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Market Update August 2022

September 6, 2022

The Wholesale Electricity Market

Spot prices in the wholesale electricity market dropped considerably once again in August. Average spot prices for the month ranged from $40 in the lower South Island ($98 in July), to $49 in the upper North Island ($107 in July).

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

Electricity Demand

Electricity demand remained high in August as expected as we move through the winter period. It is at the high end of levels seen at the same time in the last three years.

Electricity Generation Mix

High inflows through August meant that hydro generation increased and allowed thermal generation to reduce even further than July levels 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.

August saw high SI inflows and storage resulting in increased northward transfer and practically eliminating any southward transfers.

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.

Future prices remained relatively flat or declining through August, though there has been a sharp jump at the start of September. CY 2023 prices closed at $185 – a 2.5% decrease for the month. CY 2024 finished flat at $180. CY 2025 also decreased ending the month at $159/MWh – a 3% decrease. (Note – prices for CY 2023 and CY 2024 have both increased by $15 since the end of August)

All the major retailers announced their results in August including their plans for new generation. All talked about new wind and solar over the next few years but few hard dates were provided. Known projects are shown below.

Hydro Storage

Inflows remained very high in both islands during August. The NI maintained the 200% of average levels from the last couple of months while the SI inflows maintained the very high levels seen at the end of July.

As a result of these high inflows, energy storage levels in New Zealand’s main hydro storage lakes increased again through August. Storage ended the month at 4,163 GWh or 93% full, up 850 GWh over the month.

Security of supply risks eased further during August with the higher inflows and increased storage as shown in the following graph. There is now a high risk of spill over the coming, typically high SI inflow, months.

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 has continued to increase over the last month. Storage is now at the maximum levels 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 Negative IOD important for NZ — For the first month of spring, the most important climate driver will continue to be a negative Indian Ocean Dipole (IOD) event, which favours a more active north Tasman Sea, and in turn more frequent northerly rain events of New Zealand. High-pressure anomalies to the south and east of the country could help shift more of these systems over the North Island. El Nino/South Oscillation conditions are currently neutral but are likely to tip into La Nina territory during September or October, heralding a “triple dip” event. Frequent weather systems have helped lower sea temperatures around the New Zealand coastline, with values hovering about 0.5C above average, but increasing temperatures are likely as we head towards the summer months.

September 2022 Outlook — The first week of September sees a notable rain event unfolding across West Coast of South Island and to a lesser extent further north as it spreads up the country while weakening. A subtropical low moves across the upper North Island early next week bringing a relatively brief bout of rain and warm north easterlies to already sodden regions early next week. The bigger weather story for next week is the significantly cooler temperatures expected across the country as an influx of drier sub-Antarctic air spreads up New Zealand. High pressure settles in and brings colder overnight low temperatures, with widespread frosts possible across South Island and even locations further north, though afternoon highs are likely to rebound quite nicely. The third week of September sees high pressure build over the South Island, bringing below-normal rainfall and chilly morning minima. This also allows systems forming across the north Tasman Sea to occasionally spread southwards onto the North Island, accompanied by warmer and muggier conditions. A more normal spring-time pattern could emerge in the last week of the month as high pressure slides east of the country. A mix of northern lows and Southern Ocean fronts could bring a more volatile weather pattern, especially across the South Island.

The Gas Market

Gas prices continued to reduce through August ending the month at $11.9/GJ – 13% down on July. Prices are now 18% lower than they were at the same time last year.

On the supply side Pohokura continued at the increased production levels seen last month. Output averaged over 100TJ per day well up on the 80TJ per day prior to the recent drilling program starting. Maui started the month producing close to 90TJ per day but reduced output to closer to 70TJ per day for most of August – probably reflecting reduced demand rather than any production issues.

McKee / Mangahewa maintained output – averaging around 70TJ/day. Kupe’s also 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 on-going at Maui and Kapuni which will hopefully increase supply further in the next few months.

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

On the demand side, Methanex Motonui has been conducting maintenance work that is planned to extend through into September. Consumption averaged 65TJ/day for the first half of the month, then increased to close to 100TJ per day at the end of August, well down on the pre Maui shutdown level of 150TJ/day. Huntly’s gas usage increased during August. Its usage averaged 65TJ/day, up 7% on July. TCC only generated the first 2 days of the month. Methanex Waitara was consuming around 5TJ per day for the first half of August then shut down for the rest of the month. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during August 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 Russia to use critical gas supplies to Europe to apply economic pressure on Ukraine’s allies has added to the uncertainty and therefore further added to energy prices.

LNG netback prices increased again in August ending the month at $56.26/GJ – up 15% from last month. Expected prices for the rest of 2022 and 2023 have also increased. 2022 netback prices are now expected to average $46.74/GJ (a 9% increase on last month) while 2023 netback prices also increased 19% to $58.89/GJ – well above historical levels.

Methanex had been planning on increasing production in NZ this year, however in July it announced that it expected to produce only 1.3 million tonnes of methanol – on a par with last year, due to decreased gas supplies. In January they had forecast 1.5 million tonnes for the year.

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 hovered around the $US400/T all of the month, increasing at the end of the month, closing at $US435/T – up 7%.

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. 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.

Genesis announced in July that it has coal stock at 8 year highs, sheltering it to some extent from high international coal 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 August prices increased $10 to $90/t – 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 increased to 90 Euro/tonne in August – up 15%. Prices remain more than 50% more than the same time a year ago as concerns remain 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.

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/

Disclaimer

This document has been prepared for information and explanatory purposes only and is not intended to be relied upon by any person. This document does not form part of any existing or future contract or agreement between us. We make no representation, assurance, or guarantee as to the accuracy of the information provided. To the maximum extent permitted by law, none of Smart Power Ltd, its related companies, directors, employees or agents accepts any liability for any loss arising from the use of this document or its contents or otherwise arising out or, or in connection with it. You must not provide this document or any information contained in it to any third party without our prior consent.

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update July 2022

August 4, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market dropped considerably in July. Average spot prices for the month ranged from $98 in the lower South Island ($153 in June), to $107 in the upper North Island ($177 in June).

The following chart shows average weekly spot prices over the last 2 years. The significant drop in prices in the last month is clearly visible on the far right of the graph.

Electricity Demand

Electricity demand remained high in July as expected as we move through the winter period. It is in line with levels seen at the same time in the last three years.

Electricity Generation Mix

High inflows through July meant that hydro generation increased and allowed thermal generation to reduce at the back end of the month as shown in the following graph.

