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Market Update September 2021

October 6, 2021

The Wholesale Electricity Market

September was a relatively benign month in the wholesale electricity market, especially compared to the roller-coaster ride experienced in August.

Average spot prices for the month ranged from $63 in the far South to $100 top of the North Island as depicted in the following chart.

The following chart shows average weekly spot prices over the last 5 years. It can be seen that prices in September were down at levels not seen for a year.

Electricity Demand

Electricity demand in September gradually increased as lockdowns eased and people in most parts of the country returned to work. By the end of the month, demand had returned to more typical levels for the time of year.

Electricity Generation Mix

Hydro generation maintained the higher levels seen over the last two months enabling thermal generation to back off. Increased wind output during the first month of spring is also clear to see in the following chart.

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.

September saw a northward transfer increase from the already high levels observed since July. There was no southward flow reflecting significant SI inflows and improving SI storage position.

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, and 2024 at Otahuhu (Auckland) from the start of 2019 to the end of September.

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

In September prices eased slightly with a 3.5% decrease in CY 2022, down to $143/MWh, largely flat for CY 2023, and a 3.5% decrease in CY 2024, down to $118/MWh.

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

Note that there are also a number of projects aimed at improving the output of existing schemes. For example, Manawa Energy – the renamed Trustpower after the sell-off of their retail arm to Mercury – is spending $83 million over 5 years to get an extra 68GWh pa from its existing assets. Similar incremental improvements are being made by other generators.

Hydro Storage

Hydro inflows were healthy again throughout September. SI inflows were still well above average levels, as they have been for the last few months, while NI inflows were close to expected.

Energy storage levels in New Zealand’s main hydro storage lakes increased again through September to end the month at 3,476 GWh or 79% full, up 244 GWh over the month.

As shown in the following graph, storage is now well above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages this year are now minimal. Given that we are moving into the period when we would expect the greatest inflows into the SI catchments, the risk of spill over the next few months is now probably quite high.

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 currently snow pack has increased over the last month and is now close to maximum levels 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)

High pressure brings a fine and settled weekend with chilly mornings across the country to get October underway, but things don’t stay that way for long. An area of low pressure becomes slow-moving in the southern Tasman Sea pushing warm, humid north-westerlies and repeated bouts of rain across the country through the first full week of the month. This likely leads to a wet week for most places, especially those exposed to the northerlies. Once this low finally pulls away to the east there’s a brief respite before another low moves in. This one doesn’t hang around but rather barrels through central New Zealand. This brings another brief wet and windy spell for many, but the lower South Island and West Coast may be sheltered in easterlies. High pressure then begins to build in the Tasman Sea.

The high pressure may take its time to really set in but by mid-month, most of us should have had at least a few settled days. From that point, the high looks likely to edge north, with North Island continuing the settled trend. South Island, especially the lower South Island, will likely see westerlies, with rain in the west and above-average temperatures in the east. All signs point to the high then rebuilding across the country with a drier than average end to the month across the board.

The Gas Market

Gas prices dropped again through September with reduced gas demand for electricity generation and reduced residential demand as we moved out of the cooler winter period pushing prices down. Average prices for September were $12.4/GJ – 15% less than August.

On the supply side, the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. If anything the decline accelerated through September. We did not see other fields increase output meaning that overall production was lower than August coinciding with reduced demand as we moved out of winter. Drilling programs are currently ongoing at Maui and Kapuni, however, we do not expect the supply/demand balance to improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022.

Reduced requirements for gas for electricity generation during September saw Huntly’s gas usage decline by 20% over the month and other gas generation remained low. Methanex Motonui took up the slack increasing usage at the end of September from 150TJ to 170TJ per day (on top of a 50% increase in use last month). For the first time in some time, Methanex Waitara saw some gas usage – a minimal 4-5TJ per day. The following graph shows trends in the major gas users over the last 3 years.

Global energy prices were the big news story in September. Lack of gas storage/supply in Europe leading into their winter has increased demand for LNG. 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. Australian LNG netback prices increased again in September, ending the month at $22.18/GJ – an extraordinary increase of 50% on last month! Prices are now more than ten times the Covid induced lows of the middle of 2020. The futures market also rose sharply with average prices for the rest of 2021 approaching $40 (compared to $21 – 24/GJ last month) and nearly $23/GJ in 2022 (compared to $15.5/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. For example, Methanol manufacturing elsewhere in the world may be constrained by lack of gas supply, making the economics of using NZ gas more attractive, effectively pushing up gas demand, and prices in NZ.

