Market Update October 2021

The Wholesale Electricity Market

Spot prices in the wholesale electricity market continued to decline during October. Average spot prices for the month ranged from $51 in the far South to $77 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 the last couple of months have come down from recent highs and are now at what could be said to be more “normal” levels.

The following chart shows average weekly spot prices over the last 5 years. It can be seen that prices in the last couple of months have come down from recent highs and are now at what could be said to be more “normal” levels.

Electricity Demand

Electricity demand in October was below the levels of the last few years reflecting on-going reduced activity during lockdowns. Demand was also trending down as expected as the weather warmed up.

Electricity Generation Mix

Hydro generation increased again in October enabling thermal generation to back off further. Reduced wind output 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.

October saw northward transfer maintain the very high levels seen since August. 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 October.

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

In October prices firmed slightly with a 1.2% increase in CY 2022, up to $145/MWh, largely flat for CY 2023 at $133, and a 2.5% increase in CY 2024, up to $121/MWh. 

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

Note that Mercury is currently commissioning the Northern section of Turitea wind farm – 119MW due to be completed before the end of 2021. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that it is finalising the terms of a joint venture to build 500 MW of solar generation by 2025 in a range of locations across both islands.

Hydro Storage

Hydro inflows reduced during October but remained near expected levels. SI inflows were close to average, while NI inflows were a little less than expected. 

Energy storage levels in New Zealand’s main hydro storage lakes increased again through October, though only marginally. Storage ended the month at 3,491 GWh or 79% full, up 15 GWh over the month. 

As shown in the following graph, storage remains 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 spillover 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

Snowpack 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 snowpack has decreased over the last month as you would expect as the weather warms up. However, storage is still above the 75th percentile 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)

Climate Drivers – Cooling of surface waters in the tropical Pacific Ocean continued through October nearing La Nina thresholds. Most models now support the onset of a resurgent La Nina in late Spring or early summer. The impacts for New Zealand are not always obvious, but this suggests we should be in for warmer than average conditions, but this likely comes with cloudier and wetter weather too, especially for the upper regions of both islands. Whilst this may take time to develop, other drivers such as the Southern Annular Mode (SAM) will be more important. Through much of November positive SAM is expected to hold high pressure near South Island.

November 2021 Outlook – An unusual spring pattern – Spring weather for New Zealand usually means frequent strong westerlies with fronts whipping up the country from the Southern Ocean. The first ten days of November could not be more different. High pressure across South Island and a small but stubborn low to the northeast of the country combine for a total reversal of the norm. Settled conditions for South Island, with sunshine for the West Coast, although an onshore flow in the east will bring plenty of cloud and drizzle. Gisborne, Hawkes Bay, and eastern Bay of Plenty will see persistent rain accompanied by southeast winds reaching severe gale at times. Northland and Coromandel likely get a briefer, less intense version with other North Island regions being more settled.

With that pattern being etched into our weather maps for so long, a change may be welcome news around the 10th. The high is expected to break down, with lows running in from the west. Expect a spell of mild but unsettled weather with places exposed to the north and west bearing the brunt of passing systems.

From mid-month we see signs of high pressure returning with a settled spell across the country. This high then begins to slip southwards, again settling over South Island. This will increasingly allow small areas of low pressure to skirt around its northern flank, possibly ending the month as we began.

The Gas Market

Gas prices continued to slide through October with reduced gas demand for electricity generation and reduced residential demand as we moved into warmer spring months pushing prices down. Average prices for October were $11.3/GJ – 9% less than September. 

On the supply side, the following graph shows an overall improvement in gas supply through October. The rate of decline at Pokokura reduced as recent gas injection has had some success at improving flows. However, the situation at Pokokura will not improve significantly until the operators complete drilling to improve output, currently due to occur late 2022.

Maui has progressed infill drilling resulting in significantly increased output. Maui averaged 100TJ per day in October – 33% more than in October and putting it on a par with McKee / Mangahewa and 25% more than Pokokura’s average output for the month. Kupe also increased production last month, averaging 70TJ/day up 15%.

Drilling programs are currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022.

Reduced requirements for gas for electricity generation during October saw Huntly’s gas usage decline by another 7% over the month and other gas generation remained low.  Methanex Motonui maintained the high level of use seen at the end of September, averaging 173.5TJ per day in October, up 14% on the month. Methanex Waitara continued to operate at a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained in the news during October with a lack of gas storage/supply in Europe leading into their winter meaning that demand for LNG stayed high. 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. LNG netback prices increased again in October, ending the month at $39.35/GJ – another extraordinary increase of 77% on last month, following on from a 50% increase the month before! However, the forward prices showed some signs that prices may have peaked. Prices for the remainder of the year are expected to fall while next year prices are expected to average $19.75 (compared to $23 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, high international gas prices have resulted in methanol production being cut back in some parts of the world and in record prices for methanol. Methanex may be willing to pay more for gas in NZ to try to maximise output and to benefit from these high methanol prices.

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. Thermal coal prices increased again at the start of October, peaking at $240USD/T before falling off a cliff in the middle of the month when the Chinese Government intervened in their market, forcing domestic companies to increase supply while at the same time introducing a cap on the price. International prices ended the month at close to $150USD/T, down 34% in the month, but still around twice what they were at the start of the year.  

The following graph shows international prices for thermal coal over the last 10 years.

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, however, in the last couple of months they have shown some signs of levelling off at around $65/t.

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 $65/t is estimated to currently add about $32.5/MWh (or ~3.25c/kWh) 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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