Market Update October 2022

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased in October. Average spot prices for the month ranged from $68 in the lower South Island ($49 in September), to $76 in the upper North Island ($59 in September).

The following chart shows average weekly spot prices over the last 2 years. The significant drop in prices in the last few months is clearly visible on the far right of the graph, with an increase in the last few weeks also apparent.

Electricity Demand

Electricity demand in October remained close to the top end of what we have seen in recent years. We expect demand to continue to decline as we head towards summer. 

Electricity Generation Mix

The fall in demand as we head into summer meant there was a reduced requirement for generation. This coincided with reduced inflows compared to recent months allowing hydro to reduce through the month as shown in the following graph. Thermal generation remained at the low levels seen in recent months.

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 reduced SI inflows and storage, resulting in reduced northward transfer and a small amount of southward transfer during the month. 

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 2023, 2024, 2025 and 2026 at Otahuhu (Auckland) for the last 2 years.

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

Future prices for all years increased at the start of October and then fell back later in the month. CY 2023 prices closed at $214 – a 1% decrease for the month. CY 2024 finished higher at $199 (+1.5%).  CY 2025 also increased ending the month at $182/MWh – an 8% increase. CY 2026 prices were produced for the first time in October. After starting at $154 they increased during the month to close at $188 – a 22% increase.

Known new-generation projects are shown below.

Hydro Storage

Inflows remained above average in the North Island during October, but below average in the South Island. 

Despite reasonable inflows, energy storage levels in New Zealand’s main hydro storage lakes decreased through October. Storage ended the month at 3,520 GWh or 80% full, down 273 GWh over the month.

Security of supply risks are minimal at the moment with high levels of water storage, reduced demand, and as we enter the period where hydro inflows are typically higher. This is shown in the following risk curves.

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 stayed largely flat during the month. Storage remains close to the 75th percentile level seen in the last 30 years 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 in the tropical Pacific continue to influence our weather maps, with reduced incidence of usual spring westerlies, and a tendency for higher than normal pressure across South Island. In the short term, the Southern Annular Mode (SAM) has swung strongly negative of late, providing strong westerlies across the country as is classic for the time of year. Indian Ocean Dipole influence is expected to wane over the coming weeks with the more temporally variable Madden Julian Oscillation (MJO), a pulse of enhanced shower activity which migrates around the globe every 60 days or so, coming to the fore. Sea surface temperatures remain well above average around New Zealand and look likely to increase further under high pressure.

November 2022 Outlook — SAM – the Southern Annular Mode has swung strongly negative with a bang, bringing classically spring-like strong westerlies across Aotearoa. As these pile in with torrential rain for the West Coast, eastern regions will also see some spillover rain. The rain comes with humid air and elevated temperatures by both day and night. SAM swings back strongly positive late in the week, with high pressure returning to South Island bringing settled weather and lower temperatures.

Next week an area of low pressure from the northern Tasman Sea looks likely to bring a spell of wet and windy weather to North Island, whilst South Island hangs on to the high pressure which became so familiar in October. Once again the weather maps look heavily La Nina influenced.

The second half of the month likely sees a balancing act play out between the high pressure and settled weather in the south, and the more unsettled, showery conditions further north. Expect warmer-than-average conditions thanks to an increase in northeasterly winds. Those areas exposed to the north will likely pick up sporadic showers, or possibly bouts of rain tied to Tasman lows as the skirt the northern flank of the high. Just how far rain spreads across the country will come down to the relative strength of the highs as lows attempt to move in, and any boost that the MJO deigns to give lows forming to our northwest.

The Gas Market

Gas prices remained flat through October ending the month at $11.5/GJ – 2% down on September. Prices are currently about 4% higher than they were at the same time last year.

On the supply side, Pohokura continued at the increased production levels seen over the last few months but with more consistent daily output. Output averaged 104TJ – a 1% decrease on last month. Maui production, which had been constrained due to an extended outage, increased at the back end of October from around 60TJ/day up to closer to 80TJ/day at the end of the month. This is still well below the 100plus TJ/day achieved earlier this year. 

McKee / Mangahewa output experienced some issues during the month with production down to close to 30TJ on some days. Overall it averaged around 63TJ/day – down 10%. Kupe maintained output at around 60TJ/day.

Hopefully, we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Apart from Pohokura, drilling programs are also currently ongoing at Maui and Mangahewa which will hopefully increase supply further in the coming months. 

The following graph shows production levels from major fields over the last 3 years.

On the demand side, Methanex Motonui gradually increased consumption during October from around 155TJ/day at the start, up to 175TJ/day at the end of the month. Huntly’s gas usage decreased further during October. Its usage averaged 40TJ/day, down 26% on September. TCC did not generate at all for the second month in a row. Methanex Waitara was consuming around 6TJ per day at the start of the month but was shut down from the 12th of October on. The following graph shows trends in the major gas users over the last 3 years. 

Global energy prices remained high during September as the ongoing lack of supply in Europe, brought on by the strong post-COVID lockdowns economic recovery, followed by the war in Ukraine, has continued to result in elevated wholesale prices for gas and electricity. 

LNG netback prices dropped considerably in October ending the month at $44.32/GJ – down 34% from last month. Expected prices for the rest of 2022 have fallen slightly, the average for the year down now to 41.92/GJ (a 4% decrease on last month). Forecast 2023 netback prices dropped 23% to $46.95/GJ as fears of shortages during this European winter subsided – however, these prices are still well above historical levels as shown below.

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 as much about coal as it has gas. The war in Ukraine has driven energy prices, including coal, up. Prices eased during October falling to close to $US350/T – down 13%. This is the lowest it has been in the past 6 months.

These prices remain 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.  

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 guardrails” set up to prevent wild swings in carbon prices that act as the 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 October prices increased $2.5 to $85/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 rising carbon prices. 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 prices 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 rebounded in October to 81 Euro/tonne – up 22% as demand for permits increased. 

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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