Market Update March 2022

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased dramatically during March in both the North and South Island. Average spot prices for the month ranged from $180 in North Canterbury, to $215 in Southland ($110 in Feb) in the far South, and to $210 ($165 in Feb) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices, especially in the South Island, in March are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased slightly in March – now back in line with levels seen at the same time in the last 4 years, apart from 2020 when demand was impacted by the first Covid lockdown.

Electricity Generation Mix

Continued attempts to conserve water has accelerated the reduced hydro and increased thermal generation observed last month as shown in the following graph. 

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.

March saw northward transfer reduced further as SI hydro generators tried to conserve water and a considerable increase in southward transfer compared to February. 

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, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of March.

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

The increase in prices observed through February, after the announcement from Rio Tinto that they wanted to keep the Tiwai Aluminium smelter operating after 2024, continued into the start of March before levelling off somewhat in the second half of the month. CY 2023 prices closed at $177 – a 13.5% increase for the month. CY 2024 also increased throughout the month finishing at $156 – a 7.5% increase.  CY 2025 ended the month at $136.5/MWh – a 6% increase. 

Trying to balance this on the supply side a number of new solar projects were announced during March which could be up and running very quickly if approved. Known projects shown below.

Hydro Storage

The inflows continued see-sawing back to the very low inflows seen a couple of months ago, punctuated by the flooding that occurred in February. SI inflows for March were less than 50% of average. The Waiau catchment feeding Manapouri Power Station has experienced its lowest inflows on record for January to March and both lakes Manapouri and Te Anua are operating in their low ranges where output is constrained to meet strict guidelines. NI inflows were low for the start of March but recovered somewhat in the second half of the month.

As a result of these low inflows energy storage levels in New Zealand’s main hydro storage lakes dropped through March. Storage ended the month at 3,012 GWh or 67% full, down 871 GWh over the month. 

As noted last month – things can change quickly in the NZ electricity sector. This month storage has plummeted on the back of low inflows and a limited ability of other electricity supplies (due in part to their own fuel constraints) to slow that rate of decline. Security of supply risks are again raising their head.  

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 through summer. Storage is now below the mean level (close to the 25 percentile) 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 2 Feb 2022)

Climate Drivers —  La Nina is in a slow declining phase across the tropical Pacific, with a return to near-neutral El Nino-Southern Oscillation (ENSO) conditions expected late Autumn, slightly slower than previously signalled. The tropics remain active, with potential for a Tropical Cyclone to develop early next week near Vanuatu. This will need watching with respect to New Zealand weather but may just materialise as humid northerlies. The Southern Ocean is expected to remain mostly settled for the first half of April, with a lower potential for cold outbreaks. Sea temperatures around New Zealand remain well above normal, with temperatures sitting at 2deg above normal for this time of year.

April 2022 Outlook — High pressure dominates the weather maps in early April, bringing mostly dry conditions across Aotearoa New Zealand. A weather system from the Tasman Sea is forecast to move onto the South Island from the 5th, though rainfall may be welcome, accumulations are unlikely to significantly impact the ongoing drought across Southland, Otago, and Queenstown. When the South Island weather system reaches North Island shortly afterwards, it will bring a couple of showery days and little more. From around the 8th, tropical activity near Vanuatu may grab the attention of MetService expert meteorologists who will keep a close eye on any potential developments and their significance for New Zealand. Whilst this has the potential to deliver heavy rain, with strong high pressure across the country, we may see any advance from the tropics diverted away from our shores. This late season potential storm increases the uncertainty in the outlook and creates a potential split in the forecast path. Whilst the high may well be eroded from the north, the Southern Ocean looks likely to become more active at the same time. If this scenario wins out, then it would herald the onset of a spell of westerly mobility for South Island. We may see a series of fronts move through in quick succession, but with diminishing returns as they head further north. The second half of April should see the return of high pressure in the Tasman Sea, limiting further rain to minor southwesterly showers or cold fronts. It also looks likely to hold any further Tasman Sea rainmakers at bay.

The Gas Market

Gas prices were up dramatically in March. Average prices were $18.16/GJ – 45% up on February. 

On the supply side, the following graph shows a slight drop in March. Maui production maintained the higher levels achieved since completion of the successful infill project. Many days exceeded 110TJ until the last few days of the month when it reduced to about 90TJ. 

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 85TJ per day. McKee / Mangahewa decreased output as well – averaging around 80TJ for most of the month before dropping to 60TJ at the end of March. Kupe maintained output averaging around 70TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur 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. 

Increased requirements for gas for electricity generation during March saw Huntly’s gas usage lift again increasing up to about 80TJ per day by the end of the month. TCC also started operating for the first time in 8 months – using up to 40TJ per day at times during March. Methanex Motonui backed off gas usage to around 165TJ/day on average – while Methanex Waitara also spent much of the month not operating. The following graph shows trends in the major gas users over the last 3 years. 

Global energy prices remained high during March as on-going lack of gas storage / supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that the war in the Ukraine and the potential for sanctions on critical gas supplies from Russia has added to the uncertainty and therefore further added to energy prices.

LNG netback prices increased in March to $44.57/GJ – a 48% increase on last month. Prices for the remainder of 2022 are expected to average $38.2/GJ (a 5% increase on last month) while 2023 netback prices were static at $25.11/GJ – still well above historical levels.

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. Methanex recently announced that they expected to produce 10% more methanol in 2022 in NZ than they did last year driven in part by “robust methanol prices.”

The Coal Market

The global energy crisis has been as much about coal as it has gas. The war in the Ukraine has driven energy prices, including coal, up. After starting the month at around $US300/T, prices increased to new record levels of almost $US420/T before falling and now settling at close to $US280/T.

These prices are still well above anything 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” price scheme closely linked to international schemes. However there are “upper and lower guard-rails” set up to prevent wild swings in carbon price that act as minimum and maximum prices. Currently these are set at $70 and $20 respectively. 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. In March prices eased slightly to $76/t – still well above the $70 upper guardrail requiring the Government to release additional units in an attempt to dampen prices.

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 $75/t is estimated to currently add about $37.5/MWh (or ~3.75c/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 emissions continued to decline in March. They are still almost twice the price they were a year ago, as concerns are raised about the amount of coal that may be burnt in Europe if Russian gas is sanctioned or reduced in any other way. The recent downturn is counter-intuitive, however, may be explained by traders having concerns that governments may intervene in the market, even suspending it, as these higher EUA prices start to impact more on energy prices. It could also be caused by trader’s pricing in an increasingly likely economic recession (and coinciding reduction in energy use) in Europe.

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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