Market Update September 2021

The Wholesale Electricity Market

September was a relatively benign month in the wholesale electricity market, especially compared to the roller-coaster ride experienced in August. 

Average spot prices for the month ranged from $63 in the far South to $100 top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. It can be seen that prices in September were down at levels not seen for a year.

Electricity Demand

Electricity demand in September gradually increased as lockdowns eased and people in most parts of the country returned to work. By the end of the month, demand had returned to more typical levels for the time of year.

Electricity Generation Mix

Hydro generation maintained the higher levels seen over the last two months enabling thermal generation to back off. Increased wind output during the first month of spring is also clear to see in the following chart.

HVDC Transfer

Power transfers on the HVDC link connecting the North and South Islands are important both in showing relative hydro positions and also the reliance on thermal power to meet demand. High northward flow tends to indicate a good SI hydro position, whereas the reverse indicates a heavy reliance on thermal power to make up for hydro shortages.

September saw a northward transfer increase from the already high levels observed since July. There was no southward flow reflecting significant SI inflows and improving SI storage position.

The Electricity Futures Market

The Futures Market provides an indication of where market participants see the spot market moving in the future. They are based on actual trades between participants looking to hedge their positions (as both buyers and sellers) into the future against potential spot market volatility. They are also a useful proxy for the direction of retail contracts. 

The following graph shows Futures pricing for CY 2022, 2023, and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of September.

Note that $100/MWh equates to 10c/kWh.

In September prices eased slightly with a 3.5% decrease in CY 2022, down to $143/MWh, largely flat for CY 2023, and a 3.5% decrease in CY 2024, down to $118/MWh. 

Lower prices for CY 2023 and CY 2024 is based on an expectation that a new generation is developed over that timeframe – known projects shown below.

Note that there are also a number of projects aimed at improving the output of existing schemes. For example, Manawa Energy – the renamed Trustpower after the sell-off of their retail arm to Mercury – is spending $83 million over 5 years to get an extra 68GWh pa from its existing assets. Similar incremental improvements are being made by other generators.

Hydro Storage

Hydro inflows were healthy again throughout September. SI inflows were still well above average levels, as they have been for the last few months, while NI inflows were close to expected.

Energy storage levels in New Zealand’s main hydro storage lakes increased again through September to end the month at 3,476 GWh or 79% full, up 244 GWh over the month.

As shown in the following graph, storage is now well above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages this year are now minimal. Given that we are moving into the period when we would expect the greatest inflows into the SI catchments, the risk of spill over the next few months is now probably quite high.

Uncertainty around future gas supplies, and high coal and carbon prices, are still causing hydro generators to be conservative in their valuing of storage, increasing the risk of spill but reducing the likelihood of supply shortages. We would expect that to remain the case for the next 1-2 years.

Snow Pack

Snow pack is an important way that hydro energy is stored over the winter months and released as hydro inflows in the spring. The following graph shows that currently snow pack has increased over the last month and is now close to maximum levels for this time of year in the important Waitaki catchment (feeds approx.. 50% of the SI hydro generating capacity)

Climate outlook overview (from the MetService)

High pressure brings a fine and settled weekend with chilly mornings across the country to get October underway, but things don’t stay that way for long. An area of low pressure becomes slow-moving in the southern Tasman Sea pushing warm, humid north-westerlies and repeated bouts of rain across the country through the first full week of the month. This likely leads to a wet week for most places, especially those exposed to the northerlies. Once this low finally pulls away to the east there’s a brief respite before another low moves in. This one doesn’t hang around but rather barrels through central New Zealand. This brings another brief wet and windy spell for many, but the lower South Island and West Coast may be sheltered in easterlies. High pressure then begins to build in the Tasman Sea.