HVDC Transfer

July saw reduced northward transfer early in the month as high North Island inflows depressed the need to use SI storage. High SI inflows in the middle of the month saw increased northward transfer later in the month. Southward transfer picked up early in the month but backed off in the middle of the month before picking up again later in the month.

The Electricity Futures Market

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.

Future prices remained relatively flat through July with a small drop in CY 2023, offset by small rises in both CY 24 and 25. CY 2023 prices closed at $190 – a 2% decrease for the month. CY 2024 increased finishing at $180 – a 2% increase. CY 2025 also increased ending the month at $164/MWh – a 6% increase. Prices for all years have increased by almost 50% since the start of the 2022!

With new generation there were a few announcements during the month about potential solar projects, but nothing that provided a firm timeframe for completion. Known projects are shown below.

On the demand side, NZAS advised that it had started discussions with generators for supply to the Tiwai aluminium smelter post-2024. A number of distribution companies also noted that they had increased interest in changes to connection points due to efforts being made by industry to decarbonise. Eventually, these will flow through to increased demand as electricity replaces thermal fuels.

Hydro Storage

Inflows remained very high in the North Island during July, maintaining the 200% of average levels we observed last month. SI inflows were around expected levels for most of the month but picked up to about 400% of average later in July.

As a result of these high inflows, energy storage levels in New Zealand’s main hydro storage lakes increased through the month – particularly in the North Island where Lake Taupo is currently over 83% full. Storage ended the month at 3,313 GWh or 74% full, up 495 GWh over the month.

Security of supply risks eased further during July with the higher inflows and increased 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. The following graph shows that snow pack has increased significantly over the last month. Storage is now approaching the maximum levels 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 — For late winter and early spring, the most important climate driver will be a negative Indian Ocean Dipole (IOD), which favours a more ‘active’ north Tasman Sea, and in turn more frequent northerly rain events over New Zealand. The 2021-2022 La Nina ended earlier this winter, but most climate models forecast a return to La Nina conditions around late spring; a so-called “triple dip” event. Sea temperatures around the New Zealand coastline have eased back towards average over winter, and are currently sitting around 0.5C above normal.

August 2022 Outlook — The first half of August is predicted to continue rather “stormy” for many regions. Expect active north-westerly fronts this week, then an unusually cold week next week under an unsettled south-easterly regime (with further lows). Another decent snow event is signalled next week, this time potentially affecting the higher ground of both Islands. The third week of August should see a slight ‘easing’ in the overall volatility of the weather patterns – with a brief High predicted to lie over the South Island. While this High is expected to bring a welcome break from mobile weather systems, and some drier weather, for the South Island, it is also likely to produce inland frosts and fogs there. In contrast, a wetter easterly regime is signalled for the northeast of the North Island. Looking further ahead in the ensemble models, the last week of August should see a return to relatively mild northerly winds and rain bands across NZ, as the High starts to shuffle away to the east of the country.

The Gas Market

Gas prices continued to reduce through July ending the month at $13.7/GJ – 26% down on June. Prices are now 34% lower than they were at the same time last year.

On the supply side, finally, we had some good news, with the drilling program currently underway at Pohokura providing some increased production after the last 2 years of falling output. Production increased to 116TJ on the 24th of July before dropping back to a steadier 90TJ per day – a significant increase from the 80TJ per day being produced last month, but still well below the 200+TJ per day produced in the middle of 2019.

Maui increased production in July back to close to 90TJ per day – significantly more than in June after its return from the planned shutdown, but still below the pre-shutdown level of over 100TJ per day.

McKee / Mangahewa maintained output – averaging around 70TJ/day. Kupe’s output reduced by 9% to 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 Kapuni, which will hopefully increase supply further in the next few months.

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

Huntly’s gas usage increased during July. Its usage averaged 61TJ/day, up 11% in June. TCC increased usage again to 37TJ/day –up a further 64% on June consumption on top of a 50% increase the month before. Methanex Motonui has been conducting maintenance work that is planned to extend through to late August. Consumption averaged 73TJ/day, well down on the pre Maui shutdown level of 150TJ/day. Methanex Waitara was shut down for all of July. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during July as the ongoing 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 Ukraine and the potential for Russia to use critical gas supplies to Europe to apply economic pressure on Ukraine’s allies have added to the uncertainty and therefore further added to energy prices.

LNG netback prices increased sharply in July ending the month at $48.91/GJ – up 75% from last month. Expected prices for the rest of 2022 and 2023 have also increased. 2022 netback prices are now expected to average $43.01/GJ (a 5% increase on last month) while 2023 netback prices also increased 34% to $49.30/GJ – well above historical levels.

Methanex had been planning on increasing production in NZ this year, however, in July it announced that it expected to produce only 1.3 million tonnes of methanol – on a par with last year, due to decreased gas supplies. In January they had forecast 1.5 million tonnes for the year.

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 hovered around the $US400/T all of the month, closing at $US408/T – up 6%.

These prices remain well above anything seen in the last 10 years as shown in the following graph.

Genesis announced in July that it has coal stock at 8-year highs, sheltering it to some extent from high international coal 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 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 July prices increased to $80/t – well above the $70 upper guard rail requiring the Government to release additional units in an attempt to dampen prices.

EU Carbon Permits reduced to 78 Euro/tonne in July – down 8%. 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.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update June 2022

July 8, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market dropped considerably in June. Average spot prices for the month ranged from $153 in the lower South Island ($207 in May), to $177 in the upper North Island ($225 in May).

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in the last six months are clearly visible on the far right of the graph, with the dip in prices in the middle of June contributing to the lower average prices this month.

Electricity Demand

Electricity demand increased in June as expected as we head through the winter period. It is in line with levels seen at the same time in the last three 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

June saw continued stronger northward transfer as SI inflows remained closer to average and higher demand required greater levels of north transfer. Southward transfer continued to occur throughout the month but to a lesser extent than a couple of months ago.

The Electricity Futures Market

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 has increased significantly over the last month. Storage is now well above 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.)

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

The increase in prices observed over the last few months reversed slightly through June. CY 2023 prices closed at $194 – a 4% decrease for the month. CY 2024 also decreased throughout the month finishing at $176 – a 3% decrease. CY 2025 ended the month flat at $155/MWh. Prices for all years have increased by almost 50% since the start of the 2022!

With new generation there were a few announcements during the month with some delays in expected completion dates and some minor changes in capacity at Mainpower’s Mt Cass project. Known projects are shown below.

It was also announced by Contact Energy that its Te Rapa gas cogeneration plant (44MW) decommissioning is being brought forward from 2024 to winter 2023, however, more than offsetting that, Contact is delaying its decommissioning of TCC (377MW) from 2023 until late 2024.

