NZ power prices set to stay elevated in 2025

Power prices look likely to stay firm in 2025. Photo /123rf

New Zealand power prices look likely to remain elevated this year.

Wholesale prices this week were around $250 megawatt hour (MWh) — up from $104.06MWh a month ago — reflecting lower lake levels.

This comes at a time when the big power companies are keen to avoid a repeat of last winter’s spike, which saw prices peak at over $800 per megawatt hour (MWh).

“At this time of year, you expect the lakes to be high, stocking up storage going into winter, but they’ve dropped a lot over the last month we have had very, very low inflows in both islands,” Greg Sise, managing director of EnergyLink, says.

“All things being equal, it’s more likely that prices will be higher this year than what we were thinking at the end of last year, that’s just about lake inflows and nothing to do with the market.”

Last year’s issues were about the short supply of gas, an unusually dry winter for hydroelectricity generation, and very light wind flows.

ASX futures prices are about —$300 megawatt hour for the second and third quarters of this year, up from $106MWh and $200MWh, respectively, a month ago.

Current futures market pricing looked to have “baked in” last year’s gas issues, Sise said.

But he said there’s been a lot going on behind the scenes in the gas industry to try to drum up more supply.

“There’s been a lot of work going on in the background to try and free up gas, so I think the futures are over-specifying the probability of having another year like last year,” he said.

Contact has struck a deal for access to Pohokura gas. Photo / NZME

Last month, Contact Energy said it had entered into a contract with Austrian oil and gas company OMV for the supply of natural gas from Taranaki’s Pohokura field from January 2026 to December 2032.

The new supply contract would go towards supporting Contact’s planned operation of its two fast-start gas peaking units at Stratford.

With the underlying wholesale gas price up by over 50% since Contact’s last long-term contracting process, pricing was “materially higher”, causing an implied short-run marginal cost of more than $200/MWh for power generated through its Stratford peakers, the company said then.

EnergyLink’s Sise said the Contact-Pohokura deal was a sign that the power generators will be wanting to avoid a year such as 2024, which forced the closure of some energy-hungry timber mills.

New Zealand’s coal and gas-fired thermal plants — operated by Genesis and Contact — are getting old.

The big four power companies have teamed up to look at ways of extending the life of Genesis Energy’s Rankines at Huntly to improve security of power supply.

Genesis said the move was in response to last winter’s market “pinch point”.

Contact’s Taranaki Combined Cycle station was to have been pensioned off by now but the company has said it will be kept available this winter.

“The generators I’m sure will want things to be seen to be looking better than they did last year,” Sise said.

“We have a lot more new renewables coming on, so these thermal plants are going to run less and less, and the impact of (more expensive) thermal on prices will be less and less over time as well.”

“Residential prices move with a big lag, relative to the prices that the big consumers pay, so given how much costs have gone up over the last five years or so, residential prices have a way to go yet, so I think they will continue to tick up for another year or two.”

There was also the prospect of higher transmission and distribution charges, which would add upward pressure to prices.

“In order to bring prices down, we need to have a lot more renewables built, and for that to happen, we need we need the cost of building those renewables down, and that’s a that may still happen but it will take a while,” Sise said.

“The thing is that to bring prices down, we need to have a lot more new renewables built, and for that to happen, we need the cost of building those renewables to come down.”

Transpower, in a report, said national hydro storage continued to decline over the past week and has now fallen to 93% of the historic mean for this time of year.

The big power generators are looking to extend the life of Genesis Energy's Huntly Power Station. Photo / NZME

This followed increasing demand and continued below-average inflows at a time of year when average inflows are typically higher, the grid operator said.

Demand at the start of this year has been lower than seen in recent years.

The reduction has largely been due to reduced industrial load with the permanent closure of the Winstone Pulp International mills, the gradual return of the Tiwai Point aluminium smelter load following its reduction last year, and lower irrigation load in the South Island due to increased rainfall in the region.

“Looking forward, we expect demand to increase over the coming months as the Tiwai load returns and warmer, drier weather results in increased irrigation and cooling loads.”

Transpower said it continued to emphasise the need for increased thermal fuel capability to deal with periods of low water inflows.

“This would include a combination of maintaining higher coal stockpiles, ensuring sufficient gas swap arrangements, holding hydro storage lakes higher and demand-response arrangements,” it said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.