Tag: low hydro lake levels
Market Update January 2022
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased dramatically during January. Average spot prices for the month ranged from $147 ($45 in Dec) in the far South, to $168 ($67 in Dec) at the top of the North Island as depicted in the following chart.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_1.png)
The following chart shows average weekly spot prices over the last 5 years. The lower prices in December are just visible on the far right The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in January are clearly visible on the far right of the graph.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_2.png)
Electricity Demand
Electricity demand increased in January back to levels seen in 2019/20. The normal post-summer shutdown increase can be seen in recent weeks. (Note – I believe there is an issue with this Transpower graph that I have raised with them in that I think they deleted 2021 data at the start of this year but renamed the other years – so what is labelled 2019 is actually 2018, etc.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_3.png)
Electricity Generation Mix
Increasing demand and attempts to conserve water have fed through to reduced hydro and increased thermal generation in January as shown in the following graph. Wind generation has also been down compared to recent months.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_4.png)
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 reduced northward transfer as SI hydro generators tried to conserve water. There was also a small amount of southward transfer.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_5.png)
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 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of January.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_6.png)
Note that $100/MWh equates to 10c/kWh.
In January, CY 2023 prices increased at the start of the month peaking at $148.5 before dropping later in the month, closing at $144 – a 2% increase for the month. CY 2024 also increased throughout the month peaking at $131 before finishing the month at $127 – a 3% increase. CY 2025 is shown for the first time this month – it was largely flat ending the month at $105/MWh.
Lower prices for CY 2023, CY 2024 and CY2025 are based on an expectation that a new generation is developed over that timeframe – known projects shown below.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_7-1024x519.png)
Note that Mercury has completed commissioning the Northern section of Turitea wind farm – 119MW. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed in early 2022.
Meanwhile, on the demand side of the equation, expectations are increasing that the Tiwai aluminium smelter will continue to operate beyond 2024. High aluminium prices and the relatively low emission content of aluminium produced at Tiwai is likely to lead its owner, Rio Tinto, to want to extend operations past the current contracts end date. Accounting for about 12.5% of national electricity demand the aluminium smelter has a significant impact on national electricity prices. Any negotiations are likely to start as early as this year.
Hydro Storage
The story of the last month has been the historically low Hydro inflows during January. A four week period in January saw the lowest inflows on record in the NI and the second-lowest on record in the SI.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_8.png)
Energy storage levels in New Zealand’s main hydro storage lakes decreased through January. Storage ended the month at 3,455 GWh or 78% full, down 417 GWh over the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_9.png)
As shown in the following graph, storage has plummeted over the last month losing more than 15% of total (full) storage in just over a month! On the current trajectory, storage will very quickly become a problem and with concerns remaining around thermal fuel supply, the ability to suppress this decline may be constrained. With the potential for below-average inflows over the next few months, it is understandable that some red flags are starting to be raised.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_10.png)
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 decreased over the last month as you would expect through summer. Storage remains 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.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_11.png)
Climate outlook overview (from the MetService 2 Feb 2022)
Climate Drivers — A maturing La Niña event in the tropical Pacific is close to its peak. A return to neutral El Niño–Southern Oscillation (ENSO) conditions is likely this autumn. The persistent positive Southern Annular Mode (SAM) phase is predicted to continue through the first half of February. This supports Highs over the South Island and southern latitudes and reduces the chance of Southern Ocean weather systems sweeping up the country. In contrast, an ‘active’ tropics, with humid northerlies and Tasman Sea lows, should prevail this week and into early next week, before Highs build back in across most of New Zealand by mid-month.
February 2022 Outlook – Rainfall Extremes – Extreme rainfall is signalled to start February – then forecasts show a return to an extended dry run. A Red Warning for Heavy Rain is currently in force for Westland and Buller. Red Warnings are reserved for the most significant weather events. This is only the fifth Red Warning MetService has issued since the colour coded system was introduced in 2019. Rain accumulations are forecast to be 500-750mm about the Westland ranges over 2 days, and disruptions are expected.
For all other areas, a burst of rain is expected between now and early next week (7th February), associated with two weather features moving across the country. Expect more rain in the next 7 days, than seen across all of January, in your region. Many North Island areas should also see locally heavy falls and decent totals, but picking who sees the best of the rain is challenging so far out. After the middle of next week, expect another extended drier-than-normal run, as prevailing Highs build back in across the country, with easterly winds returning to Auckland and Northland.
February is forecast to be hotter than usual, overall. The exceptions are the eastern areas of both Islands, where monthly temperatures are expected to fall closer to February normal.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_12.png)
The Gas Market
Gas prices rebounded in January. Average prices were $11.51/GJ – 18.9% up in December.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_13.png)
On the supply side, the following graph shows a decline again in January. Pohokura output decreased slightly, producing 88TJ/day for the month, down 2% in December. The recent gas injection program has had some success at improving flows above the 80TJ/day in October though production is again waning over time.
Maui production started the month strong, peaking at over 100TJ/day in the middle of the month before easing back to closer to 90TJ/day. Maui’s average for the month was 94.5TJ/day down 3%. McKee / Mangahewa decreased output as well – down 7% to 83TJ/day while Kupe maintained output averaging 69TJ/day.
Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in late 2022. Drilling programs are also currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_14.png)
Increased requirements for gas for electricity generation during January saw Huntly’s gas usage lift by 23% over the month while Stratford was also generating solidly for most of the month. A Maui pipeline shutdown over the last weekend in January limited gas usage north of Mokau in the Waitomo area – restricting gas supply to Huntly and to a number of other large users in the North. Methanex Motonui maintained high gas usage in the first half of the month but reduced in the second half to around 178TJ per day. Average use was 180TJ per day, up 5% on the month. Methanex Waitara continued to operate at 6TJ per day until the 22nd of January when it shut down. The following graph shows trends in the major gas users over the last 3 years.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_15.png)
Global energy prices remained high during January as the ongoing lack of gas storage/supply in Europe and geopolitical disputes impacting supply out of Russia have continued to result in elevated wholesale prices for gas and electricity. Companies heavily reliant on gas and/or electricity have scaled back production or, in some cases, ceased operations completely.