The Coal Market

The global energy crisis has been almost as much about coal as it has gas. Thermal coal prices have hit record levels of $228USD/T – a 30% increase during September, following on from a 25% increase the month before. The post-Covid world economic rebound has fuelled demand for coal at the same time as supply has been reduced by a mixture of Covid induced mine restrictions, transportation bottlenecks, and reduced investment, which in turn has been impacted by environmental investment decisions. Countries like India and China, because of the high prices, are now trying to curb coal use, impacting on demand for gas as a substitute fuel, and on reduced electricity generation – forcing major users such as aluminum smelters to reduce production.

The following graph shows international prices for thermal coal over the last 10 years. Prices have almost tripled in 2021.

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 12 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.

As the carbon price rises, the cost of coal, gas or other fossil fuels used in process heat applications will naturally also rise. Electricity prices are also affected by a rising carbon price. Electricity prices are set by the marginal producing unit – in NZ this is currently typically coal or gas or hydro generators, with the latter valuing the cost of its water against the former. An increase in carbon price can lead to an increase in electricity prices in the short- to medium-term (as the marginal units set the price). A carbon price of $50/t is estimated to add about $25/MWh 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.

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 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 August 2021

September 4, 2021

Market Update

The Wholesale Electricity Market

August was notable for the blackouts that occurred on the evening of Monday 9^th August. National demand was very high (7,142MW) with a cold front causing temperatures to plunge and demand to soar. Media and political commentary on the event was predictably heated and tended to reflect the vested interests of the people who held those views. As with any event such as this, they tend to be caused by more than one thing in the system going wrong. Demand was more than forecast ahead of the event, gale force winds earlier in the day had pushed weeds into Tokaanu hydro intake, taking more than 100MW offline, and then a sudden drop in wind in the evening reduced NI wind generation. Some thermal units with long lead times to start-up were not available as their owners had not thought they would be needed.

Exacerbating the problem, a Transpower error made the outages worse than they needed to be by instructing some distributors to shed more load than required. This meant some customers had a disproportionate load shedding.

There are currently a number of reviews into what happened on the 9^th including those by Transpower, the Electricity Authority (EA), and the Ministry of Business, Innovation, and Employment (MBIE). An Undesirable Trading Situation (UTS) has also been claimed by a number of participants, now being investigated by the EA. Watch this space on all of these!

The other notable event this month has been the Covid lockdown across all of NZ. This has reduced demand and spot prices in the second half of the month.

Spot prices on average reduced significantly again during August, but it was a roller-coaster ride. Daily prices started the month averaging around $170/MWh, peaked at almost $1,600/MWh on the day of the black-outs (9^th), before ending the month at lows of around $65/MWh in the last two lockdown weeks.

The following chart shows spot prices over the last 5 years. The high prices around when the blackout occurred on the 9^th dwarf other price periods. Less obvious is the decline in spot prices after this date.

Electricity Demand

Electricity demand in August dropped off rapidly with the advent of the Covid lockdown in the middle of the month as can be seen in the following graph. The impact is similar to what was experienced during the first lockdown in April 2020, though starting from a higher level.

Electricity Generation Mix

The reduction in generation in the last two weeks of August is clear to see in the following chart. The largest declines have been in hydro generation, being able to conserve more water to use later, and thermal generation.

HVDC Transfer

August saw northward transfer remain at the high levels observed in July. There was no southward flow reflecting significant SI inflows and improved SI storage position.

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 August.

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

The increases in all calendar years over the last 12 months – over 60% for CY 2022 – is clear to see. Since June though prices had come back somewhat, particularly for CY 2022. In August prices reversed that recent trend with a 6% increase in CY 2022, up to $148/MWh, and smaller increases for CY 2023 and 2024.

The lower prices for 2023 and 2024 is due to the expectation of new generation being developed over that timeframe.

Hydro Storage

Hydro inflows were healthy again throughout August. SI inflows remained at similar high levels as July, well above the average levels for August. NI inflows dropped back to below average for the time of year.

Energy storage levels in New Zealand’s main hydro storage lakes increased again through August to end the month at 3,232 GWh or 72% full, up 208 GWh over the month

As shown in the following graph, storage is now well above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages this year are now minimal.

