Power bills reflect tighter energy market

By CHRIS DANIELS energy writer

Power company bosses have been warning of big price rises for years now, but their uncomfortable message does not seem to really hit home until the bigger monthly power bills arrive in the letter box.

Only two months ago, Contact Energy chief executive Steve Barrett warned of power price hikes up to 20 per cent in the next few years.

He said this was due to a forecast 40 per cent increase in the price of wholesale power.

For Contact, the problem is simply that there is not even natural gas around to fuel the power stations it wants to build. If there were enough gas, Contact would already be half way through constructing a new power station at its Otahuhu site.

A reasonable question is why the big power companies - Meridian, Genesis, Contact, Mighty River Power and Trustpower - do not use their profits to build these stations.

Together, these companies made a combined after-tax profit of $441.7 million in the last year, but all would point out that such a return, when put against the billions of dollars worth of assets owned, is nothing outrageous.

Customers at the household and business level are being asked to pay the cost of this much needed new generation. The idea of a free market for electricity was that price signals would determine when and where new power stations would be built.

Have another look at that power bill - that's your signal right there.

Unfortunately, these signals are coming at a very inconvenient time for everyone, the power companies included.

With the rundown in Maui gas, the easiest and cheapest source of fuel for thermal power stations is harder to come by. Plans are afoot for the possible importation of natural gas, which is shipped in a liquid state.

This would be much more expensive than natural gas found in Taranaki, but the power companies, primarily Genesis and Contact, are worried that any new gas discoveries would be too small and too late to save their power stations from having to shut down.

Many in the industry were surprised last week by the price volatility in the wholesale market caused by the loss of the power link between the North and South Islands, when wind knocked down pylons.

Those spikes in wholesale prices, are, some say, a sure sign that the gap between demand for electricity and supply is quickly narrowing .

But while their profits look healthy and more overseas investments are made, power companies will have an increasingly tough job selling 20 per cent price hikes to their customers.