LNG netback prices reduced slightly but remained high at $39.11/GJ – a 5% decrease on last month. Prices for next year are expected to average $36.3/GJ (compared to $34.46 last month) while 2023 netback prices increased to $23.71/GJ ($18.66/GJ last month.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_16-1024x631.png)
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. Methanex recently 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 almost as much about coal as it has gas. After a quadrupling of prices through most of 2021 followed by the large falls in October driven by the Chinese Government intervening in their market, coal prices rose again sharply through January. Indonesia, the world’s largest exporter of thermal coal used for power generation, banned all exports of coal for January to protect their domestic supply. This caused a spike in international coal prices up to $223USD/T in recent trading – an increase of 30% over the month. These prices are well above the levels seen in the last 10 years as shown in the following graph.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_17.png)
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.
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 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 and have risen again during January to $76/t – well above the $70 upper guardrail requiring the Government to release additional units in an attempt to dampen prices.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/02/sp_nz_market_update_jan_22_fig_18.png)
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.
European greenhouse gas emission rights increased markedly again in January. They are now about three times the price they were a year ago, as concerns about the amount of coal likely to be burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.
About this Report
This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.
Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.
All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.
Further information can be found at the locations noted below.
- Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data
- The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/
- Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2022. Smart Power Ltd
Market Update December 2021
The Wholesale Electricity Market
Spot prices in the wholesale electricity market decreased during December. Average spot prices for the month ranged from $45 (-40%) in the far South to $67 (-30%) top of the North Island as depicted in the following chart.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_1.png)
The following chart shows average weekly spot prices over the last 5 years. The lower prices in December are just visible on the far right of the graph.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_2.png)
Electricity Demand
Electricity demand was lower in December than in the last two years – back to levels last seen in 2018. The continued downward trend in demand as we move into summer and temperatures increase is also apparent.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_3.png)
Electricity Generation Mix
Reducing demand enabled hydro and thermal generation to ease slightly in December.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_4.png)
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.
December saw increased northward transfer which became apparent at the end of November continue, coinciding with some increased SI inflows. There was no southward flow.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_5.png)
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 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of December.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_6.png)
Note that $100/MWh equates to 10c/kWh.
In December, CY 2022 prices increased at the start of the month peaking at $157 before dropping considerably later in the month, closing at $141 – a 7% decrease for the month. CY 2023 was static throughout the month ending unchanged at $138, while CY 2024 was also largely flat ending the month at $123/MWh – a 1.5% increase.
Lower prices for CY 2023 and CY 2024 are based on an expectation that new generation is developed over that timeframe – known projects shown below.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_7-1024x552.png)
Note that Mercury is currently commissioning the Northern section of Turitea wind farm – 119MW due to be completed soon. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed early 2022.
Hydro Storage
Hydro inflows increased during December to above-expected levels. SI inflows were above average for most of the month, only reducing later in the month. NI inflows were less than expected for most of the month, though increased to well above average later in the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_8.png)
Energy storage levels in New Zealand’s main hydro storage lakes increased again through December. Storage ended the month at 3,872 GWh or 88% full, up 239 GWh over the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_9.png)
As shown in the following graph, storage remains above the average for this time of year. However, even though the storage is increasing, so too are the risk curves reflecting this being the time of the year when we expect to see the most significant inflows, and when inflows on average will soon start to reduce and we will rely on storage for security of supply.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_10.png)
Uncertainty around future gas supplies, and high coal and carbon prices, are still causing hydro generators to be conservative in their valuing of storage, increasing the risk of spill but reducing the likelihood of supply shortages. We would expect that to remain the case for the next 1-2 years.
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 decreased over the last month as you would expect as the weather warms up. Storage remains 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.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_11.png)
Climate outlook overview (from the MetService 6 Jan 2022)
Climate Drivers — La Nina conditions are well established in the tropical Pacific with cooler than average surface waters and enhanced easterly trade winds. This is likely a contributing factor to the blocking high becoming entrenched across the South Island promoting a positive Southern Annular Mode (SAM) deflecting stormy westerlies south of our shores. The Madden-Julian Oscillation (MJO), an area of enhanced cloud and rain which circumnavigates the tropics every 30-60 days is currently weak.
January 2022 Outlook – Dry weather abound –
This year has begun in scorching style thanks to high pressure with plenty of sunshine and temperatures well above average across the country. Following a brief and likely welcome cool southerly change running up the South Island, things warm up again at the weekend. Next week brings a little rain as two cold fronts run up South Island, but they’re no match for the North Island ridge that awaits them, reducing them to just a few showers by the time they reach Te Ika-a-Māui (the North Island). High pressure then returns with plenty of dry, settled weather across the country for much of the rest of the month.
The weather’s New Year resolution appears to be to bring high pressure and settled weather to Aotearoa. Sure, there will be the odd cheat day but expect plenty of fine, warm, and dry weather on the Mainland with the North Island also remaining mainly settled. Later in the month as resolutions wane we may well see a low from the Tasman Sea or possibly the sub-tropics brings a bout of wet and windy weather, most likely for the North Island. That said it is possible the resolution may hold as long as most tend to… into early February.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_12.png)
The Gas Market
As is normal for this time of year gas prices decreased through December. Average prices were $9.78/GJ – 13.5% down on November.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_13.png)
On the supply side, the following graph shows a slight decline in December. Pohokura output decreased slightly, still averaging over 90TJ/day for the month but down 1% in November. The recent gas injection program has had some success at improving flows above the 80TJ/day in October.
A production outage at the start of the month and slightly lower daily output pulled down Maui’s average by 4% to 96TJ/day. McKee / Mangahewa decreased output slightly – down 3% to 94TJ/day while Kupe also declined slightly averaging 69TJ/day.
Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in late 2022. Drilling programs are also currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_14.png)
Reduced requirements for gas for electricity generation during December saw Huntly’s gas usage decline by another 10% over the month and other gas generation remained low. Methanex Motonui appeared to time production outages with reduced Maui supply as it decreased its average use to 164TJ per day, down 8% on the month. Methanex Waitara continued to operate at a minimal 4-6TJ per day. The following graph shows trends in the major gas users over the last 3 years.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_15.png)
Despite a mild start to winter in the northern hemisphere, global energy prices remained high during December. The ongoing lack of gas storage/supply in Europe and geopolitical disputes impacting supply out of Russia have resulted in elevated wholesale prices for gas and electricity. These have started to flow on to industries heavily reliant on gas and/or electricity such as Aluminium where there have been plant closures in Europe and production scaled back in China.
LNG netback prices (last published mid-Dec) have remained high at $41.24/GJ – a 16% increase on last month. Prices for next year are expected to average $34.46/GJ (compared to $24.58 last month) while 2023 netback prices increased to $18.66/GJ ($15.29/GJ last month.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_16-1024x645.png)
New Zealand does not have an LNG export market so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices.
The Coal Market
The global energy crisis has been almost as much about coal as it has gas. After the large falls in October driven by the Chinese Government intervening in their market, coal prices were largely flat in December ending the month at $160USD/T. However, at the start of January Indonesia, the world’s largest exporter of thermal coal used for power generation, banned all exports of coal for January to protect their domestic supply. This caused an immediate spike in international coal prices up to $180USD/T in recent trading. These prices are well above the levels generally seen in the last 10 years as shown in the following graph.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_17.png)
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.
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 scheme closely linked to international schemes. 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, however, in the last couple of months they have shown some signs of levelling off at around $65 – 70/t.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2022/01/sp_nz_market_update_december_21_fig_18.png)
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 $65/t is estimated to currently add about $32.5/MWh (or ~3.25c/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.
European greenhouse gas emission rights levelled off somewhat after the significant increases in November – but are still up 170% on a year ago, as concerns about the amount of coal likely to be burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.
About this Report
This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.
Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.
All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.
Further information can be found at the locations noted below.
- Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data
- The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/
- Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2022. Smart Power Ltd
Market Update November 2021
The Wholesale Electricity Market
Spot prices in the wholesale electricity market increased during November. Average spot prices for the month ranged from $75 (+50%) in the far South to $95 (+25%) top of the North Island as depicted in the following chart.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_1.png)
The following chart shows average weekly spot prices over the last 5 years. The higher prices in November are just visible on the far right of the graph – but still considerably below the peaks of a few months ago.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_2.png)
Electricity Demand
After the clear impact of lockdowns during September, electricity demand in November was close to, if not slightly below the levels of the last few years. Demand was also trending down as expected as the weather warmed up.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_3.png)
Electricity Generation Mix
Hydro generation iHydro generation was stable in November enabling thermal generation to back off further as demand reduced.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_4.png)
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.
November saw northward transfer reduce for most of the month until it picked up again on the last week of November, coinciding with some increased SI inflows. There was a small amount of southward flow for the first time since July, reflecting lower SI inflows at the start of the month and a deteriorating SI storage position relative to the hydro risk curves.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_5.png)
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 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of November.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_6.png)
Note that $100/MWh equates to 10c/kWh.
In November, CY 2022 prices jumped at the start of the month peaking at $155 before easing later in the month, closing at $151 – a 4% increase in the month. CY 2023 drifted up throughout the month ending $5 higher at $138 – a 4% increase, while CY 2024 was largely flat ending the month at $121/MWh – no change.
Lower prices for CY 2023 and CY 2024 are based on an expectation that new generation is developed over that timeframe – known projects shown below.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_7-1024x549.png)
Note that Mercury is currently commissioning the Northern section of Turitea wind farm – 119MW due to be completed before the end of 2021. However the Southern section (102MW) may not be completed until mid-2023. Also Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed early 2022.
Hydro Storage
Hydro inflows reduced during November to below expected levels. SI inflows were below average for the first half of the month but then increased in the second half. NI inflows were less than expected for most of the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_8.png)
Energy storage levels in New Zealand’s main hydro storage lakes increased again through November. Storage ended the month at 3,633 GWh or 82% full, up 142 GWh over the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_9.png)
As shown in the following graph, storage remains above the average for this time of year. However, even though the storage is increasing, so too are the risk curves reflecting this being the time of the year when we expect to see the most significant inflows, and when inflows on average will soon start to reduce and we will rely on storage for security of supply.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_10.png)
Uncertainty around future gas supplies, and high coal and carbon prices, are still causing hydro generators to be conservative in their valuing of storage, increasing the risk of spill but reducing the likelihood of supply shortages. We would expect that to remain the case for the next 1-2 years.
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 decreased over the last month as you would expect as the weather warms up. Storage is now 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.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_11.png)
Climate outlook overview (from the MetService)
Climate Drivers – La Nina conditions have developed in the tropical Pacific Ocean, with cool sea surface temperatures and enhanced easterly trade winds. La Nina in summer tends to bring warmer than average, humid condition to New Zealand, with high pressure centred about the Chatham Island and north-easterlies prevailing. This is often supported by persistent, strong positive Southern Annular Mode (SAM) deflecting the usual ring of stormy westerlies about the Southern Ocean further south and away from our shores. These are of course departures from the norm, and even with these drivers in place we’ll still see plenty of usual summer weather.
December 2021 Outlook – A humid start to summer – Thermometers around the country certainly got the memo, meteorological summer is here. High pressure is dominating the New Zealand weather maps, and whilst it remains centred to the east of the country, our winds will maintain a northerly bias, and the humidity is here to stay. Expect a much warmer than average month across the board.
