Market Update March 2023
The Wholesale Electricity Market
Spot prices in the wholesale electricity market were relatively flat in March compared to February, however they returned to the more typical pattern of lower prices the further South you went. Average spot prices for the month ranged from $135 in the lower South Island to $158 in the upper North Island.
The following chart shows average weekly spot prices over the last 2 years. The recent price separation between the lower SI and the NI can be clearly seen.
Electricity demand in March remained low compared to recent years until the end of the month when demand increased markedly coinciding with some cooler weather.
Electricity Generation Mix
Low hydro inflows meant that during March thermal generation remained at the higher levels seen over the last couple of months as shown below.
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 increased northward transfer and very little southward transfer throughout the month indicating reduced NI hydro inflows and increased SI hydro generation to compensate.
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 decreased slightly during March. CY 2024 finished at $168 (-3.5%). CY 2025 decreased, ending the month at $172/MWh – a 1.4% loss. CY 2026 prices also dropped 1.7% to $172.
There were a few new supply announcements this month – mainly solar. Known new generation projects are shown below (additions highlighted in bold).
Inflows were above average for the South Island during March and returned to close to average in the North Island after the very high levels we have seen in the last few months.
Energy storage levels in New Zealand’s main hydro storage lakes increased in March. Storage ended the month at 4,041GWh or 91% full, up 451GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.
Security of supply risks reduced through March with some high inflows resulting in storage increasing to well above what we typically expect to see for this time of year. We are well above the risk zones and not far from spilling in some catchments. This is shown in the following risk curves.
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 how snow pack in the important Waitaki catchment has fallen to below the 25th percentile for this time of year, meaning that there is not the same amount of water stored as snow pack as we would normally have in March.
Climate outlook overview (from the MetService)
Climate Drivers — La Nina has officially ended. Neutral El Niño Southern Oscillation (ENSO) conditions are expected to persist through autumn, allowing our local climate drivers close to New Zealand to exert their influences through the remainder of autumn into early winter. This includes the Southern Annular Mode (SAM), a measure of Southern Ocean storminess, which point towards continued westerlies for the South Island but interspersed with periods of settled conditions under slow-moving high pressure. Climate prediction models are increasingly pointing towards El Nino developing towards the latter half of winter and into spring, which would signal a colder and more unsettled spring as frequent southwesterlies spread across the country.
April 2023 Outlook — April temperatures are expected to yo-yo, likely ending up on the warmer side of the ledger, overall, for the South Island and lower half of the North Island, but near average for Taupo northwards. A front crossed over the country during the weekend of 1,2 April, bringing brief rainfall to western regions and a risk of thunderstorms in the north. Generally settled weather follows as high pressure takes hold over the country, with warm afternoons but cooler mornings, and the possibility for frosts before sunrise. A more potent low with accompanying northerly fronts moves slowly onto the country from the south Tasman Sea during week two, and could bring notable rainfall accumulations to the West Coast of the South Island with diminishing amounts elsewhere. Variability increases from mid-month onwards, as westerly systems become more commonplace again, interspersed with narrow ridges of high pressure. Temperature flips will become more likely as warm northerlies change cooler southwesterlies. The final week of April shows hints of a more southwesterly flavour to the weather maps, which could bring about an increased risk of wintry cold snaps and snow events. Overall, near normal April rainfall totals are forecast for many regions, with the exception of the northeast of both Islands (with normal to above normal totals forecast).
The Gas Market
Gas prices increased throughout March closing at $12.3/GJ – 19% up on February close. Prices are currently about 32% lower than they were at the same time last year.
On the supply side Maui continued its strong level of production through March. Average output was 103TJ/day – down 6%, however the last week of the month it averaged 124TJ/day. McKee / Mangahewa also had a step increase in production, increasing from around 70TJ/day at the start of the month, to well above 90TJ/day in the middle of March.
Pohokura reduced output slightly, averaging 86TJ/day while Kupe maintained the higher levels seen towards the end of January – averaging 54TJ/day in March.
Hopefully we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Todd Energy has almost completed the drilling programme at Mangahewa, and once completed they plan to move the drilling rig to Kapuni in May. OMV is also continuing its Maui drilling program, expected to continue into the second quarter of 2023. Beach Energy plans further drilling at Kupe starting in the September quarter of this year.
The following graph shows production levels from major fields over the last 3 years.
On the demand side, Methanex Motonui’s usage once again dominated all other gas users. Consumption was slightly down in March averaging just under 170TJ/day. Huntly power station maintained the increased gas usage seen in February, averaging 66TJ/day through March.
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 18 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 continued to decline in March, ending the month at $17.5GJ – down 20% from last month. Forecast 2023 netback prices are $22.83 – up 3% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $21.82 – up 11% compared to February.
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 the Ukraine has driven energy prices, including coal, up. Prices flattened out during March ending the month at $US194/T, up 4%.
These prices remain well above what we expect to see as shown in the following graph of prices over the last 10 years.
Like gas, the price of coal can flow through and have an impact on the electricity market. However, coal stock piles at Huntly are at the highest they have been for many years helping to assure the market that there is plenty of fuel available in the event of dry conditions in the hydro catchments.
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 $78 and $30 respectively. Over the last few years, the Carbon Price through the ETS has climbed, though it has fallen back in recent months as shown in the following graph. In March prices decreased $6.5 to $59.25/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 $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 eased slightly in March to 90.5 Euro/tonne – down 1%.
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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