Hydro Storage

Inflows recovered through June with slightly above average inflows in the SI and almost 200% of average inflows in the NI.

As a result of these higher-than-average inflows, energy storage levels in New Zealand’s main hydro storage lakes increased through the month. Storage ended the month at 2,818 GWh or 62% full, up 320 GWh over the month.

Security of supply risks eased during June with the higher inflows and increased 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. The following graph shows that snow pack has increased significantly over the last month. Storage is now well above 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)

Climate Drivers — The 2021-2022 La Nina has ended, with most indicators showing the tropical Pacific Ocean is now at neutral levels. However, many climate models forecast a return to La Nina conditions in spring; a so-called “triple dip” event. A more important factor for New Zealand through late winter and spring is the likely formation of a negative Indian Ocean Dipole event, which favours a more ‘active’ north Tasman Sea, and in turn more frequent northerly rain events over New Zealand. Sea temperatures around the New Zealand coastline have moderated recently, during the windy and unsettled June. Sea temperatures around our coastline are now sitting at about 1C above normal.

July 2022 Outlook — The first few days of July offer a ‘relatively quiet’ pause in our weather. An active Tasman Sea low then approaches the country from about the 5th, and although there is large uncertainty about timing and details, it is likely to bring a wet and windy regime to most places. There is also a decent potential for further South Island snowfall – keeping ski fields smiling. This recipe of ‘stormy’ Tasman lows and Southern Ocean fronts continues through until about mid-month, keeping rainfall and snowfall totals ticking along for most regions. Once we hit mid-month, expect a major pattern change to colder weather (southerlies and high pressure). The back half of July is predicted to be slightly colder than average, and precipitation should favour eastern areas of both Islands (including risk of further decent snowfalls in the South Island).

The Gas Market

Gas prices continued to climb at the start of June with the monthly average price peaking at close to $25/GJ before dropping, ending the month at $18.5/GJ – 24% down on May. Prices are now 4% lower than they were at the same time last year.

On the supply side, the following graph shows a significant drop again in June. Maui’s planned shutdown ended up being extended twice, not coming back online until the 20^th June and then at reduced output of around 60TJ/day – down from over 100TJ/day in March.

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 81TJ per day – a further 1% drop. McKee / Mangahewa increased output – averaging around 70TJ – a 9% increase from May. Kupe’s output was steady at around 66TJ/day.

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 June. Their usage averaged 55TJ/day, down 7% on May. TCC increased usage to 22.5TJ/day –up 50% on May consumption. Methanex Motonui was most impacted by the Maui shutdown reducing to 60TJ/day while the full shutdown occurred and only increasing to around 90TJ/day when Maui came back. Methanex Waitara operated at around 6TJ/day at the start of the month but shutdown from the 9^th June. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during June 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 were mainly flat in June ending the month at $27.91/GJ. However expected prices for the rest of 2022 and 2023 have increased sharply. 2022 netback prices are now expected to average $40.90/GJ (a 17% increase on last month) while 2023 netback prices also increased 26% to $36.80/GJ – 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

These prices are still well above anything seen in the last 10 years as shown in the following graph.

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 June prices dropped slightly to $75/t – still well above the $70 upper guard-rail requiring the Government to release additional units in an attempt to dampen prices.

EU Carbon Permits increased slightly to 85 Euro/tonne in June – up 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.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update May 2022

June 7, 2022

Market Update

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

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 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 14^th 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.

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 6^th 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.

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.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update April 2022

May 5, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased again during April in the South Island but dropped in the North Island. Average spot prices for the month ranged from $222 in the lower South Island ($209 in Mar), to $202 in the upper North Island ($213 in Mar). Graph not available from EMI this month so not updated

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

Electricity Demand

Electricity demand reduced in April – but was still in line with levels seen at the same time in the last 4 years, apart from 2020 when demand was impacted by the first Covid lockdown.

Electricity Generation Mix

Continued attempts to conserve water has accelerated the reduced hydro and increased thermal generation observed last month as shown in the following graph.

HVDC Transfer

April saw northward transfer reduced further as SI hydro generators tried to conserve water and a considerable increase in southward transfer compared to March. Higher SI inflows at the end of the month reversed this trend somewhat.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of March.

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

The increase in prices observed over the last few months continued through April. CY 2023 prices closed at $192 – a 8.5% increase for the month. CY 2024 also increased throughout the month finishing at $172 – a 10% increase. CY 2025 ended the month at $147/MWh – a 7.5% increase.

On the supply side, a number of new solar projects were announced during April which could be up and running very quickly if approved. Transpower recently revealed that there was about 2GW of mature utility-scale solar interest in the connections process, with a total of 13GW of interest expressed in solar generation projects (not all will be built). Known projects are shown below.

Hydro Storage

Inflows remained low in both islands through most of April. NI inflows were about 60% of average for April, while SI inflows were less than 50% of average for most of the month before some higher than average inflows came in at the end of the month.

As a result of these low inflows, and even with hydro generation being substantially reduced during April, energy storage levels in New Zealand’s main hydro storage lakes dropped through April. Storage ended the month at 2,817 GWh or 62.5% full, down 195 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

Note this has not been updated this month as the latest data on Meridian’s website is still 26^th March.

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 has decreased over the last month as you would expect through summer. Storage is now below the mean level (close to the 25 percentile) we would expect for this time of year in the important Waitaki catchment (which feeds approx. 50% of the SI hydro generating capacity.)

Climate outlook overview (from the MetService 1st April 2022)

Climate Drivers — La Nina continues to linger in the tropical Pacific, earning some commentary about a “triple dip” La Nina. A return to near-neutral El Nino-Southern Oscillation (ENSO) conditions is still expected for winter, although this is much slower than previously signalled. However, the most important climate drivers in the short term (May) will be the persistence of Highs over Aotearoa New Zealand, and the forecast for a relatively quiet Southern Ocean (think a relative lack of cold fronts across the South Island). This is especially the case through the first half of the month. Sea temperatures around the New Zealand coastline remain well above normal, with temperatures sitting at 2oC above normal for the time of year.

May 2022 Outlook — High pressure continues to dominate the weather maps through the first half of May bringing extended runs of settled weather, and plenty of sunshine, to both islands. This will be briefly punctuated by a weakening Tasman Low and attendant fronts which begin to affect South Island from late this weekend, moving onto North Island early next week. Whilst offering healthy rainfall across South Island, especially west of the Divide, expect rain from this system to become increasingly patchy further north and east. The next strong high then quickly moves into the Tasman Sea through mid-next week with cooler south-westerly winds spreading across New Zealand and some crisp mornings developing. As we head beyond mid-month, and the end of Autumn, signs that a more unsettled spell may begin to develop with high pressure slowly eroding away to the east. Whilst there remains uncertainty as to just how quickly this will occur, we can expect to see some increased mobility returning to the weather maps with more frequent Southern Ocean fronts washing up across the country. This is much more typical of late Autumn with areas exposed to vigorous westerly flows likely to see the best of the rainfall. With this expect more temperature volatility too as short, sharp cooler snaps become more likely, especially by the end of the month.