The first week of the month looks very settled bar a few showers before northwesterly rain pushes onto South Island at the weekend. High pressure then returns in a big way, especially for the South Island.
Changes in the weather patterns will be few and far between through December, with high pressure centred south and east of the country. This brings a drier than average outcome for the West Coast and lower South Island. Eastern regions of South Island will likely see a settled but often cloudy month. Upper South Island and North Island weather will be dictated by the northern extent of this high. During periods when the high waxes north, settled conditions will prevail. During the time when the high wanes southwards, we open the door to the northern Tasman Sea and areas of low pressure running across the upper North Island, bringing rain to anywhere with northern exposure.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_12.png)
The Gas Market
Gas prices were flat through November. Average prices were $11.3/GJ – unchanged from October.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_13.png)
On the supply side, the following graph shows an overall improvement in gas supply through November. For the first time in over a year, Pohokura output increased, averaging over 90TJ/day for the month compared to 80TJ/day in October. The recent gas injection program has had some success in improving flows.
After the recent infill drilling, Maui continued to perform well, averaging 100TJ per day in November – on a par with last month. McKee / Mangahewa also maintained its October output of close to 100TJ/day while Kupe maintained production last month, averaging 70TJ/day.
Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in 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.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_14.png)
Reduced requirements for gas for electricity generation during November saw Huntly’s gas usage decline by another 2% over the month and other gas generation remained low. Methanex Motonui took advantage of the increased gas supply increasing its average use to 179.2TJ per day, up 3% on the month. Methanex Waitara continued to operate at a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_15.png)
Global energy prices remained high during November with a lack of gas storage/supply in Europe leading into their winter meaning that demand for LNG stayed high. However Asian markets have been outbidding them for scarce supply, meaning that there is the real potential of energy supply shortages in Europe over the winter. After LNG netback prices increased by more than 200% in the previous two months, they dropped in November, ending the month at $35.53/GJ – a 10% decrease from October’s high. Prices for next year are expected to average $24.58/GJ (compared to $19.75 last month) while for the first time 2023 netback prices are being published at $15.29/GJ.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_16-1024x645.png)
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. For example, high international gas prices have resulted in methanol production being cut back in some parts of the world and in record prices for methanol. Methanex may be willing to pay more for gas in NZ to try to maximise output and to benefit from these high methanol prices.
The Coal Market
The global energy crisis has been almost as much about coal as it has gas. After the large falls seen last month when the Chinese Government intervened in their market, coal prices stabilised in November – in a range of $140-160USD/T. These prices are still well above the levels generally seen in the last 10 years as shown in the following graph. International prices ended the month at $159USD/T, up 6% in the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_17.png)
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 18 months for electricity generation at Huntly. 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.
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 scheme closely linked to international schemes. 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, however in the last couple of months, they have shown some signs of levelling off at around $65 – 70/t.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/12/sp_nz_market_update_november_21_fig_18.png)
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 $65/t is estimated to currently add about $32.5/MWh (or ~3.25c/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.
European greenhouse gas emission rights rose by 34% over the month (up 170% in the last year) as concerns about the amount of coal likely to be burnt during the coming European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.
About this Report
This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.
Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.
All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.
Further information can be found at the locations noted below.
- Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data
- The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/
- Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2021. Smart Power Ltd
Market Update October 2021
The Wholesale Electricity Market
Spot prices in the wholesale electricity market continued to decline during October. Average spot prices for the month ranged from $51 in the far South to $77 top of the North Island as depicted in the following chart.
The following chart shows average weekly spot prices over the last 5 years. It can be seen that prices in the last couple of months have come down from recent highs and are now at what could be said to be more “normal” levels.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_1.png)
The following chart shows average weekly spot prices over the last 5 years. It can be seen that prices in the last couple of months have come down from recent highs and are now at what could be said to be more “normal” levels.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_2.png)
Electricity Demand
Electricity demand in October was below the levels of the last few years reflecting on-going reduced activity during lockdowns. Demand was also trending down as expected as the weather warmed up.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_3.png)
Electricity Generation Mix
Hydro generation increased again in October enabling thermal generation to back off further. Reduced wind output is also clear to see in the following chart.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_4.png)
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.
October saw northward transfer maintain the very high levels seen since August. There was no southward flow reflecting significant SI inflows and improving SI storage position.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_5.png)
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 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of October.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_6.png)
Note that $100/MWh equates to 10c/kWh.
In October prices firmed slightly with a 1.2% increase in CY 2022, up to $145/MWh, largely flat for CY 2023 at $133, and a 2.5% increase in CY 2024, up to $121/MWh.
Lower prices for CY 2023 and CY 2024 are based on an expectation that new generation is developed over that timeframe – known projects shown below.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_7-1024x547.png)
Note that Mercury is currently commissioning the Northern section of Turitea wind farm – 119MW due to be completed before the end of 2021. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that it is finalising the terms of a joint venture to build 500 MW of solar generation by 2025 in a range of locations across both islands.
Hydro Storage
Hydro inflows reduced during October but remained near expected levels. SI inflows were close to average, while NI inflows were a little less than expected.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_16.png)
Energy storage levels in New Zealand’s main hydro storage lakes increased again through October, though only marginally. Storage ended the month at 3,491 GWh or 79% full, up 15 GWh over the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_8.png)
As shown in the following graph, storage remains well above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages this year are now minimal. Given that we are moving into the period when we would expect the greatest inflows into the SI catchments, the risk of spillover the next few months is now probably quite high.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_9.png)
Uncertainty around future gas supplies, and high coal and carbon prices, are still causing hydro generators to be conservative in their valuing of storage, increasing the risk of spill but reducing the likelihood of supply shortages. We would expect that to remain the case for the next 1-2 years.
