Market Update May 2022

The Wholesale Electricity Market

Spot prices in the wholesale electricity market remained high during May throughout the country. Average spot prices for the month ranged from $207 in the lower South Island ($222 in Apr), to $225 in the upper North Island ($202 in Apr).

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in the last few months are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased in May as expected as we head into the winter period. It was in line with levels seen at the same time in the last two years.

Electricity Generation Mix

Some improved inflows meant that hydro generation increased in the last month, however the increase in demand meant that thermal generation also increased 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.

May saw northward transfer increase considerably as SI inflows increased and higher demand required greater levels of north transfer. Southward transfer continued to occur throughout the month but to a lesser extent than in April. 

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) for the last 2 years.

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

The increase in prices observed over the last few months continued through May. CY 2023 prices closed at $202 – a 5% increase for the month. CY 2024 also increased throughout the month finishing at $182 – a 6% increase.  CY 2025 ended the month at $155/MWh – a 5% increase. Prices for all years have increased by almost 50% since the start of the 2022!

After a flurry of new projects being announced in the last couple of months – mainly solar, there was a lull in May. Known projects are shown below.

Hydro Storage

Inflows remained low in both islands through most of May, however in the SI in particular they did increase relative to the last couple of months. NI inflows were about 50% of average for the first half of the month but picked up in the second half of the month to close to average. SI inflows were close to 90% of average for most of the month.

As a result of these lower than average inflows, and with increased hydro generation during May, energy storage levels in New Zealand’s main hydro storage lakes dropped through the month. Storage ended the month at 2,498 GWh or 55.5% full, down 319 GWh over the month.

Security of supply risks are again raising their head with sustained low inflows and the inability to arrest the rate of decline in water storage as shown in the following graph.  

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. As we are only heading into winter we would expect low levels of snow pack at this time of year. The following graph shows that snow pack has increased slightly over the last month. Storage is 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 1st April 2022)

Climate Drivers — A weak La Nina remains across the tropical Pacific, though temperatures are likely to slowly return to near-neutral El Nino-Southern Oscillation (ENSO) conditions over this winter. A return to weak La Nina conditions is possible later this year, a so-called “triple dip” event. Another factor as New Zealand heads into winter will be a negative Indian Ocean Dipole (IOD), which favours a more active northern Tasman Sea, and in turn more frequent northerly rain events over New Zealand. In June, a stormy Tasman Sea and Southern Ocean are forecast to dominate; expect a very active first couple of weeks in June with a mix of fronts and lows originating from both the Tasman Sea and Southern Ocean. Sea temperatures around the New Zealand coastline remain well above normal, with temperatures sitting at 1-2oC above normal for this time of year, with up to 3oC in the far south.

June 2022 Outlook — A seemingly never-ending series of westerly weather makers from both the Tasman Sea and Southern Ocean brings a volatile and wet start to June and the winter season across Aotearoa New Zealand. Tasman lows should continue to bring healthy rain events and spells of very warm and muggy weather to much of the country over the first half of June, with brief interludes of cooler weather and southerlies as passing Southern Ocean cold fronts sweep quickly up the country. The third week of June sees the lows depart eastwards, and a gentle uptick in daily sunshine hours most places. Temperatures drop as southwesterlies spread over the country, with noticeably cooler daytime temperatures. A useful start to the ski season is also signalled. This is followed by a well-deserved spell of high pressure and drier weather, though also accompanied by dips in overnight temperatures. As we head into the final week of June, the northern Tasman Sea becomes more active as the negative IOD event takes hold. Warm northerlies and the potential for rainfall returns across North Island with a low developing further north, while South Island is unlikely to see significant impacts with a more seasonable weather pattern picked to finish out the month.

The Gas Market

Gas prices continued to climb in May. Average prices were $24.2/GJ – 13% up on April. Prices are now 24% higher than they were at the same time last year.

On the supply side, the following graph shows a significant drop again in May. Maui production dropped again early in the month to around 70TJ per day before a planned shutdown from the 14th May for the rest of the month. 

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 82TJ per day – a further 1% drop. McKee / Mangahewa decreased output as well – averaging around 64TJ – a 6% decrease from April. Kupe also dropped output averaging around 66TJ/day – also a 6% decrease.

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.

Huntly’s gas usage reduced further during May presumably due to tight gas supplies pushing them to run more on coal. Gas usage averaged 59TJ/day, down 8% on April. TCC was shut down until the middle of the month. Once up and running usage was close 15TJ/day for the rest of May. Methanex Motonui was most impacted by the Maui shutdown reducing from around 125TJ/day to 60TJ/day for the rest of the month. Methanex Waitara operated at around 6TJ/day once it restarted on the 6th May. The following graph shows trends in the major gas users over the last 3 years. 

Global energy prices remained high during May 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 fell in May to $27.96/GJ – a 27% decrease on last month. Prices for 2022 are expected to average $34.83/GJ (a 4% increase on last month) while 2023 netback prices also increased 4% to $29.22/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. For example, Methanex 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 Ukraine has driven energy prices, including coal, up. After starting the month at around $US320/T, prices increased through May to close at over $US400/T – up more than 25%. This is back to similar levels that we saw a few months ago at the start of the war.

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 May prices remained flat at close to $77/t – still well above the $70 upper guard-rail 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.

EU Carbon Permits dropped slightly to 84 Euro/tonne in April – up down 1%. 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. 

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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