Category: Uncategorized

Market update April 2021

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.

Want to track your carbon emissions on an ongoing basis?

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.

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

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 11th 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.