Market Update December 2021

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased during December. Average spot prices for the month ranged from $45 (-40%) in the far South to $67 (-30%) 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 lower prices in December are just visible on the far right of the graph.

Electricity Demand

Electricity demand was lower in December than in the last two years – back to levels last seen in 2018. The continued downward trend in demand as we move into summer and temperatures increase is also apparent.

Electricity Generation Mix

Reducing demand enabled hydro and thermal generation to ease slightly in December. 

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.

December saw increased northward transfer which became apparent at the end of November continue, coinciding with some increased SI inflows. There was no southward flow.  

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 December.

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

In December, CY 2022 prices increased at the start of the month peaking at $157 before dropping considerably later in the month, closing at $141 – a 7% decrease for the month. CY 2023 was static throughout the month ending unchanged at $138, while CY 2024 was also largely flat ending the month at $123/MWh – a 1.5% increase. 

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 soon. 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 increased during December to above-expected levels. SI inflows were above average for most of the month, only reducing later in the month. NI inflows were less than expected for most of the month, though increased to well above average later in the month. 

Energy storage levels in New Zealand’s main hydro storage lakes increased again through December. Storage ended the month at 3,872 GWh or 88% full, up 239 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 remains 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 6 Jan 2022)

Climate Drivers — La Nina conditions are well established in the tropical Pacific with cooler than average surface waters and enhanced easterly trade winds. This is likely a contributing factor to the blocking high becoming entrenched across the South Island promoting a positive Southern Annular Mode (SAM) deflecting stormy westerlies south of our shores. The Madden-Julian Oscillation (MJO), an area of enhanced cloud and rain which circumnavigates the tropics every 30-60 days is currently weak.

January 2022 Outlook – Dry weather abound

This year has begun in scorching style thanks to high pressure with plenty of sunshine and temperatures well above average across the country. Following a brief and likely welcome cool southerly change running up the South Island, things warm up again at the weekend. Next week brings a little rain as two cold fronts run up South Island, but they’re no match for the North Island ridge that awaits them, reducing them to just a few showers by the time they reach Te Ika-a-Māui (the North Island). High pressure then returns with plenty of dry, settled weather across the country for much of the rest of the month.

The weather’s New Year resolution appears to be to bring high pressure and settled weather to Aotearoa. Sure, there will be the odd cheat day but expect plenty of fine, warm, and dry weather on the Mainland with the North Island also remaining mainly settled. Later in the month as resolutions wane we may well see a low from the Tasman Sea or possibly the sub-tropics brings a bout of wet and windy weather, most likely for the North Island. That said it is possible the resolution may hold as long as most tend to… into early February.

The Gas Market

As is normal for this time of year gas prices decreased through December. Average prices were $9.78/GJ – 13.5% down on November. 

On the supply side, the following graph shows a slight decline in December. Pohokura output decreased slightly, still averaging over 90TJ/day for the month but down 1% in November. The recent gas injection program has had some success at improving flows above the 80TJ/day in October. 

A production outage at the start of the month and slightly lower daily output pulled down Maui’s average by 4% to 96TJ/day. McKee / Mangahewa decreased output slightly – down 3% to 94TJ/day while Kupe also declined slightly averaging 69TJ/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 ongoing 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 December saw Huntly’s gas usage decline by another 10% over the month and other gas generation remained low. Methanex Motonui appeared to time production outages with reduced Maui supply as it decreased its average use to 164TJ per day, down 8% on the month. Methanex Waitara continued to operate at a minimal 4-6TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Despite a mild start to winter in the northern hemisphere, global energy prices remained high during December. The ongoing lack of gas storage/supply in Europe and geopolitical disputes impacting supply out of Russia have resulted in elevated wholesale prices for gas and electricity. These have started to flow on to industries heavily reliant on gas and/or electricity such as Aluminium where there have been plant closures in Europe and production scaled back in China. 

LNG netback prices (last published mid-Dec) have remained high at $41.24/GJ – a 16% increase on last month. Prices for next year are expected to average $34.46/GJ (compared to $24.58 last month) while 2023 netback prices increased to $18.66/GJ ($15.29/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 and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices. 

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. After the large falls in October driven by the Chinese Government intervening in their market, coal prices were largely flat in December ending the month at $160USD/T. However, at the start of January Indonesia, the world’s largest exporter of thermal coal used for power generation, banned all exports of coal for January to protect their domestic supply. This caused an immediate spike in international coal prices up to $180USD/T in recent trading. These prices are well above the levels generally seen in the last 10 years as shown in the following graph. 

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 2 years for electricity generation at Huntly, though Genesis has pointed out that most of this has been purchased at contract prices significantly below international spot prices. 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 levelled off somewhat after the significant increases in November – but are still up 170% on a year ago, as concerns about the amount of coal likely to be burnt during the 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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