The Gas Market

Gas prices continued to climb in April. Average prices were $21.5/GJ – 19% up on March. Prices are now 40% higher than they were at the same time last year.

On the supply side, the following graph shows a significant drop in April. Maui production dropped 10% having averaged 100TJ per day in March reducing to 90TJ in April.

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 83TJ per day – a further 2% drop. McKee / Mangahewa decreased output as well – averaging around 68TJ – a 9% decrease from March. Kupe maintained output averaging around 70TJ/day.

Huntly’s gas usage reduced during April presumably due to tight gas supplies pushing them to run more on coal. Gas usage averaged 64TJ/day, down 7% on March. TCC operated for most of the month – using up to 50TJ/day at times during April. No gas was used at TCC from the 23^rd for the rest of the month. Methanex Motonui backed off gas usage by 7% to around 153TJ/day on average – while Methanex Waitara operated at around 6TJ/day until the 23^rd when it stopped. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during April as the ongoing 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 Ukraine and the potential for sanctions on critical gas supplies from Russia have added to the uncertainty and therefore further added to energy prices.

LNG netback prices fell in April to $38.09/GJ – a 15% decrease last month. Prices for the remainder of 2022 are expected to average $33.59/GJ (a 12% decrease on last month) while 2023 netback prices increased 12% to $28.11/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 $US280/T, prices increased through April to close at $US326/T – up 16%.

These prices are still well above anything seen in the last 10 years as shown in the following graph.

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 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 April prices eased slightly to just below $76/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 rebounded to 85 Euro/tonne in April – up 8%. 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.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update March 2022

April 8, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased dramatically during March in both the North and South Island. Average spot prices for the month ranged from $180 in North Canterbury, to $215 in Southland ($110 in Feb) in the far South, and to $210 ($165 in Feb) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices, especially in the South Island, in March are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased slightly in March – now back in line with levels seen at the same time in the last 4 years, apart from 2020 when demand was impacted by the first Covid lockdown.

Electricity Generation Mix

Continued attempts to conserve water has accelerated the reduced hydro and increased thermal generation observed last month as shown in the following graph.

HVDC Transfer

March saw northward transfer reduced further as SI hydro generators tried to conserve water and a considerable increase in southward transfer compared to February.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of March.

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

The increase in prices observed through February, after the announcement from Rio Tinto that they wanted to keep the Tiwai Aluminium smelter operating after 2024, continued into the start of March before levelling off somewhat in the second half of the month. CY 2023 prices closed at $177 – a 13.5% increase for the month. CY 2024 also increased throughout the month finishing at $156 – a 7.5% increase. CY 2025 ended the month at $136.5/MWh – a 6% increase.

Trying to balance this on the supply side a number of new solar projects were announced during March which could be up and running very quickly if approved. Known projects shown below.

Hydro Storage

The inflows continued see-sawing back to the very low inflows seen a couple of months ago, punctuated by the flooding that occurred in February. SI inflows for March were less than 50% of average. The Waiau catchment feeding Manapouri Power Station has experienced its lowest inflows on record for January to March and both lakes Manapouri and Te Anua are operating in their low ranges where output is constrained to meet strict guidelines. NI inflows were low for the start of March but recovered somewhat in the second half of the month.

As a result of these low inflows energy storage levels in New Zealand’s main hydro storage lakes dropped through March. Storage ended the month at 3,012 GWh or 67% full, down 871 GWh over the month.

As noted last month – things can change quickly in the NZ electricity sector. This month storage has plummeted on the back of low inflows and a limited ability of other electricity supplies (due in part to their own fuel constraints) to slow that rate of decline. Security of supply risks are again raising their head.

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 has decreased over the last month as you would expect through summer. Storage is now below the mean level (close to the 25 percentile) 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 2 Feb 2022)

Climate Drivers — La Nina is in a slow declining phase across the tropical Pacific, with a return to near-neutral El Nino-Southern Oscillation (ENSO) conditions expected late Autumn, slightly slower than previously signalled. The tropics remain active, with potential for a Tropical Cyclone to develop early next week near Vanuatu. This will need watching with respect to New Zealand weather but may just materialise as humid northerlies. The Southern Ocean is expected to remain mostly settled for the first half of April, with a lower potential for cold outbreaks. Sea temperatures around New Zealand remain well above normal, with temperatures sitting at 2deg above normal for this time of year.

April 2022 Outlook — High pressure dominates the weather maps in early April, bringing mostly dry conditions across Aotearoa New Zealand. A weather system from the Tasman Sea is forecast to move onto the South Island from the 5th, though rainfall may be welcome, accumulations are unlikely to significantly impact the ongoing drought across Southland, Otago, and Queenstown. When the South Island weather system reaches North Island shortly afterwards, it will bring a couple of showery days and little more. From around the 8th, tropical activity near Vanuatu may grab the attention of MetService expert meteorologists who will keep a close eye on any potential developments and their significance for New Zealand. Whilst this has the potential to deliver heavy rain, with strong high pressure across the country, we may see any advance from the tropics diverted away from our shores. This late season potential storm increases the uncertainty in the outlook and creates a potential split in the forecast path. Whilst the high may well be eroded from the north, the Southern Ocean looks likely to become more active at the same time. If this scenario wins out, then it would herald the onset of a spell of westerly mobility for South Island. We may see a series of fronts move through in quick succession, but with diminishing returns as they head further north. The second half of April should see the return of high pressure in the Tasman Sea, limiting further rain to minor southwesterly showers or cold fronts. It also looks likely to hold any further Tasman Sea rainmakers at bay.

The Gas Market

Gas prices were up dramatically in March. Average prices were $18.16/GJ – 45% up on February.

On the supply side, the following graph shows a slight drop in March. Maui production maintained the higher levels achieved since completion of the successful infill project. Many days exceeded 110TJ until the last few days of the month when it reduced to about 90TJ.

Pohokura output continued its very gradual decline evident over the last couple of years finishing the month averaging around 85TJ per day. McKee / Mangahewa decreased output as well – averaging around 80TJ for most of the month before dropping to 60TJ at the end of March. Kupe maintained output averaging around 70TJ/day.