Uncertainty around future gas supplies is still causing hydro generators to try to conserve storage by valuing it at higher than normal levels. Given the circumstances we would expect that to remain the case until either storage exceeds average levels by a significant amount, or until there is more certainty around gas supplies.

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 currently snow pack has increased over the last month and remains well above average 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)

Meteorological spring begins with high pressure sitting across South Island pushing a low away to the northeast, with heavy rain for Northland on the 1st. This brings a drier than average start of the month for most of New Zealand, although the top and tail of the country will see easterly showers, and weak westerly fronts respectively. Temperatures will feel classically spring-like with large diurnal (day-night) variation, and a few chilly nights yet to come. This will be felt most keenly where the winds are lightest – the upper South Island and lower and central North Island.

During the second week of September we start to see more activity in both the Southern Ocean and the Tasman Sea, the two conspiring to throw an area of low pressure our way. Expect a marked uptick in temperatures as northerlies move in, followed by rain, which may well be heavy in the north and west. Temperatures are likely to take a dive again in the wake of the system with a southerly change, then southwesterlies as the next high rolls in to settle the weather down mid-month.

The second half of the month will likely be mainly settled with high pressure diverting weather systems around the fringes of Aotearoa. This also means we’re back to large diurnal temperature swings which may be bad news for growers trying to get a head start on the season.

The Gas Market

Gas prices dropped through August with reduced gas demand for electricity generation followed by Covid lockdown demand reduction pushing prices down. Average prices for August were $14.8/GJ – 23% less than July.

On the supply side the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. However in August this has been offset by increased output from Maui, McKee-Mangahewa, and Kupe, resulting in overall production being close to last month. Overall output is still down 20% on what we would expect through the winter months. This may not improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022.

Reduced requirements for gas for electricity generation during August saw TCC’s gas usage drop to zero. Some of this was picked up by other generators early in the month, but with the drop in demand due to lockdowns the second half of the month saw Huntly as the main gas generation required to meet electricity demand. Additional gas at favourable prices saw Methanex Motunui increase its gas usage by almost 50% from around 100TJ to nearly 150TJ per day. The Methanex Waitara Valley plant remains mothballed. The following graph shows trends in the major gas users over the last 3 years.

The Coal Market

Like gas, the price of coal can flow through and have an impact on the electricity market. Also coal is an internationally traded commodity so what happens in international markets can be important. Genesis has been importing significant amounts of coal over the last 12 months for electricity generation at Huntly.

The following graph shows international prices for thermal coal over the last 10 years. Prices continued to increase during August, ending the month at a fresh 10 year high of $174.6USD/T – a 25% increase over the month. Prices have more than doubled in 2021.

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.

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, even when more renewable electricity is being added (as the marginal units set the price). A carbon price of $50/t adds about $25/MWh to electricity 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 a 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 2021

August 9, 2021

Market Update

The Wholesale Electricity Market

Spot prices reduced significantly during July. At the end of July average spot prices were around $130/MWh compared to average levels in excess of $250/MWh seen over the previous few months. High inflows provided considerable relief for spot prices though they remain stubbornly high, reflecting uncertainty around future gas supply for electricity generation. Kawerau Geothermal (104MW) returned to service from its unplanned outage earlier than expected – returning mid-July (originally planned for late August return). The following heat-map shows average spot prices for the month

The following chart shows spot prices over the last 5 years. The reduction in July pricing (extreme right of the graph) compared to the last few months can be clearly seen.

Electricity Demand

Electricity demand in July remained close to the levels seen in June as we progressed through the cooler, highest demand months. However demand was in line with recent years as shown in the following graph.

Electricity Generation Mix

Increased hydro generation continued through July with the welcome return of higher hydro inflows as discussed in following sections. Geothermal increased in the second half of the month with the return of Kawerau to operation, while thermal generation was able to back off from previous high levels. Wind output was higher at the start of the month but reduced later in the month.

HVDC Transfer

July saw northward transfer return to levels not seen since November last year. There was almost no southward flow reflecting significant SI inflows and improved SI storage position.

The Electricity Futures Market

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

The increases in all calendar years over the last 12 months – over 60% for CY 2022 – is clear to see. Since June though prices have come back somewhat, particularly for CY 2022. In July this decrease continued with a 7% reduction in CY 2022, down to $139/MWh, and lesser reductions for CY 2023 and 2024.

