Category: Market Update
Market update April 2021
What’s behind the electricity price rise – and what you can do about it.
Prices in the New Zealand wholesale market have increased to very high levels over the last few months, prompted by a combination of low hydro lake levels, calm weather (and therefore less wind generation), and lack of gas supply. This has led to increased use of coal at both a high direct cost and indirect cost, due to the steep carbon costs associated with coal-fired generation.
These high wholesale prices have flowed through to the contract pricing we are seeing for many of our clients whose current contracts are expiring. It is not unusual to see pricing more than double current pricing on an energy-only basis (i.e. ignoring the pass-through network charges)
Unfortunately, it’s unlikely to be a short-lived ‘price spike.’
With dry weather predicted to continue through the autumn, and no end in sight for the gas supply issues, it is expected that these tight supply conditions, and high prices, may be maintained over the next few months at least – noting that heavy rain into the hydro catchment areas could change this situation very quickly.
Of course, during times of shortage in supply, there are also the inevitable comments around the potential for market manipulation from the relatively small number of generators in the New Zealand market. While we see no evidence of this practice right now, it’s understandable that users are concerned about the sustainability of these price levels.
What are your options to contain costs?
At Smart Power, we’re acutely aware of the impact of rocketing energy prices. We are working hard for clients to minimise the impact these high prices may have on their business.
This may take the form of looking for ways to smooth out costs, through to different ways of purchasing such as Progressive Purchasing. For the largest users, it may make financial sense to become a direct wholesale market purchaser.
At times like this, Smart Power’s in-depth market expertise becomes invaluable. Contact us to see how we can assist you.
Market update October 2020
The old saying ‘the more things change, the more they stay the same’ remains very true in the energy industry.
In July 2020, NZSA (i.e. Tiwai Point smelter) announced the closure of the smelter in August 2021. This was a big disruptor because Tiwai uses around 13% of New Zealand’s total electricity. A few weeks after this announcement, the ASX Futures (NZ electricity prices) fell significantly from Q3 2021 onwards, and we hoped that we were seeing an end to the volatile and high electricity prices experienced over the last two years.
However, since our last market update, persistent lobbying, which may or may not be connected to electioneering, led to speculation that the smelter could continue operations beyond August 2021. This market speculation was confirmed on 31 August 2020, which immediately resulted in New Zealand electricity prices on the ASX Futures climbing straight back to where they had been prior to the initial closure announcement. Based on these price movements, we calculate that the market is factoring in the cost of the smelter remaining at $800M per annum.
Weathering the weather factor
As if the smelter situation was not frustrating enough, the prevailing conditions which caused the volatility in pricing through 2020 and into 2021 continue. Generation options continue to be limited due to low rainfall, inconsistent wind patterns, and the continuing high price for natural gas for electricity generation.
If you have ever tried to wade through the subtle differences between retailer offers, or understand the range of offerings and which will benefit you the most, you’ll know it can be next to impossible to pin down savings with any confidence. Factoring in the Tiwai smelter situation, and the impact hydrology has on electricity pricing, only makes the decision even more opaque.
This is where Smart Power’s experience and industry relationships add value. We navigate and manage energy procurement for our clients, and make sure your supply arrangements match your operational requirements. Take the hassle out of energy procurement and leave your staff to focus on their core business. Contact Smart Power to find out about cost-effective energy procurement, and how we can help you add value to your business.