Increased requirements for gas for electricity generation during March saw Huntly’s gas usage lift again increasing up to about 80TJ per day by the end of the month. TCC also started operating for the first time in 8 months – using up to 40TJ per day at times during March. Methanex Motonui backed off gas usage to around 165TJ/day on average – while Methanex Waitara also spent much of the month not operating. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during March 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 increased in March to $44.57/GJ – a 48% increase on last month. Prices for the remainder of 2022 are expected to average $38.2/GJ (a 5% increase on last month) while 2023 netback prices were static at $25.11/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. Methanex recently 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 the Ukraine has driven energy prices, including coal, up. After starting the month at around $US300/T, prices increased to new record levels of almost $US420/T before falling and now settling at close to $US280/T.

These prices are still well above anything seen in the last 10 years as shown in the following graph.

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 March prices eased slightly to $76/t – still well above the $70 upper guardrail 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.

European greenhouse gas emissions continued to decline in March. 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. The recent downturn is counter-intuitive, however, may be explained by traders having concerns that governments may intervene in the market, even suspending it, as these higher EUA prices start to impact more on energy prices. It could also be caused by trader’s pricing in an increasingly likely economic recession (and coinciding reduction in energy use) in Europe.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update February 2022

March 7, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased during February, especially in the South Island. Average spot prices for the month ranged from $110 ($147 in Jan) in the South, to $165 ($168 in Jan) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 2 years. The significant decrease in prices, especially in the South Island, in February are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand decreased in February – less than the levels seen at the same time in the last 4 years. (Note that the Transpower error observed last month has been corrected this month)

Electricity Generation Mix

Continued attempts to conserve water has maintained the reduced hydro and increased thermal generation observed last month as shown in the following graph.

HVDC Transfer

February saw a continuation of reduced northward transfer as SI hydro generators tried to conserve water. There was also a small amount of southward transfer.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of February.

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

As foreseen in this report last month Rio Tinto announced at the start of February that it wanted to keep the Tiwai Aluminium smelter going after its planned closure in 2024. Accounting for about 12.5% of national electricity demand the aluminium smelter has a significant impact on national electricity prices. The market response was immediate with all calendar years’ increasing, but particularly the later years of 2024 and 2025. CY 2023 prices increased throughout the month, closing at $156 – an 8% increase for the month. CY 2024 also increased throughout the month finishing at $145 – a 14% increase. CY 2025 showed the largest increase ending the month at $129/MWh – a 23% increase!

Trying to balance this on the supply side a number of new projects were announced during February. Meridian announced plans for a battery / solar installation at Ruakaka and a wind farm at Mt Munro, Mercury is looking at adding capacity to its Ngatamariki geothermal power station, and Contact is looking to expand its Tauhara geothermal station. A number of other solar schemes are also being worked on which could be up and running very quickly if approved. Known projects are shown below.

Note that Mercury has completed commissioning the Northern section of Turitea wind farm – 119MW. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed in early 2022.

Genesis also announced a biofuel trial at Huntly that could have a major impact on the life of the ageing station. In the trial, they are looking to use advanced wood pellets to replace coal on one of the 4 Rankine (250MW) units at the site. If successful it could allow Huntly to provide a renewable dry-year energy storage solution and extend its life beyond 2040.

Hydro Storage

After January’s record low inflows, rainfall returned with a roar in February. Early February saw over a metre of rain in 24 hours in some South Island catchments, while in mid-February ex Tropical Cyclone Dovi crossed the North Island delivering high winds and flooding in some areas. Many areas set new record rainfall levels for February. The impact of these events can be seen in the following hydro catchment inflow graphs.

As a result of these high inflows, energy storage levels in New Zealand’s main hydro storage lakes increased through February. Storage ended the month at 3,883 GWh or 88% full, up 428 GWh over the month.

A month is a long time in the NZ electricity sector – highlighted in this case by the dramatic turnaround in energy storage and the reduced risk of future supply shortages. In January the plummeting storage was a real concern for energy security for 2022. The high February inflows have eased a lot of those concerns for now although, with dry weather expected to continue, this reprieve could be short-lived.

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 has decreased over the last month as you would expect through summer. Storage remains 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 2 Feb 2022)

Climate Drivers — La Nina has now peaked in the tropical Pacific and is declining. A return to neutral El Nino–Southern Oscillation (ENSO) conditions is likely for autumn. The tropics to the north of New Zealand remain active, with moderate potential for another Tropical Cyclone to form this week over the Coral Sea. However, an intense High remains stubbornly in charge over New Zealand this week and should fend off any tropical visitors. The Southern Ocean remains relatively settled across the first half of March, meaning cold outbreaks and autumnal fronts will be infrequent and mostly lacking oomph. Seas around the New Zealand coastline remain abnormally warm, with temperatures running near 2 degrees above the normal for the time of year.

March 2022 Outlook — A high prevails over Aotearoa this week, bringing a drier spell with somewhat cooler conditions. A cold front tries to break this pattern early next week, to deliver rain over the far south of the country, but it may not progress well against the intense High. Ditto for any tropical easterlies to the north of New Zealand. For most of the country, next week continues on the dry side, with a return to well above average March temperatures.

For the second half of March, temperatures remain well above average. Highs are also likely to remain prevalent over our weather maps, especially over the South Island, but at this time of year, the odd front will make inroads (and bring passing rain). Intermittent easterlies are likely to continue across the upper North Island for the back half of the month, with top-up showers possible there.

Overall, a warmer than usual March is forecast. Below normal March rainfall is forecast for most regions, with the exception of Westland, Fiordland, Southland and Otago (near normal tallies there).

The Gas Market

Gas prices were up again in February. Average prices were $12.54/GJ – 8.9% up on January.

On the supply side, the following graph shows a slight pickup in February. Maui production increased again with a number of days exceeding 110TJ. Maui averaged 105TJ/day, up from 95TJ/day in January.

Pohokura output was largely steady at 88TJ/day for the month apart from a couple of days at the start of the month when there appeared to be a shutdown. Due to the outage average output was 79.5TJ, down 10% in January. McKee / Mangahewa decreased output as well – down 2% to 81.5TJ/day while Kupe maintained output averaging 69.5TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in late 2022. Drilling programs are also currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until late 2022 or early 2023.

Increased requirements for gas for electricity generation during February saw Huntly’s gas usage lift by a further 15% over the month (after a 23% increase in January). Stratford was also generating at similar levels to January. Methanex Motonui backed off gas usage to around 171TJ/day on average – down 4% on the month while Methanex Waitara started back up in early February operating at 6TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during February as the ongoing 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 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 reduced in February as the European winter drew to a close, but remained high compared to historical levels at $30.06/GJ – a 23% decrease on last month. Prices for the remainder of 2022 are expected to average $36.3/GJ (the same as last month) while 2023 netback prices increased to $25.80/GJ ($23.71/GJ last month.)