Snow Pack
Snowpack is an important way that hydro energy is stored over the winter months and released as hydro inflows in the spring. The following graph shows that snowpack has decreased over the last month as you would expect as the weather warms up. However, storage is still above the 75th percentile for this time of year in the important Waitaki catchment (feeds approx. 50% of the SI hydro generating capacity)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_10.png)
Climate outlook overview (from the MetService)
Climate Drivers – Cooling of surface waters in the tropical Pacific Ocean continued through October nearing La Nina thresholds. Most models now support the onset of a resurgent La Nina in late Spring or early summer. The impacts for New Zealand are not always obvious, but this suggests we should be in for warmer than average conditions, but this likely comes with cloudier and wetter weather too, especially for the upper regions of both islands. Whilst this may take time to develop, other drivers such as the Southern Annular Mode (SAM) will be more important. Through much of November positive SAM is expected to hold high pressure near South Island.
November 2021 Outlook – An unusual spring pattern – Spring weather for New Zealand usually means frequent strong westerlies with fronts whipping up the country from the Southern Ocean. The first ten days of November could not be more different. High pressure across South Island and a small but stubborn low to the northeast of the country combine for a total reversal of the norm. Settled conditions for South Island, with sunshine for the West Coast, although an onshore flow in the east will bring plenty of cloud and drizzle. Gisborne, Hawkes Bay, and eastern Bay of Plenty will see persistent rain accompanied by southeast winds reaching severe gale at times. Northland and Coromandel likely get a briefer, less intense version with other North Island regions being more settled.
With that pattern being etched into our weather maps for so long, a change may be welcome news around the 10th. The high is expected to break down, with lows running in from the west. Expect a spell of mild but unsettled weather with places exposed to the north and west bearing the brunt of passing systems.
From mid-month we see signs of high pressure returning with a settled spell across the country. This high then begins to slip southwards, again settling over South Island. This will increasingly allow small areas of low pressure to skirt around its northern flank, possibly ending the month as we began.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_11.png)
The Gas Market
Gas prices continued to slide through October with reduced gas demand for electricity generation and reduced residential demand as we moved into warmer spring months pushing prices down. Average prices for October were $11.3/GJ – 9% less than September.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_15.png)
On the supply side, the following graph shows an overall improvement in gas supply through October. The rate of decline at Pokokura reduced as recent gas injection has had some success at improving flows. However, the situation at Pokokura will not improve significantly until the operators complete drilling to improve output, currently due to occur late 2022.
Maui has progressed infill drilling resulting in significantly increased output. Maui averaged 100TJ per day in October – 33% more than in October and putting it on a par with McKee / Mangahewa and 25% more than Pokokura’s average output for the month. Kupe also increased production last month, averaging 70TJ/day up 15%.
Drilling programs are currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_18.png)
Reduced requirements for gas for electricity generation during October saw Huntly’s gas usage decline by another 7% over the month and other gas generation remained low. Methanex Motonui maintained the high level of use seen at the end of September, averaging 173.5TJ per day in October, up 14% on the month. Methanex Waitara continued to operate at a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_12.png)
Global energy prices remained in the news during October with a lack of gas storage/supply in Europe leading into their winter meaning that demand for LNG stayed high. However Asian markets have been outbidding them for scarce supply, meaning that there is the real potential of energy supply shortages in Europe over the winter. LNG netback prices increased again in October, ending the month at $39.35/GJ – another extraordinary increase of 77% on last month, following on from a 50% increase the month before! However, the forward prices showed some signs that prices may have peaked. Prices for the remainder of the year are expected to fall while next year prices are expected to average $19.75 (compared to $23 last month).
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_17-1024x645.png)
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. For example, high international gas prices have resulted in methanol production being cut back in some parts of the world and in record prices for methanol. Methanex may be willing to pay more for gas in NZ to try to maximise output and to benefit from these high methanol prices.
The Coal Market
The global energy crisis has been almost as much about coal as it has gas. Thermal coal prices increased again at the start of October, peaking at $240USD/T before falling off a cliff in the middle of the month when the Chinese Government intervened in their market, forcing domestic companies to increase supply while at the same time introducing a cap on the price. International prices ended the month at close to $150USD/T, down 34% in the month, but still around twice what they were at the start of the year.
The following graph shows international prices for thermal coal over the last 10 years.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_13.png)
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 12 months for electricity generation at Huntly. 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.
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 scheme closely linked to international schemes. 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, however, in the last couple of months they have shown some signs of levelling off at around $65/t.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/11/sp_nz_market_update_october_21_fig_14.png)
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 $65/t is estimated to currently add about $32.5/MWh (or ~3.25c/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.
About this Report
This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.
Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.
All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.
Further information can be found at the locations noted below.
- Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data
- The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/
- Weather and Climate data – The MetService publishes a range of weather related information which can be found here: https://www.metservice.com/
Disclaimer
This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2021. Smart Power Ltd
Market Update September 2021
The Wholesale Electricity Market
September was a relatively benign month in the wholesale electricity market, especially compared to the roller-coaster ride experienced in August.
Average spot prices for the month ranged from $63 in the far South to $100 top of the North Island as depicted in the following chart.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_1.png)
The following chart shows average weekly spot prices over the last 5 years. It can be seen that prices in September were down at levels not seen for a year.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_2.png)
Electricity Demand
Electricity demand in September gradually increased as lockdowns eased and people in most parts of the country returned to work. By the end of the month, demand had returned to more typical levels for the time of year.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_3.png)
Electricity Generation Mix
Hydro generation maintained the higher levels seen over the last two months enabling thermal generation to back off. Increased wind output during the first month of spring is also clear to see in the following chart.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_4.png)
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.
September saw a northward transfer increase from the already high levels observed since July. There was no southward flow reflecting significant SI inflows and improving SI storage position.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_5.png)
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 2022, 2023, and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of September.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_6.png)
Note that $100/MWh equates to 10c/kWh.
In September prices eased slightly with a 3.5% decrease in CY 2022, down to $143/MWh, largely flat for CY 2023, and a 3.5% decrease in CY 2024, down to $118/MWh.
