Tightening gas supply, low lake levels, and calm conditions have combined to drive wholesale power prices sharply higher this winter.
Wholesale power prices on Wednesday hit $430 per megawatt hour at Ōtāhuhu compared with $283 at the end of July, largely reflecting increased reliance on thermalgeneration assets.
The big power generators have reported lower than normal hydro lake levels and a lack of wind, which means the system has had to lean on coal- and gas-burning thermal power to make up the shortfall.
“What we have had is a long period since we have had rain, and we have also had quite still conditions, so not much wind,” Chris Ewers, Meridian’s general manager wholesale, said.
“You have diversity of fuel to power your generation and so when some of it is not there, with no wind or rain, you have other plants stepping in,” he told the Herald.
“Supply and demand is running through the wholesale price and that’s what we are seeing,” he said.
Meridian has already taken advantage of a demand response deal it signed with the country’s biggest power user - the NZAS - which runs the Tiwai Point aluminum smelter.
The deal means Meridian can ask NZAS to reduce consumption when conditions are tight.
High wholesale prices generally don’t flow through directly to retail customers because of the way power companies hedge their exposures internally.
However, high prices can affect industrial users, depending on their own hedging arrangements and exposure to the spot market.
Gas prices have been elevated, particularly since the release of a report by MBIE earlier this month which said production is expected to drop below demand over the next three years.
The department’s data showed the country’s gas reserves will produce 10 petajoules (PJ) less than recent demand levels for “at least” the next three years.
Spot gas now trades at around $30 to $40 a gigajoule, well up from around $10 to $12 four to five years ago.
Genesis said all three of its coal and gas-fired Rankines at Huntly have been running hard to meet demand.
“The need for all three Rankines has been exacerbated by the low lake level at our Tekapo Hydro Scheme and the constrained gas supply, which means we’ve only been able to run Unit 5 at its mid-range (around 50%),” a spokesperson said.
Genesis Energy's Huntly Power Station. Photo / NZME
The company said ongoing operation of the third Rankine was contingent on ongoing staffing, unit reliability and fuel availability.