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. Methanex recently 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. After the increase in prices last month due to Indonesia (the world’s largest coal exporter) banning all coal exports, this month saw that ban overturned at the start of February. However this provided no price relief as the outbreak of the war in Ukraine has seen a refreshed rally in prices – now exceeding $US300/T – a further 35% increase in the month over levels that were already at record highs.

These prices are well above anything seen in the last 10 years as shown in the following graph.

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 and have risen again during February to $78.5/t – well above the $70 upper guardrail 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.

European greenhouse gas emission rights eased slightly in February. They are still about three times the price they were a year ago, as concerns about the amount of coal burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update January 2022

February 8, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased dramatically during January. Average spot prices for the month ranged from $147 ($45 in Dec) in the far South, to $168 ($67 in Dec) at the top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. The lower prices in December are just visible on the far right The following chart shows average weekly spot prices over the last 2 years. The significant increase in prices in January are clearly visible on the far right of the graph.

Electricity Demand

Electricity demand increased in January back to levels seen in 2019/20. The normal post-summer shutdown increase can be seen in recent weeks. (Note – I believe there is an issue with this Transpower graph that I have raised with them in that I think they deleted 2021 data at the start of this year but renamed the other years – so what is labelled 2019 is actually 2018, etc.)

Electricity Generation Mix

Increasing demand and attempts to conserve water have fed through to reduced hydro and increased thermal generation in January as shown in the following graph. Wind generation has also been down compared to recent months.

HVDC Transfer

January saw reduced northward transfer as SI hydro generators tried to conserve water. There was also a small amount of southward transfer.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) from the start of 2020 to the end of January.

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

In January, CY 2023 prices increased at the start of the month peaking at $148.5 before dropping later in the month, closing at $144 – a 2% increase for the month. CY 2024 also increased throughout the month peaking at $131 before finishing the month at $127 – a 3% increase. CY 2025 is shown for the first time this month – it was largely flat ending the month at $105/MWh.

Lower prices for CY 2023, CY 2024 and CY2025 are based on an expectation that a new generation is developed over that timeframe – known projects shown below.

Meanwhile, on the demand side of the equation, expectations are increasing that the Tiwai aluminium smelter will continue to operate beyond 2024. High aluminium prices and the relatively low emission content of aluminium produced at Tiwai is likely to lead its owner, Rio Tinto, to want to extend operations past the current contracts end date. Accounting for about 12.5% of national electricity demand the aluminium smelter has a significant impact on national electricity prices. Any negotiations are likely to start as early as this year.

Hydro Storage

The story of the last month has been the historically low Hydro inflows during January. A four week period in January saw the lowest inflows on record in the NI and the second-lowest on record in the SI.

Energy storage levels in New Zealand’s main hydro storage lakes decreased through January. Storage ended the month at 3,455 GWh or 78% full, down 417 GWh over the month.

As shown in the following graph, storage has plummeted over the last month losing more than 15% of total (full) storage in just over a month! On the current trajectory, storage will very quickly become a problem and with concerns remaining around thermal fuel supply, the ability to suppress this decline may be constrained. With the potential for below-average inflows over the next few months, it is understandable that some red flags are starting to be raised.

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 has decreased over the last month as you would expect through summer. Storage remains 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 2 Feb 2022)

Climate Drivers — A maturing La Niña event in the tropical Pacific is close to its peak. A return to neutral El Niño–Southern Oscillation (ENSO) conditions is likely this autumn. The persistent positive Southern Annular Mode (SAM) phase is predicted to continue through the first half of February. This supports Highs over the South Island and southern latitudes and reduces the chance of Southern Ocean weather systems sweeping up the country. In contrast, an ‘active’ tropics, with humid northerlies and Tasman Sea lows, should prevail this week and into early next week, before Highs build back in across most of New Zealand by mid-month.

February 2022 Outlook – Rainfall Extremes – Extreme rainfall is signalled to start February – then forecasts show a return to an extended dry run. A Red Warning for Heavy Rain is currently in force for Westland and Buller. Red Warnings are reserved for the most significant weather events. This is only the fifth Red Warning MetService has issued since the colour coded system was introduced in 2019. Rain accumulations are forecast to be 500-750mm about the Westland ranges over 2 days, and disruptions are expected.

For all other areas, a burst of rain is expected between now and early next week (7th February), associated with two weather features moving across the country. Expect more rain in the next 7 days, than seen across all of January, in your region. Many North Island areas should also see locally heavy falls and decent totals, but picking who sees the best of the rain is challenging so far out. After the middle of next week, expect another extended drier-than-normal run, as prevailing Highs build back in across the country, with easterly winds returning to Auckland and Northland.

February is forecast to be hotter than usual, overall. The exceptions are the eastern areas of both Islands, where monthly temperatures are expected to fall closer to February normal.

The Gas Market

Gas prices rebounded in January. Average prices were $11.51/GJ – 18.9% up in December.

On the supply side, the following graph shows a decline again in January. Pohokura output decreased slightly, producing 88TJ/day for the month, down 2% in December. The recent gas injection program has had some success at improving flows above the 80TJ/day in October though production is again waning over time.

Maui production started the month strong, peaking at over 100TJ/day in the middle of the month before easing back to closer to 90TJ/day. Maui’s average for the month was 94.5TJ/day down 3%. McKee / Mangahewa decreased output as well – down 7% to 83TJ/day while Kupe maintained output averaging 69TJ/day.

Increased requirements for gas for electricity generation during January saw Huntly’s gas usage lift by 23% over the month while Stratford was also generating solidly for most of the month. A Maui pipeline shutdown over the last weekend in January limited gas usage north of Mokau in the Waitomo area – restricting gas supply to Huntly and to a number of other large users in the North. Methanex Motonui maintained high gas usage in the first half of the month but reduced in the second half to around 178TJ per day. Average use was 180TJ per day, up 5% on the month. Methanex Waitara continued to operate at 6TJ per day until the 22^nd of January when it shut down. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during January as the ongoing lack of gas storage/supply in Europe and geopolitical disputes impacting supply out of Russia have continued to result in elevated wholesale prices for gas and electricity. Companies heavily reliant on gas and/or electricity have scaled back production or, in some cases, ceased operations completely.