Lower prices for CY 2023 and CY 2024 is based on an expectation that a new generation is developed over that timeframe – known projects shown below.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_7-1-1024x547.png)
Note that there are also a number of projects aimed at improving the output of existing schemes. For example, Manawa Energy – the renamed Trustpower after the sell-off of their retail arm to Mercury – is spending $83 million over 5 years to get an extra 68GWh pa from its existing assets. Similar incremental improvements are being made by other generators.
Hydro Storage
Hydro inflows were healthy again throughout September. SI inflows were still well above average levels, as they have been for the last few months, while NI inflows were close to expected.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_8.png)
Energy storage levels in New Zealand’s main hydro storage lakes increased again through September to end the month at 3,476 GWh or 79% full, up 244 GWh over the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_9.png)
As shown in the following graph, storage is now well above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages this year are now minimal. Given that we are moving into the period when we would expect the greatest inflows into the SI catchments, the risk of spill over the next few months is now probably quite high.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_10.png)
Uncertainty around future gas supplies, and high coal and carbon prices, are still causing hydro generators to be conservative in their valuing of storage, increasing the risk of spill but reducing the likelihood of supply shortages. We would expect that to remain the case for the next 1-2 years.
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 currently snow pack has increased over the last month and is now close to maximum levels for this time of year in the important Waitaki catchment (feeds approx.. 50% of the SI hydro generating capacity)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_11.png)
Climate outlook overview (from the MetService)
High pressure brings a fine and settled weekend with chilly mornings across the country to get October underway, but things don’t stay that way for long. An area of low pressure becomes slow-moving in the southern Tasman Sea pushing warm, humid north-westerlies and repeated bouts of rain across the country through the first full week of the month. This likely leads to a wet week for most places, especially those exposed to the northerlies. Once this low finally pulls away to the east there’s a brief respite before another low moves in. This one doesn’t hang around but rather barrels through central New Zealand. This brings another brief wet and windy spell for many, but the lower South Island and West Coast may be sheltered in easterlies. High pressure then begins to build in the Tasman Sea.
The high pressure may take its time to really set in but by mid-month, most of us should have had at least a few settled days. From that point, the high looks likely to edge north, with North Island continuing the settled trend. South Island, especially the lower South Island, will likely see westerlies, with rain in the west and above-average temperatures in the east. All signs point to the high then rebuilding across the country with a drier than average end to the month across the board.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_12.png)
The Gas Market
Gas prices dropped again through September with reduced gas demand for electricity generation and reduced residential demand as we moved out of the cooler winter period pushing prices down. Average prices for September were $12.4/GJ – 15% less than August.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_13.png)
On the supply side, the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. If anything the decline accelerated through September. We did not see other fields increase output meaning that overall production was lower than August coinciding with reduced demand as we moved out of winter. Drilling programs are currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_14.png)
Reduced requirements for gas for electricity generation during September saw Huntly’s gas usage decline by 20% over the month and other gas generation remained low. Methanex Motonui took up the slack increasing usage at the end of September from 150TJ to 170TJ per day (on top of a 50% increase in use last month). For the first time in some time, Methanex Waitara saw some gas usage – a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_15.png)
Global energy prices were the big news story in September. Lack of gas storage/supply in Europe leading into their winter has increased demand for LNG. However Asian markets have been outbidding them for scarce supply, meaning that there is the real potential of energy supply shortages in Europe over the winter. Australian LNG netback prices increased again in September, ending the month at $22.18/GJ – an extraordinary increase of 50% on last month! Prices are now more than ten times the Covid induced lows of the middle of 2020. The futures market also rose sharply with average prices for the rest of 2021 approaching $40 (compared to $21 – 24/GJ last month) and nearly $23/GJ in 2022 (compared to $15.5/GJ last month).
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_16-1024x627.png)
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. For example, Methanol manufacturing elsewhere in the world may be constrained by lack of gas supply, making the economics of using NZ gas more attractive, effectively pushing up gas demand, and prices in NZ.
The Coal Market
The global energy crisis has been almost as much about coal as it has gas. Thermal coal prices have hit record levels of $228USD/T – a 30% increase during September, following on from a 25% increase the month before. The post-Covid world economic rebound has fuelled demand for coal at the same time as supply has been reduced by a mixture of Covid induced mine restrictions, transportation bottlenecks, and reduced investment, which in turn has been impacted by environmental investment decisions. Countries like India and China, because of the high prices, are now trying to curb coal use, impacting on demand for gas as a substitute fuel, and on reduced electricity generation – forcing major users such as aluminum smelters to reduce production.
The following graph shows international prices for thermal coal over the last 10 years. Prices have almost tripled in 2021.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_17.png)
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 12 months for electricity generation at Huntly. 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.
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 scheme closely linked to international schemes. 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.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/10/sp_nz_market_update_september_21_fig_18.png)
As the carbon price rises, the cost of coal, gas or other fossil fuels used in process heat applications will naturally also rise. Electricity prices are also affected by a rising carbon price. Electricity prices are set by the marginal producing unit – in NZ this is currently typically coal or gas or hydro generators, with the latter valuing the cost of its water against the former. An increase in carbon price can lead to an increase in electricity prices in the short- to medium-term (as the marginal units set the price). A carbon price of $50/t is estimated to add about $25/MWh 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.
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 information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.
About Smart Power
Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:
- Technical Advice on how to reduce your energy use/emissions
- Sustainability Reporting
- Invoice Management services.
We also offer boutique energy and water billing service for landlords/property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2021. Smart Power Ltd
Market Update August 2021
The Wholesale Electricity Market
August was notable for the blackouts that occurred on the evening of Monday 9th August. National demand was very high (7,142MW) with a cold front causing temperatures to plunge and demand to soar. Media and political commentary on the event was predictably heated and tended to reflect the vested interests of the people who held those views. As with any event such as this, they tend to be caused by more than one thing in the system going wrong. Demand was more than forecast ahead of the event, gale force winds earlier in the day had pushed weeds into Tokaanu hydro intake, taking more than 100MW offline, and then a sudden drop in wind in the evening reduced NI wind generation. Some thermal units with long lead times to start-up were not available as their owners had not thought they would be needed.
