Contact Energy warns on income

By CHRIS DANIELS

Unexpected conditions in the wholesale electricity market have prompted Contact Energy to issue a warning that its income for the next few months might be affected.

Contact chief executive Steve Barrett yesterday said that wholesale electricity prices in the past few days had reached more than 25c a kilowatt hour at Otahuhu, which is much higher than usual for this time of year.

Prices have been especially high in peak demand periods and in the upper North Island, he said.

It is unlikely that such an announcement would have been made before new requirements for listed companies to keep the market continuously informed about potentially price-sensitive developments came into force this week.

Details on the past month of power prices, released yesterday by M-Co, the company that runs the wholesale electricity market, show November was a cool and dry month, with storage in the hydro lakes down from 107 per cent at the end of October to 89 per cent by the start of December. Cooler weather meant increased demand for power.

A heavy snow cap on the Southern Alps is expected to help top up these lakes when the summer thaw gets under way.

The South Island hydro generators generated at high levels, an average of 53 per cent of New Zealand's electricity. One result of this is frequent constraints on the High Voltage Direct Current (HVDC) link, which carries electricity from the South Island to the North.

When such constraints occur, wholesale electricity becomes much more expensive in the North Island than in the South.

Another reason for higher wholesale prices is the scheduled shutdown of Contact's Otahuhu B gas fired power station in Auckland. It stopped generating at the start of last month, and is not due to resume operations until January 24.

This increases the chance of Contact being caught out, sometimes paying higher prices for buying power, while still having to supply its retail customers.

Normally this would not present any particular issues, said Barrett, however, because of the unusual conditions prevailing Contact did have heightened exposure to periods of high spot prices, and to locational price differences.

Barrett said that based on present information, he expected the conditions "to have some impact on Contact's net income for the quarter".

He said it was not possible to precisely forecast the financial impact, which would depend on how long these "unusual conditions" lasted.