LNG netback prices reduced slightly but remained high at $39.11/GJ – a 5% decrease on last month. Prices for next year are expected to average $36.3/GJ (compared to $34.46 last month) while 2023 netback prices increased to $23.71/GJ ($18.66/GJ last month.)

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. Methanex recently 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 almost as much about coal as it has gas. After a quadrupling of prices through most of 2021 followed by the large falls in October driven by the Chinese Government intervening in their market, coal prices rose again sharply through January. Indonesia, the world’s largest exporter of thermal coal used for power generation, banned all exports of coal for January to protect their domestic supply. This caused a spike in international coal prices up to $223USD/T in recent trading – an increase of 30% over the month. These prices are well above the levels seen in the last 10 years as shown in the following graph.

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 price 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 and have risen again during January to $76/t – well above the $70 upper guardrail 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.

European greenhouse gas emission rights increased markedly again in January. They are now about three times the price they were a year ago, as concerns about the amount of coal likely to be burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update December 2021

January 11, 2022

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased during December. Average spot prices for the month ranged from $45 (-40%) in the far South to $67 (-30%) top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. The lower prices in December are just visible on the far right of the graph.

Electricity Demand

Electricity demand was lower in December than in the last two years – back to levels last seen in 2018. The continued downward trend in demand as we move into summer and temperatures increase is also apparent.

Electricity Generation Mix

Reducing demand enabled hydro and thermal generation to ease slightly in December.

HVDC Transfer

December saw increased northward transfer which became apparent at the end of November continue, coinciding with some increased SI inflows. There was no southward flow.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of December.

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

In December, CY 2022 prices increased at the start of the month peaking at $157 before dropping considerably later in the month, closing at $141 – a 7% decrease for the month. CY 2023 was static throughout the month ending unchanged at $138, while CY 2024 was also largely flat ending the month at $123/MWh – a 1.5% increase.

Lower prices for CY 2023 and CY 2024 are based on an expectation that new generation is developed over that timeframe – known projects shown below.

Note that Mercury is currently commissioning the Northern section of Turitea wind farm – 119MW due to be completed soon. However, the Southern section (102MW) may not be completed until mid-2023. Also, Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed early 2022.

Hydro Storage

Hydro inflows increased during December to above-expected levels. SI inflows were above average for most of the month, only reducing later in the month. NI inflows were less than expected for most of the month, though increased to well above average later in the month.

Energy storage levels in New Zealand’s main hydro storage lakes increased again through December. Storage ended the month at 3,872 GWh or 88% full, up 239 GWh over the month.

As shown in the following graph, storage remains above the average for this time of year. However, even though the storage is increasing, so too are the risk curves reflecting this being the time of the year when we expect to see the most significant inflows, and when inflows on average will soon start to reduce and we will rely on storage for security of supply.

Uncertainty around future gas supplies, and high coal and carbon prices, are still causing hydro generators to be conservative in their valuing of storage, increasing the risk of spill but reducing the likelihood of supply shortages. We would expect that to remain the case for the next 1-2 years.

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 has decreased over the last month as you would expect as the weather warms up. Storage remains 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 6 Jan 2022)

Climate Drivers — La Nina conditions are well established in the tropical Pacific with cooler than average surface waters and enhanced easterly trade winds. This is likely a contributing factor to the blocking high becoming entrenched across the South Island promoting a positive Southern Annular Mode (SAM) deflecting stormy westerlies south of our shores. The Madden-Julian Oscillation (MJO), an area of enhanced cloud and rain which circumnavigates the tropics every 30-60 days is currently weak.

January 2022 Outlook – Dry weather abound –

This year has begun in scorching style thanks to high pressure with plenty of sunshine and temperatures well above average across the country. Following a brief and likely welcome cool southerly change running up the South Island, things warm up again at the weekend. Next week brings a little rain as two cold fronts run up South Island, but they’re no match for the North Island ridge that awaits them, reducing them to just a few showers by the time they reach Te Ika-a-Māui (the North Island). High pressure then returns with plenty of dry, settled weather across the country for much of the rest of the month.

The weather’s New Year resolution appears to be to bring high pressure and settled weather to Aotearoa. Sure, there will be the odd cheat day but expect plenty of fine, warm, and dry weather on the Mainland with the North Island also remaining mainly settled. Later in the month as resolutions wane we may well see a low from the Tasman Sea or possibly the sub-tropics brings a bout of wet and windy weather, most likely for the North Island. That said it is possible the resolution may hold as long as most tend to… into early February.

The Gas Market

As is normal for this time of year gas prices decreased through December. Average prices were $9.78/GJ – 13.5% down on November.

On the supply side, the following graph shows a slight decline in December. Pohokura output decreased slightly, still averaging over 90TJ/day for the month but down 1% in November. The recent gas injection program has had some success at improving flows above the 80TJ/day in October.

A production outage at the start of the month and slightly lower daily output pulled down Maui’s average by 4% to 96TJ/day. McKee / Mangahewa decreased output slightly – down 3% to 94TJ/day while Kupe also declined slightly averaging 69TJ/day.

Reduced requirements for gas for electricity generation during December saw Huntly’s gas usage decline by another 10% over the month and other gas generation remained low. Methanex Motonui appeared to time production outages with reduced Maui supply as it decreased its average use to 164TJ per day, down 8% on the month. Methanex Waitara continued to operate at a minimal 4-6TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Despite a mild start to winter in the northern hemisphere, global energy prices remained high during December. The ongoing lack of gas storage/supply in Europe and geopolitical disputes impacting supply out of Russia have resulted in elevated wholesale prices for gas and electricity. These have started to flow on to industries heavily reliant on gas and/or electricity such as Aluminium where there have been plant closures in Europe and production scaled back in China.

LNG netback prices (last published mid-Dec) have remained high at $41.24/GJ – a 16% increase on last month. Prices for next year are expected to average $34.46/GJ (compared to $24.58 last month) while 2023 netback prices increased to $18.66/GJ ($15.29/GJ last month.)

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. After the large falls in October driven by the Chinese Government intervening in their market, coal prices were largely flat in December ending the month at $160USD/T. However, at the start of January Indonesia, the world’s largest exporter of thermal coal used for power generation, banned all exports of coal for January to protect their domestic supply. This caused an immediate spike in international coal prices up to $180USD/T in recent trading. These prices are well above the levels generally seen in the last 10 years as shown in the following graph.

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 scheme closely linked to international schemes. 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, however, in the last couple of months they have shown some signs of levelling off at around $65 – 70/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 $65/t is estimated to currently add about $32.5/MWh (or ~3.25c/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.