The lower prices for 2023 and 2024 is due to the expectation of new generation being developed over that timeframe.

Hydro Storage

Hydro inflows were healthy again throughout July. SI inflows were well above the average levels for July and were at higher levels than they have been since November last year. NI inflows were at or above average for July.

Energy storage levels in New Zealand’s main hydro storage lakes increased again through July to end the month at 3,024 GWh or 68% full, up 207 GWh over the month.

As shown in the following graph, storage is now above the average for this time of year and well above the risk curves, meaning that the chances of supply shortages have greatly reduced.

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 currently snow pack has increased over the last month and is now well above average 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)

The weather in early August looks very mobile, with frequent weather systems running in from the west interrupting brief settled periods under transient ridges of high pressure. There’s always a ridge near the Far North, so expect drier than average conditions for the upper North Island. Prevailing westerly winds further south mean that the western and lower portions of both islands will likely see wetter than average conditions, bearing the brunt of each system as it rolls in from the west. Conversely, eastern regions will likely run drier than average. Temperatures will likely fluctuate with above average conditions expected ahead of approaching weather systems thanks to mainly northwest winds, and cooler than average conditions in the lee of the passing lows. Snow is on the cards for the mountains of South Island.

There are signs that from mid-month the high pressure in the Tasman Sea will become more established and spread across Aotearoa bringing a more settled period. This likely brings a spell of little rain, cold frosty mornings, and fine afternoons. How long this spell lasts is a little up for debate, as further westerly weather systems are waiting in the wings. It’s looking likely that August will be bookended with westerly weather systems.

The Gas Market

Gas prices peaked in the middle of July at close to $40/GJ before dropping in the second half of the month to approx.. $14/GJ. Average prices for July were $19.3/GJ – 6% more than June.

On the supply side the following graph shows the continued decline in Pohokura production over the last month, continuing the trend over the last 12 months. However in July this has been offset by increased output from McKee-Mangahewa, resulting in overall production being close to last month. Overall output is still down 20% on what we would expect through the winter months. This may not improve significantly until Pohokura’s operators complete drilling to improve output, currently due to occur late 2022.

Lack of supply and high prices have resulted in continued demand destruction during July, as can be seen in the following graph. The Methanex Waitara Valley plant has been mothballed for some months now, while Motunui maintained reduced consumption through July to allow a gas swop with Genesis enabling them to use more gas at Huntly. Increased hydro inflows allowed Huntly to reduce gas consumption by about 10% in July. Huntly has already been operating its duel fuel Rankine units on coal for most of the last 12 months to help conserve scarce water and to free up gas to be used elsewhere.

The Coal Market

The following graph shows international prices for thermal coal over the last 10 years. Prices increased during July, peaking at $150USD/T before falling back at the end of the month to close at $139USD/T – a small increase over the month. Prices remain at the highest levels seen in the last 10 years

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 almost twice what they were just over a year ago.

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, even when more renewable electricity is being added (as the marginal units set the price). A carbon price of $50/t adds about $25/MWh to electricity 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 a 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 2021

April 8, 2021

Market Update

What’s behind the electricity price rise – and what you can do about it.

Prices in the New Zealand wholesale market have increased to very high levels over the last few months, prompted by a combination of low hydro lake levels, calm weather (and therefore less wind generation), and lack of gas supply. This has led to increased use of coal at both a high direct cost and indirect cost, due to the steep carbon costs associated with coal-fired generation.

These high wholesale prices have flowed through to the contract pricing we are seeing for many of our clients whose current contracts are expiring. It is not unusual to see pricing more than double current pricing on an energy-only basis (i.e. ignoring the pass-through network charges)

Unfortunately, it’s unlikely to be a short-lived ‘price spike.’

With dry weather predicted to continue through the autumn, and no end in sight for the gas supply issues, it is expected that these tight supply conditions, and high prices, may be maintained over the next few months at least – noting that heavy rain into the hydro catchment areas could change this situation very quickly.

Of course, during times of shortage in supply, there are also the inevitable comments around the potential for market manipulation from the relatively small number of generators in the New Zealand market. While we see no evidence of this practice right now, it’s understandable that users are concerned about the sustainability of these price levels.

What are your options to contain costs?

