Tag: Market Update December 2022


Market Update December 2022

The Wholesale Electricity Market

Spot prices in the wholesale electricity market decreased again in December. Average spot prices for the month ranged from $12.5 in the lower South Island ($29.5 in November), to $19 in the upper North Island ($47 in November). 

The following chart shows average weekly spot prices over the last 2 years. Prices are currently as low as they have been over the last 2 years – particularly in the South Island.

Electricity Demand

As the weather warmed up and businesses closed up for the festive season, electricity demand in December continued to drop. As noted last month demand levels have reduced to close to the lowest levels seen in the last few years. 

Electricity Generation Mix

The fall in demand as we headed into December meant there was a reduced requirement for generation overall. Hydro generation remained high and with improved wind there was less requirement for thermal generation. 

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.

December saw high northward transfer with no requirement for any southward transfer during the month.


The Electricity Futures Market

The Futures Market provides an indication of where market participants see the spot market moving in the future. They are based on actual trades between participants looking to hedge their positions (as both buyers and sellers) into the future against potential spot market volatility. They are also a useful proxy for the direction of retail contracts. 

The following graph shows Futures pricing for CY 2023, 2024, 2025 and 2026 at Otahuhu (Auckland) for the last 2 years.

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

Future prices for all years increased significantly during December. CY 2023 prices closed at $200 – a 20% decrease for the month. CY 2024 finished up at $193 (+9%).  CY 2025 increased ending the month at $186.5/MWh – a 6.5% gain. CY 2026 prices also rose 6.5% to $183. 

There were some announcements for new solar farms planned to be on-line by 2024. Known new generation projects are shown below – with additions highlighted in bold.

Hydro Storage

Inflows remained above average in the North Island during December. In the South Island inflows were slightly below average for the month 

Energy storage levels in New Zealand’s main hydro storage lakes decreased through December. Storage ended the month at 3,998GWh or 91% full, down 274GWh over the month. The following chart shows the breakdown of storage across the main hydro catchments (from when it was last reported in mid-Dec).

Security of supply risks are minimal at the moment with high levels of water storage, reduced demand, and as we move through the period where hydro inflows are typically higher. This is shown in the following risk curves.

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, published by Meridian, has not been updated since what we presented it last month. 

Climate outlook overview (from the MetService)

Climate Drivers — La Niña conditions continue in the tropical Pacific and are expected to persist in January with the weather maps true toLa Niña conditions continue in the tropical Pacific and are expected to persist in January with the weather maps true to form; think higher than normal pressure across South Island and more frequent humid, north-easterly winds nationwide. A gradual warming of sea surface temperatures in the central Pacific has occurred over recent weeks though and neutral conditions are forecast by the end of Summer, waving goodbye to La Niña slightly earlier than normal. La Niña normally peaks in late Summer. The Southern Annular Mode (SAM) continues to be overwhelmingly and strongly positive this month, re-enforcing the La Niña signal for higher than normal pressures across southern NZ.

January 2023 Outlook — The tropics have fired up for the start of January and a couple of notable weather systems from the north mean the fine summer weather of late December has abandoned us…for now. Humid northeast winds have brought showers and rain across the country over recent days, with spots in the Coromandel seeing over 200mm of rain in the last couple days and parts of the Peninsula cut off due to road closures. Northland, and parts of northern Tasman have also recorded notable totals. This system clears away on Sunday, but the reprieve will be brief for North Island. Another significant sub-tropical low is likely to cause more disruption across northern and central New Zealand next week with gales and heavy rain threatening similar areas on Tuesday and Wednesday. The wet theme continues for North Island next week then, whilst the lower South Island sees the best chance of more settled and drier weather with a ridge developing tomorrow and clinging on here.

As we head towards mid-month there is promise of more typical settled summer weather. High pressure looks likely to become well established right across the country and the tropics quietens down. Much like late 2022, widespread sunshine and plenty of dry weather is on the cards but beware of afternoon showers popping up on the hills and ranges. High pressure could well hold into the final week of the month, but the expectation is that it will gradually slide to the south-east, so we may open the door to a weather system from the Tasman Sea.

Temperatures continue to run warmer than average overall, with western and inland areas most likely to see bigger departures from normal. Onshore eastern areas, often more exposed to winds, rain and cloud may be cooler at times, especially by day over the first half of the month.


The Gas Market

Gas prices decreased through December ending the month at $10.5/GJ – 17% down on November. Prices are currently about 9% higher than they were at the same time last year.

Note in the following supply and demand information, data was only available until the 20th December.

On the supply side Pohokura continued at the increased production levels seen over the last few months – consistently producing just under 100TJ per day. Maui production reduced, averaging 68TJ/day, down from 80. 

McKee / Mangahewa maintained output, up to close to 70TJ per day for most of the month. Kupe increased production to about 56.5TJ/day up from 40-50TJ/day at the end of November. 

Hopefully we are now starting to see some of the benefits emerging from the drilling campaigns currently underway. Todd Energy is more than halfway through a drilling programme at Mangahewa, and once completed they plan to move the drilling rig to Kapuni in early 2023. OMV is also continuing its Maui drilling program, expected to continue into the second quarter of 2023. 

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

On the demand side, Methanex Motonui’s usage dominated all other gas users. Consumption maintained the high levels seen towards the end of November, averaging 180TJ/day. Huntly power station was the next biggest user averaging only 18.5TJ/day. TCC has not used any gas since the middle of August.

The following graph shows trends in the major gas users over the last 3 years.

Global energy prices continued the falls we have seen in recent months, but continue to be at levels well above what we would have considered to be very high only 12 months ago. Lack of investment in new gas supply internationally over a number of years had already resulted in price increases, before the conflict in Europe accelerated those impacts. 

LNG netback prices increased in December ending the month at $41.11/GJ – up 22% from last month but not as high as some were expecting as we move through the northern hemisphere winter. Forecast 2023 netback prices are $34.37 – down 20% on what the ACCC was forecasting last month. Forecast prices for 2024 are now sitting at $31.09 – down 6% compared to November. 

New Zealand does not have an LNG export market so our domestic prices are not directly linked to global prices. However some of our large gas users deal in international markets which are impacted by global gas prices and they may try to produce more in NZ (increase demand) to take advantage of lower gas prices. 


The Coal Market

 The global energy crisis has been as much about coal as it has gas. The war in the Ukraine has driven energy prices, including coal, up. Prices were flat during December ending the month unchanged at close to $US400/T. 

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.  


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 $30 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 December prices decreased $6.25 to $74.75/t – still 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 in December to 83.75 Euro/tonne – up 6%. 


About this Report

This energy market summary report provides information on wholesale price trends within the NZ Electricity Market.

Please note that all electricity prices are presented as a $ per MWh price and all carbon prices as a $ per unit price.

All spot prices are published by the Electricity Authority. Futures contract prices are sourced from ASX.

Further information can be found at the locations noted below.

  • Weather and Climate data – The MetService publishes a range of weather-related information which can be found here: https://www.metservice.com/

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