European greenhouse gas emission rights levelled off somewhat after the significant increases in November – but are still up 170% on a year ago, as concerns about the amount of coal likely to be burnt during the European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

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/

Disclaimer

About Smart Power

Smart Power is a full-service Energy Management consultancy. Apart from Energy Procurement, Smart Power can also provide:

Technical Advice on how to reduce your energy use/emissions
Sustainability Reporting
Invoice Management services.

We also offer boutique energy and water billing service for landlords/property developers.

Contact us at https://smartpower1.wpenginepowered.com/contact/ or ring one of our offices to talk to one of our experienced staff about how we can assist you with achieving your energy goals.

Continue reading →

Market Update November 2021

December 9, 2021

Market Update

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased during November. Average spot prices for the month ranged from $75 (+50%) in the far South to $95 (+25%) top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. The higher prices in November are just visible on the far right of the graph – but still considerably below the peaks of a few months ago.

Electricity Demand

After the clear impact of lockdowns during September, electricity demand in November was close to, if not slightly below the levels of the last few years. Demand was also trending down as expected as the weather warmed up.

Electricity Generation Mix

Hydro generation iHydro generation was stable in November enabling thermal generation to back off further as demand reduced.

HVDC Transfer

November saw northward transfer reduce for most of the month until it picked up again on the last week of November, coinciding with some increased SI inflows. There was a small amount of southward flow for the first time since July, reflecting lower SI inflows at the start of the month and a deteriorating SI storage position relative to the hydro risk curves.

The Electricity Futures Market

The following graph shows Futures pricing for CY 2022, 2023 and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of November.

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

In November, CY 2022 prices jumped at the start of the month peaking at $155 before easing later in the month, closing at $151 – a 4% increase in the month. CY 2023 drifted up throughout the month ending $5 higher at $138 – a 4% increase, while CY 2024 was largely flat ending the month at $121/MWh – no change.

Lower prices for CY 2023 and CY 2024 are based on an expectation that new generation is developed over that timeframe – known projects shown below.

Note that Mercury is currently commissioning the Northern section of Turitea wind farm – 119MW due to be completed before the end of 2021. However the Southern section (102MW) may not be completed until mid-2023. Also Genesis has announced that FRV Australia will be its joint venture partner to build 500 MW (750GWh pa) of solar generation by 2025 mainly in the North Island. The first location will be confirmed early 2022.

Hydro Storage

Hydro inflows reduced during November to below expected levels. SI inflows were below average for the first half of the month but then increased in the second half. NI inflows were less than expected for most of the month.

Energy storage levels in New Zealand’s main hydro storage lakes increased again through November. Storage ended the month at 3,633 GWh or 82% full, up 142 GWh over the month.

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 has decreased over the last month as you would expect as the weather warms up. Storage is now 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)

Climate Drivers – La Nina conditions have developed in the tropical Pacific Ocean, with cool sea surface temperatures and enhanced easterly trade winds. La Nina in summer tends to bring warmer than average, humid condition to New Zealand, with high pressure centred about the Chatham Island and north-easterlies prevailing. This is often supported by persistent, strong positive Southern Annular Mode (SAM) deflecting the usual ring of stormy westerlies about the Southern Ocean further south and away from our shores. These are of course departures from the norm, and even with these drivers in place we’ll still see plenty of usual summer weather.

December 2021 Outlook – A humid start to summer – Thermometers around the country certainly got the memo, meteorological summer is here. High pressure is dominating the New Zealand weather maps, and whilst it remains centred to the east of the country, our winds will maintain a northerly bias, and the humidity is here to stay. Expect a much warmer than average month across the board.

The first week of the month looks very settled bar a few showers before northwesterly rain pushes onto South Island at the weekend. High pressure then returns in a big way, especially for the South Island.

Changes in the weather patterns will be few and far between through December, with high pressure centred south and east of the country. This brings a drier than average outcome for the West Coast and lower South Island. Eastern regions of South Island will likely see a settled but often cloudy month. Upper South Island and North Island weather will be dictated by the northern extent of this high. During periods when the high waxes north, settled conditions will prevail. During the time when the high wanes southwards, we open the door to the northern Tasman Sea and areas of low pressure running across the upper North Island, bringing rain to anywhere with northern exposure.

The Gas Market

Gas prices were flat through November. Average prices were $11.3/GJ – unchanged from October.

On the supply side, the following graph shows an overall improvement in gas supply through November. For the first time in over a year, Pohokura output increased, averaging over 90TJ/day for the month compared to 80TJ/day in October. The recent gas injection program has had some success in improving flows.

After the recent infill drilling, Maui continued to perform well, averaging 100TJ per day in November – on a par with last month. McKee / Mangahewa also maintained its October output of close to 100TJ/day while Kupe maintained production last month, averaging 70TJ/day.

Long term the situation at Pohokura will not improve significantly until the operators complete drilling to improve output, currently due to occur in 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.

Reduced requirements for gas for electricity generation during November saw Huntly’s gas usage decline by another 2% over the month and other gas generation remained low. Methanex Motonui took advantage of the increased gas supply increasing its average use to 179.2TJ per day, up 3% on the month. Methanex Waitara continued to operate at a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices remained high during November with a lack of gas storage/supply in Europe leading into their winter meaning that demand for LNG stayed high. However Asian markets have been outbidding them for scarce supply, meaning that there is the real potential of energy supply shortages in Europe over the winter. After LNG netback prices increased by more than 200% in the previous two months, they dropped in November, ending the month at $35.53/GJ – a 10% decrease from October’s high. Prices for next year are expected to average $24.58/GJ (compared to $19.75 last month) while for the first time 2023 netback prices are being published at $15.29/GJ.

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. For example, high international gas prices have resulted in methanol production being cut back in some parts of the world and in record prices for methanol. Methanex may be willing to pay more for gas in NZ to try to maximise output and to benefit from these high methanol prices.

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. After the large falls seen last month when the Chinese Government intervened in their market, coal prices stabilised in November – in a range of $140-160USD/T. These prices are still well above the levels generally seen in the last 10 years as shown in the following graph. International prices ended the month at $159USD/T, up 6% in the month.

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 18 months for electricity generation at Huntly. 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 scheme closely linked to international schemes. 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, however in the last couple of months, they have shown some signs of levelling off at around $65 – 70/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 $65/t is estimated to currently add about $32.5/MWh (or ~3.25c/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.

European greenhouse gas emission rights rose by 34% over the month (up 170% in the last year) as concerns about the amount of coal likely to be burnt during the coming European winter flowed through to increased demand for EUAs. It will be interesting to see if governments intervene in the market as these higher EUA prices start to impact more on energy prices.

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/

Disclaimer

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