Market Update November 2021

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased during November. Average spot prices for the month ranged from $75 (+50%) in the far South to $95 (+25%) top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. The higher prices in November are just visible on the far right of the graph – but still considerably below the peaks of a few months ago.

Electricity Demand

After the clear impact of lockdowns during September, electricity demand in November was close to, if not slightly below the levels of the last few years. Demand was also trending down as expected as the weather warmed up.

Electricity Generation Mix

Hydro generation iHydro generation was stable in November enabling thermal generation to back off further as demand reduced.

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.

November saw northward transfer reduce for most of the month until it picked up again on the last week of November, coinciding with some increased SI inflows. There was a small amount of southward flow for the first time since July, reflecting lower SI inflows at the start of the month and a deteriorating SI storage position relative to the hydro risk curves.

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 November.

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

In November, CY 2022 prices jumped at the start of the month peaking at $155 before easing later in the month, closing at $151 – a 4% increase in the month. CY 2023 drifted up throughout the month ending $5 higher at $138 – a 4% increase, while CY 2024 was largely flat ending the month at $121/MWh – no change. 

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 FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed early 2022.

Hydro Storage

Hydro inflows reduced during November to below expected levels. SI inflows were below average for the first half of the month but then increased in the second half. NI inflows were less than expected for most of the month. 

Energy storage levels in New Zealand’s main hydro storage lakes increased again through November. Storage ended the month at 3,633 GWh or 82% full, up 142 GWh over the month. 

As shown in the following graph, storage remains above the average for this time of year. However, even though the storage is increasing, so too are the risk curves reflecting this being the time of the year when we expect to see the most significant inflows, and when inflows on average will soon start to reduce and we will rely on storage for security of supply. 

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 snow pack has decreased over the last month as you would expect as the weather warms up. Storage is now close to the mean level we would expect 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 – La Nina conditions have developed in the tropical Pacific Ocean, with cool sea surface temperatures and enhanced easterly trade winds. La Nina in summer tends to bring warmer than average, humid condition to New Zealand, with high pressure centred about the Chatham Island and north-easterlies prevailing. This is often supported by persistent, strong positive Southern Annular Mode (SAM) deflecting the usual ring of stormy westerlies about the Southern Ocean further south and away from our shores. These are of course departures from the norm, and even with these drivers in place we’ll still see plenty of usual summer weather.

December 2021 Outlook – A humid start to summer – Thermometers around the country certainly got the memo, meteorological summer is here. High pressure is dominating the New Zealand weather maps, and whilst it remains centred to the east of the country, our winds will maintain a northerly bias, and the humidity is here to stay. Expect a much warmer than average month across the board.

The first week of the month looks very settled bar a few showers before northwesterly rain pushes onto South Island at the weekend. High pressure then returns in a big way, especially for the South Island.

Changes in the weather patterns will be few and far between through December, with high pressure centred south and east of the country. This brings a drier than average outcome for the West Coast and lower South Island. Eastern regions of South Island will likely see a settled but often cloudy month. Upper South Island and North Island weather will be dictated by the northern extent of this high. During periods when the high waxes north, settled conditions will prevail. During the time when the high wanes southwards, we open the door to the northern Tasman Sea and areas of low pressure running across the upper North Island, bringing rain to anywhere with northern exposure.

The Gas Market

Gas prices were flat through November. Average prices were $11.3/GJ – unchanged from October.

On the supply side, the following graph shows an overall improvement in gas supply through November. For the first time in over a year, Pohokura output increased, averaging over 90TJ/day for the month compared to 80TJ/day in October. The recent gas injection program has had some success in improving flows. 

After the recent infill drilling, Maui continued to perform well, averaging 100TJ per day in November – on a par with last month. McKee / Mangahewa also maintained its October output of close to 100TJ/day while Kupe maintained production last month, averaging 70TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in late 2022. Drilling programs are also currently on-going at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.

Reduced requirements for gas for electricity generation during November saw Huntly’s gas usage decline by another 2% over the month and other gas generation remained low.  Methanex Motonui took advantage of the increased gas supply increasing its average use to 179.2TJ per day, up 3% 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 high during November 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. After LNG netback prices increased by more than 200% in the previous two months, they dropped in November, ending the month at $35.53/GJ – a 10% decrease from October’s high. Prices for next year are expected to average $24.58/GJ (compared to $19.75 last month) while for the first time 2023 netback prices are being published at $15.29/GJ.

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. After the large falls seen last month when the Chinese Government intervened in their market, coal prices stabilised in November – in a range of $140-160USD/T. These prices are still well above the levels generally seen in the last 10 years as shown in the following graph.  International prices ended the month at $159USD/T, up 6% in the month. 

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 18 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 – 70/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.

European greenhouse gas emission rights rose by 34% over the month (up 170% in the last year) as concerns about the amount of coal likely to be burnt during the coming European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

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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