Exacerbating the problem, a Transpower error made the outages worse than they needed to be by instructing some distributors to shed more load than required. This meant some customers had a disproportionate load shedding.
There are currently a number of reviews into what happened on the 9th including those by Transpower, the Electricity Authority (EA), and the Ministry of Business, Innovation, and Employment (MBIE). An Undesirable Trading Situation (UTS) has also been claimed by a number of participants, now being investigated by the EA. Watch this space on all of these!
The other notable event this month has been the Covid lockdown across all of NZ. This has reduced demand and spot prices in the second half of the month.
Spot prices on average reduced significantly again during August, but it was a roller-coaster ride. Daily prices started the month averaging around $170/MWh, peaked at almost $1,600/MWh on the day of the black-outs (9th), before ending the month at lows of around $65/MWh in the last two lockdown weeks.
![Heat Map](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_1-768x1024.png)
The following chart shows spot prices over the last 5 years. The high prices around when the blackout occurred on the 9th dwarf other price periods. Less obvious is the decline in spot prices after this date.
![Spot Prices over the last 5 years](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_2.png)
Electricity Demand
Electricity demand in August dropped off rapidly with the advent of the Covid lockdown in the middle of the month as can be seen in the following graph. The impact is similar to what was experienced during the first lockdown in April 2020, though starting from a higher level.
![Electricity demand graph](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_3.png)
Electricity Generation Mix
The reduction in generation in the last two weeks of August is clear to see in the following chart. The largest declines have been in hydro generation, being able to conserve more water to use later, and thermal generation.
![Electricity generation mix](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_4.png)
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.
August saw northward transfer remain at the high levels observed in July. There was no southward flow reflecting significant SI inflows and improved SI storage position.
![HVDC Transfer – Weekly GWh](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_5.png)
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 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of August.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_6-1.png)
Note that $100/MWh equates to 10c/kWh.
The increases in all calendar years over the last 12 months – over 60% for CY 2022 – is clear to see. Since June though prices had come back somewhat, particularly for CY 2022. In August prices reversed that recent trend with a 6% increase in CY 2022, up to $148/MWh, and smaller increases for CY 2023 and 2024.
The lower prices for 2023 and 2024 is due to the expectation of new generation being developed over that timeframe.
![Energy Generation Table](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_7-1-1024x553.png)
Hydro Storage
Hydro inflows were healthy again throughout August. SI inflows remained at similar high levels as July, well above the average levels for August. NI inflows dropped back to below average for the time of year.
![Hydro Storage Graph](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_8.png)
Energy storage levels in New Zealand’s main hydro storage lakes increased again through August to end the month at 3,232 GWh or 72% full, up 208 GWh over the month
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_9.png)
As shown in the following graph, storage is now well above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages this year are now minimal.
![Shortages and storage graph](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_10.png)
Uncertainty around future gas supplies is still causing hydro generators to try to conserve storage by valuing it at higher than normal levels. Given the circumstances we would expect that to remain the case until either storage exceeds average levels by a significant amount, or until there is more certainty around gas supplies.
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 currently snow pack has increased over the last month and remains well above average for this time of year in the important Waitaki catchment (feeds approx.. 50% of the SI hydro generating capacity.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_11.png)
Climate outlook overview (from the MetService)
Meteorological spring begins with high pressure sitting across South Island pushing a low away to the northeast, with heavy rain for Northland on the 1st. This brings a drier than average start of the month for most of New Zealand, although the top and tail of the country will see easterly showers, and weak westerly fronts respectively. Temperatures will feel classically spring-like with large diurnal (day-night) variation, and a few chilly nights yet to come. This will be felt most keenly where the winds are lightest – the upper South Island and lower and central North Island.
During the second week of September we start to see more activity in both the Southern Ocean and the Tasman Sea, the two conspiring to throw an area of low pressure our way. Expect a marked uptick in temperatures as northerlies move in, followed by rain, which may well be heavy in the north and west. Temperatures are likely to take a dive again in the wake of the system with a southerly change, then southwesterlies as the next high rolls in to settle the weather down mid-month.
The second half of the month will likely be mainly settled with high pressure diverting weather systems around the fringes of Aotearoa. This also means we’re back to large diurnal temperature swings which may be bad news for growers trying to get a head start on the season.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_12.png)
The Gas Market
Gas prices dropped through August with reduced gas demand for electricity generation followed by Covid lockdown demand reduction pushing prices down. Average prices for August were $14.8/GJ – 23% less than July.
![The Gas Market](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_13-1.png)
On the supply side the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. However in August this has been offset by increased output from Maui, McKee-Mangahewa, and Kupe, resulting in overall production being close to last month. Overall output is still down 20% on what we would expect through the winter months. This may not improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_14.png)
Reduced requirements for gas for electricity generation during August saw TCC’s gas usage drop to zero. Some of this was picked up by other generators early in the month, but with the drop in demand due to lockdowns the second half of the month saw Huntly as the main gas generation required to meet electricity demand. Additional gas at favourable prices saw Methanex Motunui increase its gas usage by almost 50% from around 100TJ to nearly 150TJ per day. The Methanex Waitara Valley plant remains mothballed. The following graph shows trends in the major gas users over the last 3 years.
![Daily Gas Usage by Large Load](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_15.png)
The Coal Market
Like gas, the price of coal can flow through and have an impact on the electricity market. Also coal is an internationally traded commodity so what happens in international markets can be important. Genesis has been importing significant amounts of coal over the last 12 months for electricity generation at Huntly.
The following graph shows international prices for thermal coal over the last 10 years. Prices continued to increase during August, ending the month at a fresh 10 year high of $174.6USD/T – a 25% increase over the month. Prices have more than doubled in 2021.
