that they expected to produce 10% more methanol in 2022 in NZ than they did last year driven in part by “robust methanol prices.”

The Coal Market

These prices are still well above anything seen in the last 10 years as shown in the following graph.

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 $70 and $20 respectively. Over the last few years the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In June prices dropped slightly to $75/t – still well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 increased slightly to 85 Euro/tonne in June – up 1%. They are still almost twice the price they were a year ago, as concerns are raised about the amount of coal that may be burnt in Europe if Russian gas is sanctioned or reduced in any other way.

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

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.

Market Update May 2022

June 7, 2022 by magnum

The Wholesale Electricity Market

Spot prices in the wholesale electricity market remained high during May throughout the country. Average spot prices for the month ranged from $207 in the lower South Island ($222 in Apr), to $225 in the upper North Island ($202 in Apr).

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in the last few months are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased in May as expected as we head into the winter period. It was in line with levels seen at the same time in the last two years.

Electricity Generation Mix

Some improved inflows meant that hydro generation increased in the last month, however the increase in demand meant that thermal generation also increased as shown in the following graph.

HVDC Transfer

May saw northward transfer increase considerably as SI inflows increased and higher demand required greater levels of north transfer. Southward transfer continued to occur throughout the month but to a lesser extent than in April.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) for the last 2 years.

Note that $100/MWh equates to 10c/kWh.

The increase in prices observed over the last few months continued through May. CY 2023 prices closed at $202 – a 5% increase for the month. CY 2024 also increased throughout the month finishing at $182 – a 6% increase. CY 2025 ended the month at $155/MWh – a 5% increase. Prices for all years have increased by almost 50% since the start of the 2022!

After a flurry of new projects being announced in the last couple of months – mainly solar, there was a lull in May. Known projects are shown below.

Hydro Storage

Inflows remained low in both islands through most of May, however in the SI in particular they did increase relative to the last couple of months. NI inflows were about 50% of average for the first half of the month but picked up in the second half of the month to close to average. SI inflows were close to 90% of average for most of the month.

As a result of these lower than average inflows, and with increased hydro generation during May, energy storage levels in New Zealand’s main hydro storage lakes dropped through the month. Storage ended the month at 2,498 GWh or 55.5% full, down 319 GWh over the month.

Security of supply risks are again raising their head with sustained low inflows and the inability to arrest the rate of decline in water storage as shown in the following graph.

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. As we are only heading into winter we would expect low levels of snow pack at this time of year. The following graph shows that snow pack has increased slightly over the last month. Storage is close to the mean level we would expect for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity)

Climate outlook overview (from the MetService 1st April 2022)

Climate Drivers — A weak La Nina remains across the tropical Pacific, though temperatures are likely to slowly return to near-neutral El Nino-Southern Oscillation (ENSO) conditions over this winter. A return to weak La Nina conditions is possible later this year, a so-called “triple dip” event. Another factor as New Zealand heads into winter will be a negative Indian Ocean Dipole (IOD), which favours a more active northern Tasman Sea, and in turn more frequent northerly rain events over New Zealand. In June, a stormy Tasman Sea and Southern Ocean are forecast to dominate; expect a very active first couple of weeks in June with a mix of fronts and lows originating from both the Tasman Sea and Southern Ocean. Sea temperatures around the New Zealand coastline remain well above normal, with temperatures sitting at 1-2oC above normal for this time of year, with up to 3oC in the far south.

June 2022 Outlook — A seemingly never-ending series of westerly weather makers from both the Tasman Sea and Southern Ocean brings a volatile and wet start to June and the winter season across Aotearoa New Zealand. Tasman lows should continue to bring healthy rain events and spells of very warm and muggy weather to much of the country over the first half of June, with brief interludes of cooler weather and southerlies as passing Southern Ocean cold fronts sweep quickly up the country. The third week of June sees the lows depart eastwards, and a gentle uptick in daily sunshine hours most places. Temperatures drop as southwesterlies spread over the country, with noticeably cooler daytime temperatures. A useful start to the ski season is also signalled. This is followed by a well-deserved spell of high pressure and drier weather, though also accompanied by dips in overnight temperatures. As we head into the final week of June, the northern Tasman Sea becomes more active as the negative IOD event takes hold. Warm northerlies and the potential for rainfall returns across North Island with a low developing further north, while South Island is unlikely to see significant impacts with a more seasonable weather pattern picked to finish out the month.

The Gas Market

Gas prices continued to climb in May. Average prices were $24.2/GJ – 13% up on April. Prices are now 24% higher than they were at the same time last year.

On the supply side, the following graph shows a significant drop again in May. Maui production dropped again early in the month to around 70TJ per day before a planned shutdown from the 14^th May for the rest of the month.

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 82TJ per day – a further 1% drop. McKee / Mangahewa decreased output as well – averaging around 64TJ – a 6% decrease from April. Kupe also dropped output averaging around 66TJ/day – also a 6% decrease.

Huntly’s gas usage reduced further during May presumably due to tight gas supplies pushing them to run more on coal. Gas usage averaged 59TJ/day, down 8% on April. TCC was shut down until the middle of the month. Once up and running usage was close 15TJ/day for the rest of May. Methanex Motonui was most impacted by the Maui shutdown reducing from around 125TJ/day to 60TJ/day for the rest of the month. Methanex Waitara operated at around 6TJ/day once it restarted on the 6^th May. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during May as on-going lack of gas storage / supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that the war in the Ukraine and the potential for sanctions on critical gas supplies from Russia has added to the uncertainty and therefore further added to energy prices.

LNG netback prices fell in May to $27.96/GJ – a 27% decrease on last month. Prices for 2022 are expected to average $34.83/GJ (a 4% increase on last month) while 2023 netback prices also increased 4% to $29.22/GJ – still well above historical levels.

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. For example, Methanex announced that they expected to produce 10% more methanol in 2022 in NZ than they did last year driven in part by “robust methanol prices.”

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. After starting the month at around $US320/T, prices increased through May to close at over $US400/T – up more than 25%. This is back to similar levels that we saw a few months ago at the start of the war.

These prices are still well above anything seen in the last 10 years as shown in the following graph.

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 $70 and $20 respectively. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago. In May prices remained flat at close to $77/t – still well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

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 dropped slightly to 84 Euro/tonne in April – up down 1%. They are still almost twice the price they were a year ago, as concerns are raised about the amount of coal that may be burnt in Europe if Russian gas is sanctioned or reduced in any other way.

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

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