The high pressure may take its time to really set in but by mid-month, most of us should have had at least a few settled days. From that point, the high looks likely to edge north, with North Island continuing the settled trend. South Island, especially the lower South Island, will likely see westerlies, with rain in the west and above-average temperatures in the east. All signs point to the high then rebuilding across the country with a drier than average end to the month across the board.

The Gas Market

Gas prices dropped again through September with reduced gas demand for electricity generation and reduced residential demand as we moved out of the cooler winter period pushing prices down. Average prices for September were $12.4/GJ – 15% less than August. 

On the supply side, the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. If anything the decline accelerated through September. We did not see other fields increase output meaning that overall production was lower than August coinciding with reduced demand as we moved out of winter. Drilling programs are currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022. 

Reduced requirements for gas for electricity generation during September saw Huntly’s gas usage decline by 20% over the month and other gas generation remained low.  Methanex Motonui took up the slack increasing usage at the end of September from 150TJ to 170TJ per day (on top of a 50% increase in use last month). For the first time in some time, Methanex Waitara saw some gas usage – a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices were the big news story in September. Lack of gas storage/supply in Europe leading into their winter has increased demand for LNG. However Asian markets have been outbidding them for scarce supply, meaning that there is the real potential of energy supply shortages in Europe over the winter. Australian LNG netback prices increased again in September, ending the month at $22.18/GJ – an extraordinary increase of 50% on last month! Prices are now more than ten times the Covid induced lows of the middle of 2020. The futures market also rose sharply with average prices for the rest of 2021 approaching $40 (compared to $21 – 24/GJ last month) and nearly $23/GJ in 2022 (compared to $15.5/GJ last month). 

New Zealand does not have an LNG export market so our domestic prices are not directly linked to global prices. However, some of our large gas users deal in international markets which are impacted by global gas prices. For example, Methanol manufacturing elsewhere in the world may be constrained by lack of gas supply, making the economics of using NZ gas more attractive, effectively pushing up gas demand, and prices in NZ.

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. Thermal coal prices have hit record levels of $228USD/T – a 30% increase during September, following on from a 25% increase the month before. The post-Covid world economic rebound has fuelled demand for coal at the same time as supply has been reduced by a mixture of Covid induced mine restrictions, transportation bottlenecks, and reduced investment, which in turn has been impacted by environmental investment decisions. Countries like India and China, because of the high prices, are now trying to curb coal use, impacting on demand for gas as a substitute fuel, and on reduced electricity generation – forcing major users such as aluminum smelters to reduce production.

The following graph shows international prices for thermal coal over the last 10 years. Prices have almost tripled in 2021.

Like gas, the price of coal can flow through and have an impact on the electricity market.  Genesis has been importing significant amounts of coal over the last 12 months for electricity generation at Huntly. When running, these units often set the marginal price. Even when Huntly is not setting the market price, hydro generators factor in increasing fuel costs in determining the prices they will offer into the market, again flowing through to higher electricity prices. 

Carbon Pricing

NZ has had an Emissions Trading Scheme (ETS) in place since 2008. It has been subsequently reviewed by a number of governments and is now an uncapped scheme closely linked to international schemes. Over the last few years, the Carbon Price through the ETS has climbed as shown in the following graph. Prices are now over twice what they were just over a year ago.

As the carbon price rises, the cost of coal, gas or other fossil fuels used in process heat applications will naturally also rise. Electricity prices are also affected by a rising carbon price. Electricity prices are set by the marginal producing unit – in NZ this is currently typically coal or gas or hydro generators, with the latter valuing the cost of its water against the former. An increase in carbon price can lead to an increase in electricity prices in the short- to medium-term (as the marginal units set the price). A carbon price of $50/t is estimated to add about $25/MWh to electricity prices. In the long term, the impact should reduce as money is invested in more low-cost renewables and there is less reliance on gas and coal-fired generation.

About this Report

This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.

Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.

All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.

Further information can be found at the locations noted below.

  • Weather and Climate data – The MetService publishes a range of weather related information which can be found here:


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