At Smart Power, we’re acutely aware of the impact of rocketing energy prices. We are working hard for clients to minimise the impact these high prices may have on their business.

This may take the form of looking for ways to smooth out costs, through to different ways of purchasing such as Progressive Purchasing. For the largest users, it may make financial sense to become a direct wholesale market purchaser.

At times like this, Smart Power’s in-depth market expertise becomes invaluable. Contact us to see how we can assist you.

Continue reading →

Want to track your carbon emissions on an ongoing basis?

October 15, 2020

Uncategorized

Knowing, tracking and reporting carbon emissions will become more and more important as New Zealand moves to carbon zero by 2050. For Smart Power clients where we manage your electricity, gas and LPG, tracking happens automatically and reports can be obtained at any time.

Because we verify and check invoices on an ongoing basis, the information is accurate and up to date, which means no surprises when it’s time for annual reporting. Our calculations use the latest Ministry of the Environment factors that are available. It’s worth taking a deeper dive into the value Smart Power can add to your carbon emissions reporting. This has the potential to become quite complex – but we take away any headaches.

Tracking other emission sources.

Energy bills are just the beginning. The Smart Power system can also monitor and report your other emissions as well.

It’s simply a matter of providing us with usage information as regularly as you wish to be able to see the data and emissions. These other emissions can be things like petrol, rental cars, taxis, flights, accommodation and waste.

This means all your emission data is in one place and reports can easily be generated. The additional cost to do this can be very low, especially if the data is provided to us in a simple totals format. It then gets uploaded, has the appropriate factors applied, and the carbon emission is calculated.

Just tell us how much detail you require.

How regularly you add extra emission sources, and how often you wish to track and report them, is up to you. Energy use is tracked monthly, so a monthly update can ensure there are no surprises at the end of the year. If you just wish to have an annual total, then all you have to do is provide the information after the year.

The granularity of the emissions tracking is again up to you. For example, you could track emissions per vehicle or employee. However our costs will go up accordingly, based on the time to get the information into the database.

We can take also reports from suppliers such as Fleetcard or travel agencies. Bear in mind, our costs are related to how much detail you require and how regularly you require reports, plus the quality of the information.

The key thing to remember is that if we are already tracking your energy emissions, then for little extra cost you can have your other emission sources added, so reporting is all in one place.

Continue reading →

Smelter uncertainty has knock-on effects.

October 15, 2020

Article

With the Tiwai Point aluminium smelter representing 13-15% of New Zealand’s electricity demand, the announcement in July of its forthcoming closure had a big impact on the market. There was an immediate drop in the forward electricity price, but we also saw political parties jumping into the debate. There were a range of election promises to renegotiate supply arrangements and keep the smelter open if they got into power.

We’re still faced with market uncertainty – and this is triggering some interesting side effects on electricity pricing.

One thing is certain – transmission pricing will change.

Even if Tiwai stays, transmission benefits for the smelter could be heading toward $50 million to make it worthwhile. With the lines provider still needing to make a dividend payment to the government, this will need to be collected from North Island customers. Another possibility is that the government will subsidise the smelter in some other way.

If the smelter goes, the increase in transmission costs will then be distributed across all consumers. Either way, someone’s going to pay, and it won’t be the smelter.

Foundation work has begun on the CUWLP lines project, and the target date for its completion is May 2022. Any spare capacity from Manapouri cannot be accessed by the rest of the country before that date.

King coal dethroned in the south?

The prospect of lower South Island electricity prices may be the catalyst to encourage some dairy companies to switch from coal to electricity, and thus take up the slack from Manapouri if the closure eventuates.

But how do you make plans with this uncertainty forming a major component of the business case? The substitution of coal is a great thing for New Zealand’s decarbonising strategy, but it’s a reminder that the smelter closure gives energy customers a breathing space to make good decisions, not forgo plans or think they’ve just dodged a bullet when their electricity contracts expire.

It won’t be a sudden switch.

Tiwai would still need to work through a wind-down period that might take around 12 months. This would be in managed increments, so don’t expect smelter usage to drop to zero overnight. As of now, closure is still scheduled for August 2021 but this may be delayed based on election promises from politicians.

Whether this is the first item on the to-do list of the incoming government, who knows?

Remember, it’s not just about Tiwai.

Gas availability in North Island should improve. However, there are still issues with Pohokura, and even after three months, there is no clear answer for the drop in gas production.

