Market Update November 2022
The Wholesale Electricity Market
Spot prices in the wholesale electricity market decreased in November. Average spot prices for the month ranged from $29.5 in the lower South Island ($68 in October), to $47 in the upper North Island ($76 in October).
The following chart shows average weekly spot prices over the last 2 years. Prices are currently as low as they have been over the last 2 years – particularly in the South Island.
Electricity Demand
Electricity demand in November continued to drop but was close to what we would normally expect to see for this time of year. At the end of the month demand dropped to below levels seen over the last few years. We expect demand to continue to decline as we head towards the Xmas break.
Electricity Generation Mix
The fall in demand as we headed into summer meant there was a reduced requirement for generation overall. Hydro generation was lower to start the month resulting in an increase in thermal generation, but higher inflows in the middle of the month meant that thermals could back off as shown in the following graph. Wind generation was low in the middle of November also impacting thermal generation.
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 increased SI inflows and storage, resulting in increased northward transfer and very little 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 continued the decline that began in the middle of October. CY 2023 prices closed at $166 – a 22% decrease for the month. CY 2024 finished down at $177 (-11%). CY 2025 decreased ending the month at $175/MWh – a 4% drop. CY 2026 prices also dropped through the month, closing down 8.5% at $172.
There were some announcements of new or changed supply during the month – including NZ Windfarms looking to repower its Te Rere Hau windfarm increasing capacity from 46MW to 126MW, and Eastland Energy announcing a pipeline of solar and geothermal projects adding around 200MW. However, these projects are not confirmed as yet. Known new-generation projects are shown below.
Hydro Storage
Inflows remained above average in both Islands during November with some very high inflows occurring in the South Island in particular at the start of the month.
These high inflows meant that energy storage levels in New Zealand’s main hydro storage lakes increased through November. Storage ended the month at 3,661GWh or 96% full, up 141GWh 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 the snow pack reduced sharply during the month. Storage is now below the mean 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 persist and will continue to influence our weather maps, with a tendency for higher than normal pressure across South Island, and warm, humid northeasterlies nationwide. The Southern Annular Mode (SAM) is set to be mainly positive through much of December encouraging higher-than-normal pressure across the South Island. Sea surface temperatures around our coasts have dipped out of marine heatwave conditions but remain well above average and are likely to climb again where high pressure persists.
December 2022 Outlook — High pressure in the Tasman Sea holds a southwest regime across the country in the first week of December. Whilst this is fairly typical for the time of year, the orientation of the high and the prevailing winds make for a cool start to the summer months. Rainfall will be limited to passing showers until around the 8th when low pressure from the Tasman Sea is expected to bring a bout of wind and rain across the country. This system should also introduce a little warmer air too.
High pressure is then set to edge across of the country, promoting settled conditions. As this high edges east, and increasingly northeasterly wind bias is likely to develop with warmer weather and showers moving into eastern regions, especially in the north, and afternoon showers are likely to develop across inland North Island. We may see a brief unsettled interlude at this point before the next high moves in from the west with the same pattern, cool southwesterlies giving way to increasingly warm northwesterlies, mainly settled with a few showers.
As we look towards the new year, high pressure looks likely to remain in place across South Island, with warm, dry, settled conditions prevailing. Further north this is likely to be the case much of the time as well, although showers may punctuate an otherwise settled start to summer.
The Gas Market
Gas prices increased through November ending the month at $12.6/GJ – 10% up on October. Prices are currently about 14% 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 – consistently producing around 100TJ per day. Maui production was also consistently close to 80TJ/day throughout the month.
McKee / Mangahewa improved output, up to close to 70TJ per day for most of the month – up 10%. Kupe was shut down for most of November, and when it returned late in the month it only produced 40-50TJ/day.
Hopefully, we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Todd Energy is more than halfway through a drilling programme at Mangahewa, and once completed they plan to move the drilling rig to Kapuni in early 2023. OMV is also continuing its Maui drilling program, expected to continue into the second quarter of 2023.
The following graph shows production levels from major fields over the last 3 years.
On the demand side, Methanex Motonui’s usage dominated all other gas users. Consumption averaged 150TJ/day, however towards the end of the month it was consistently using 185TJ/day. Huntly power station was the next biggest user averaging only 14TJ/day and dropping to even lower levels at the end of November. TCC has not used any gas since the middle of August.
The following graph shows trends in the major gas users over the last 3 years.
Global energy prices continued the falls we have seen in recent months, but continue to be at levels well above what we would have considered to be very high only 12 months ago. Lack of investment in new gas supply internationally over a number of years had already resulted in price increases, before the conflict in Europe accelerated those impacts.
LNG netback prices dropped again in November ending the month at $33.74/GJ – down 24% from last month. Forecast 2023 netback prices are $42.97 – down nearly 30% on what the ACCC was forecasting 2 months ago. Prices for 2024 are also now being published, sitting at $31.09 at the moment.
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 increased during November ending the month back up close to $US400/T – up 14%.
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 guard-rails” 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 November prices decreased $4 to $81/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 also reduced in November to 81 Euro/tonne – down 3% as demand for permits fell.
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.
- Transpower publishes a range of detailed information which can be found here: https://www.transpower.co.nz/power-system-live-data
- The Electricity Authority publishes a range of detailed information which can be found here: https://www.emi.ea.govt.nz/
- Weather and Climate data – The MetService publishes a range of weather-related information which can be found here: https://www.metservice.com/
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