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.