If Tiwai closes as notified, then the business case for new solar, wind and geothermal generation will take a hit for a few years. For these projects to go ahead, New Zealand almost needs the smelter to stay.

Other major users like the NZ Refinery and NZ Steel are either reviewing their current usage or have already committed to operation reforms. As was the case with the smelter, this too could bring about lower electricity prices.

Hydro storage levels are sitting at about 95% of average for this time of year, compared with around 79% as at 12 July 2020.

So where are we today?

A market drop was expected, and it certainly occurred. Today we have more water in our lakes, a smelter that’s still on track to close, politicians that have promised to negotiate to keep it open, and a forward electricity price that is right back to where it was on 8 July 2020, before the closure announcement.

Apart from election promises, there is still nothing substantive that should affect pricing for the remainder of 2020 and into 2021. With a snow pack that’s one of the lowest on record, we still need rain over our hydro catchments before we can expect to see electricity prices soften.

Overall, the electricity market is still grappling with a bunch of ‘what if’ scenarios. Until we get some clear direction – be it from the smelter or the government – it’s still a bit of a punt. Time and rain remain key factors. We will keep you updated as developments occur.

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Market update October 2020

October 15, 2020

Market Update

The old saying ‘the more things change, the more they stay the same’ remains very true in the energy industry.

In July 2020, NZSA (i.e. Tiwai Point smelter) announced the closure of the smelter in August 2021. This was a big disruptor because Tiwai uses around 13% of New Zealand’s total electricity. A few weeks after this announcement, the ASX Futures (NZ electricity prices) fell significantly from Q3 2021 onwards, and we hoped that we were seeing an end to the volatile and high electricity prices experienced over the last two years.

However, since our last market update, persistent lobbying, which may or may not be connected to electioneering, led to speculation that the smelter could continue operations beyond August 2021. This market speculation was confirmed on 31 August 2020, which immediately resulted in New Zealand electricity prices on the ASX Futures climbing straight back to where they had been prior to the initial closure announcement. Based on these price movements, we calculate that the market is factoring in the cost of the smelter remaining at $800M per annum.

Weathering the weather factor

As if the smelter situation was not frustrating enough, the prevailing conditions which caused the volatility in pricing through 2020 and into 2021 continue. Generation options continue to be limited due to low rainfall, inconsistent wind patterns, and the continuing high price for natural gas for electricity generation.

If you have ever tried to wade through the subtle differences between retailer offers, or understand the range of offerings and which will benefit you the most, you’ll know it can be next to impossible to pin down savings with any confidence. Factoring in the Tiwai smelter situation, and the impact hydrology has on electricity pricing, only makes the decision even more opaque.

This is where Smart Power’s experience and industry relationships add value. We navigate and manage energy procurement for our clients, and make sure your supply arrangements match your operational requirements. Take the hassle out of energy procurement and leave your staff to focus on their core business. Contact Smart Power to find out about cost-effective energy procurement, and how we can help you add value to your business.

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Stop Press: Will the Tiwai Point closure affect electricity prices?

July 14, 2020

Uncategorized

We have spent years considering the most likely impact of the smelter’s closure, as it consumes around 15% of New Zealand’s electricity.

Here’s a high level view:

Transmission pricing will change again.
Transmission line development is 6-12 months away being able to redirect that much power northwards.
Tiwai will provide at least 12 months’ wind down. This will be in managed increments that increase electricity supply to the market.
Gas availability in the North Island should improve.

Some questions that may come into focus over the next year or two:

Solar options – will they continue?
Will Contact develop its geothermal field in Taupo, or will this resource be put on hold, or even cancelled?
Will gas-fired generation in the North Island close earlier than expected, and will this affect the reliability of electricity supply?
If North island gas-fired generation does decline, will this increase the volatility of spot prices (whilst we hope reducing the average cost)?
Will the government step in at the 11^th hour and save the day?

The Smart Power view.

While there are no guarantees, we expect a reserved initial market response. Then perhaps one retailer will blink and prices will fall, perhaps for 2021 and beyond, but most likely not for the remainder of 2020.

It will be in the retailers’ and generators’ interests to hold prices up. Right now, there is nothing that should affect short-term pricing, although in this market the tail can wag the dog, albeit usually upwards not down.

