Market Update May 2023

The Wholesale Electricity Market

Spot prices in the wholesale electricity market again dropped significantly in May compared to April. Average spot prices for the month ranged from $54 in the lower South Island (down from $76), up to $65 in the upper North Island (down from $98).

The following chart shows average weekly spot prices over the last 2 years. The price drop through May can be clearly seen with prices dropping to less than $20 at the end of the month.

Electricity Demand

Electricity demand in May remained in line with recent post-Covid years at the start of May but then increased with some unseasonably cool weather in the middle of the month before returning to normal later in May. 

Electricity Generation Mix

Increasing demand in May was largely picked up by more hydro generation as inflows and storage remained high.

HVDC Transfer

Power transfers on the HVDC link connecting the North and South Islands are important both in showing relative hydro positions and 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 high northward transfer being maintained and very little southward transfer throughout the month indicating high SI inflows and healthy storage resulting in strong SI hydro generation.

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 reduced during May. CY 2024 finished at $152 (-10%). CY 2025 was also down, ending the month at $162/MWh (-6%). CY 2026 prices also dropped 6% to $160.

Known new generation projects are shown below (additions / removals highlighted in bold).

Hydro Storage

Inflows were high in both the North and South Islands through May continuing the trend of higher-than-expected inflows this year especially in the NI.

Energy storage levels in New Zealand’s main hydro storage lakes increased in May. Storage ended the month at 4,492GWh or 99.5% full, up 799GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments.

Security of supply risks decreased in May with storage levels approaching maximum – well above what we typically expect to see for this time of year. We also remain well above the risk zones. This is shown in the following risk curves.

Snow Pack

Snowpack 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 there were some significant snow falls during May and that snowpack in the important Waitaki catchment is currently well above the maximum levels seen in the last 30 years for this time of year.

Climate outlook overview (from the MetService)

Climate Drivers — An El Niño signal has started to form in the tropical Pacific Ocean, but the atmosphere has yet to catch up. Almost all climate models predict a full-blown El Niño in place by the end of winter, with many models forecasting a potentially significant El Niño.

June 2023 Outlook — Meteorological winter starts on a very unsettled note, with a transition from unsettled westerlies to a deep Low over NZ and cold southeasterly rain (falling as snow at higher elevations). This Low continues to affect NZ next week before yet another Tasman Sea trough or low comes barrelling towards northern parts of the country around mid-month. These systems are expected to be large and slow-moving, impacting many regions around the country as northwesterly rain turns easterly, hence the wet outlook for the east coast. Throughout the month of June, New Zealand will continually look towards the Tasman for rainmakers, and the risk of severe weather continues. Meanwhile, the South Island should see a mixture of quiet spells and intermittent westerlies, particularly during the latter parts of the month. Large temperature swings are expected this June. A cold snap kicks in later this week, and continues through next week. Tasman Sea weather systems are then likely to inject milder air back onto the country, bringing a milder period mid-month. Overall, while June should end up on the warmer side of the ledger, frosts, snowfalls, and cold outbreaks remain part of the equation.

The Gas Market

Gas prices increased slightly in May closing at $9.3/GJ – 4% up compared to April close. Prices are currently about 62% lower than they were at the same time last year.

On the supply side, most fields had slightly declining production through May, largely due to reducing demand for power generation. Maui output declined from around 120TJ/day to 105TJ/day at the end of the month. McKee / Mangahewa averaged around 85TJ/day (down 6%).

Pohokura increased output slightly, averaging 79TJ/day while Kupe was down slightly averaging 47TJ/day in May.

We are now starting to see the benefits from recent and on-going drilling campaigns. Todd Energy has completed the drilling programme at Mangahewa and has now moved the drilling rig to Kapuni. OMV is also continuing its Maui drilling program, expected to continue until the end of 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 steady in May averaging 177.5TJ/day. Huntly power station declined through the month – starting at 72TJ/day and ending the month at less than 40TJ/day.

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 several years had already resulted in price increases before the conflict in Europe accelerated those impacts.

LNG netback prices continued to decline in May, ending the month at $13.77GJ – down a further 12% from last month. Forecast 2023 netback prices are $18.77 – down 11% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $17 – down 22% compared to April.

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 in May fell steeply ending the month at close to US$130/T – a greater than 30% drop. These prices, though well below the highs of the last 12 months, remain above what we expect to see as shown in the following graph of prices over the last 10 years, though the gap is closing rapidly.

Like gas, the price of coal can flow through and have an impact on the electricity market. However, coal stockpiles 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.

Carbon Pricing

NZ has had an Emissions Trading Scheme (ETS) in place since 2008. It has been subsequently reviewed by several 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 May prices increased slightly to $55/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 $50/t is estimated to currently add about $25/MWh (or ~2.5c/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 again in May to 81 Euro/tonne – down 6%.

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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