![Coal Usage](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_16.png)
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 scheme closely linked to international schemes. 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.
![Carbon Pricing Graph](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/09/sp_nz_market_update_august_21_fig_17.png)
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, even when more renewable electricity is being added (as the marginal units set the price). A carbon price of $50/t adds about $25/MWh to electricity prices.
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 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 a boutique energy and water billing service for landlords / property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2021. Smart Power Ltd
Market update July 2021
The Wholesale Electricity Market
Spot prices reduced significantly during July. At the end of July average spot prices were around $130/MWh compared to average levels in excess of $250/MWh seen over the previous few months. High inflows provided considerable relief for spot prices though they remain stubbornly high, reflecting uncertainty around future gas supply for electricity generation. Kawerau Geothermal (104MW) returned to service from its unplanned outage earlier than expected – returning mid-July (originally planned for late August return). The following heat-map shows average spot prices for the month
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_01.png)
The following chart shows spot prices over the last 5 years. The reduction in July pricing (extreme right of the graph) compared to the last few months can be clearly seen.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_02.png)
Electricity Demand
Electricity demand in July remained close to the levels seen in June as we progressed through the cooler, highest demand months. However demand was in line with recent years as shown in the following graph.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_03.png)
Electricity Generation Mix
Increased hydro generation continued through July with the welcome return of higher hydro inflows as discussed in following sections. Geothermal increased in the second half of the month with the return of Kawerau to operation, while thermal generation was able to back off from previous high levels. Wind output was higher at the start of the month but reduced later in the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_04.png)
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.
July saw northward transfer return to levels not seen since November last year. There was almost no southward flow reflecting significant SI inflows and improved SI storage position.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_05.png)
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 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of July.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_06-1024x516.png)
Note that $100/MWh equates to 10c/kWh.
The increases in all calendar years over the last 12 months – over 60% for CY 2022 – is clear to see. Since June though prices have come back somewhat, particularly for CY 2022. In July this decrease continued with a 7% reduction in CY 2022, down to $139/MWh, and lesser reductions for CY 2023 and 2024.
The lower prices for 2023 and 2024 is due to the expectation of new generation being developed over that timeframe.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_07-1024x515.png)
Hydro Storage
Hydro inflows were healthy again throughout July. SI inflows were well above the average levels for July and were at higher levels than they have been since November last year. NI inflows were at or above average for July.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_08-1024x429.png)
Energy storage levels in New Zealand’s main hydro storage lakes increased again through July to end the month at 3,024 GWh or 68% full, up 207 GWh over the month.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_09.png)
As shown in the following graph, storage is now above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages have greatly reduced.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_10-1024x515.png)
Uncertainty around future gas supplies is still causing hydro generators to try to conserve storage by valuing it at higher than normal levels. Given the circumstances we would expect that to remain the case until either storage exceeds average levels by a significant amount, or until there is more certainty around gas supplies.
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 currently snow pack has increased over the last month and is now well above average for this time of year in the important Waitaki catchment (feeds approx.. 50% of the SI hydro generating capacity.)
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_11.png)
Climate outlook overview (from the MetService)
The weather in early August looks very mobile, with frequent weather systems running in from the west interrupting brief settled periods under transient ridges of high pressure. There’s always a ridge near the Far North, so expect drier than average conditions for the upper North Island. Prevailing westerly winds further south mean that the western and lower portions of both islands will likely see wetter than average conditions, bearing the brunt of each system as it rolls in from the west. Conversely, eastern regions will likely run drier than average. Temperatures will likely fluctuate with above average conditions expected ahead of approaching weather systems thanks to mainly northwest winds, and cooler than average conditions in the lee of the passing lows. Snow is on the cards for the mountains of South Island.
There are signs that from mid-month the high pressure in the Tasman Sea will become more established and spread across Aotearoa bringing a more settled period. This likely brings a spell of little rain, cold frosty mornings, and fine afternoons. How long this spell lasts is a little up for debate, as further westerly weather systems are waiting in the wings. It’s looking likely that August will be bookended with westerly weather systems.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_12.png)
The Gas Market
Gas prices peaked in the middle of July at close to $40/GJ before dropping in the second half of the month to approx.. $14/GJ. Average prices for July were $19.3/GJ – 6% more than June.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_13.png)
On the supply side the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. However in July this has been offset by increased output from McKee-Mangahewa, resulting in overall production being close to last month. Overall output is still down 20% on what we would expect through the winter months. This may not improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_14.png)
Lack of supply and high prices have resulted in continued demand destruction during July, as can be seen in the following graph. The Methanex Waitara Valley plant has been mothballed for some months now, while Motunui maintained reduced consumption through July to allow a gas swop with Genesis enabling them to use more gas at Huntly. Increased hydro inflows allowed Huntly to reduce gas consumption by about 10% in July. Huntly has already been operating its duel fuel Rankine units on coal for most of the last 12 months to help conserve scarce water and to free up gas to be used elsewhere.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_15.png)
The Coal Market
Like gas, the price of coal can flow through and have an impact on the electricity market. Also coal is an internationally traded commodity so what happens in international markets can be important. Genesis has been importing significant amounts of coal over the last 12 months for electricity generation at Huntly.
The following graph shows international prices for thermal coal over the last 10 years. Prices increased during July, peaking at $150USD/T before falling back at the end of the month to close at $139USD/T – a small increase over the month. Prices remain at the highest levels seen in the last 10 years
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_16.png)
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 scheme closely linked to international schemes. Over the last few years the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now almost twice what they were just over a year ago.
![](https://smartpower1.wpenginepowered.com/wp-content/uploads/2021/08/smart_power_17.png)
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, even when more renewable electricity is being added (as the marginal units set the price). A carbon price of $50/t adds about $25/MWh to electricity prices.
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 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 a boutique energy and water billing service for landlords / property developers.
Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.
© Copyright, 2021. Smart Power Ltd
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.