South Island pricing would logically be far more affected than North Island pricing. The question remains whether the closure will really happen or whether the Government will swoop in to save the day. It’s an election year, after all.

Another factor is transmission infrastructure. Will the works required to effectively and efficiently transport power northwards be accelerated or will a ‘wait and see’ stance be adopted?

Overall, we think that this is a major and quite unprecedented announcement. It must affect prices one way or another, but we don’t know when and by how much at this early stage.

As we hear and learn more, we’ll do our best to keep you updated.

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How we helped Eden Park score a better deal.

July 6, 2020

Energy Strategy

New Zealand’s most iconic sporting facility is a big energy consumer, with catering companies and sports associations among the tenants it serves. And that’s before you even factor in the cost of switching on those massive floodlights.

Working with Energy Select (the procurement brand operating under the Smart Power umbrella), Eden Park Trust was able to restructure its electricity and gas contracts to control costs during a time of steeply rising energy prices. Here’s how.

Urgency plus complexity equals risk.

Eden Park Trust was already working with Smart Power to manage tenant billing. In late 2019, the Trust received notification from its energy supplier that the contract was due to renew. A new schedule of charges was attached.

The problem from the Trust’s point of view was that it was impossible to tell whether the deal was a good one. With a decision imminent, CFO Brett Winstanley asked us to take a closer look.

“Energy Select recommended a review of all the different types of contracts we had, to get a holistic view,” Brett says. “As well as separate gas and energy bills, we have contracts for Time Of Use (TOU) and Non Half Hour (NHH) connections. It’s a bit complicated, and that was the problem.”

We suggested putting all the contracts out for tender rather than simply rolling over the current arrangements. This made the business more attractive to energy suppliers. Energy Select managed the process and handled negotiations – but that was only half the job.

Competition and complication.

The Trust received 12 proposals from energy providers, each one offering a different combination of terms, rates, prices and options. In other words, it was impossible to compare apples with apples. Expert analysis was required.

“We got Energy Select to distil all the proposals into a report our team could use to make a decision,” says Brett Winstanley. “It’s an extremely complicated market, and companies need expert guidance to avoid expensive mistakes. We needed to understand what was going on in the market and which contracts would work best for all parts of our business.

“It was about translating all the data and relating it to a complex environment, so we could make the most informed decision.”

A win for Eden Park.

The comprehensive report we created enabled Eden Park Trust to confidently select three new energy suppliers.

One goal of the exercise was to ensure the Trust obtained the best terms for its electricity and gas connections, so it wouldn’t be blindsided if market conditions changed one or two years down the track. As Brett Winstanley says, price is only part of the story. You need to know whether you’ll be stuck with an unsuitable arrangement because of a lack of understanding when the contract was signed.

“We got an outcome that suited our circumstances and a deal we were comfortable with,” he says. “It gives you confidence to know that you’re dealing with people who understand why prices are where they are – and can explain the market forces driving them.”

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Aiming for sustainability? We can help

July 6, 2020

Energy Strategy

As you know, measurement enables management. So if you want to start decarbonising your operations, the first step is to set up reports.

Smart Power has the emission factors as published by the Ministry of the Environment or Australian NGERS equivalent loaded into our system. So any utility recorded by us automatically has its greenhouse gas emission calculated.

For most clients, this will be electricity, gas and LPG on a monthly basis. Other utilities can also be loaded, such as petrol, flights, taxis, coal, wood, waste water, refrigerants. Some clients give us these annually and these are input so reports can be provided. Other utilities can be input monthly as well, depending on how regularly the client wishes to monitor total emissions.

As a Smart Power client, you can select which emission factors to use. This is most relevant for electricity, which changes considerably in New Zealand due to the amount of rain feeding into hydro lakes.

The MFE factors are often published several years behind. Thus for accuracy some clients prefer a quarterly factor.

The second area where Smart Power can assist is reporting the emissions on the basis of the MFE voluntary guidelines for business. These guidelines are based on ISO 140641.

This is more a more complex exercise as it requires the organisational boundaries to be agreed. A base year must be established with systems ensuring the accurate collection and accounting for all the emissions. A detailed report can then be provided with breakdowns of the emissions.

The key to success here is to improve the collection process so that the following year it is a much simpler piece of work.

Smart Power has two staff members who have been trained in assisting organisations to do this. Please contact us if you would like to know more.

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