Tag: Market Update September 2022

Market Update September 2022

The Wholesale Electricity Market

Spot prices in the wholesale electricity market increased in September. Average spot prices for the month ranged from $49 in the lower South Island ($40 in August) to $59 in the upper North Island ($49 in August). 

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

Electricity Demand

Electricity demand remained higher than in recent years through September, though dropped away toward the end of the month with some warmer weather. We expect demand to continue to decline as we head towards summer. Interestingly Transpower were quoted this month saying that peak demand increased this past winter and they are not sure why given it was a milder winter than normal. Possible reasons given were an increase in people working from home and/ or some fuel substitution occurring – switching from burning fuel for heating to electricity.

Electricity Generation Mix

High levels of hydro generation continued through September as hydro inflows and storage remained high. This backed off later in the month as demand declined and with some increased wind generation. Thermal generation remained at the low levels seen last month 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.

September saw high SI inflows and storage resulting in high northward transfer at the start of the month, but reducing in the second half of the month as inflows declined and demand reduced. There was even a small amount of southward transfer at the end of 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 2022, 2023, 2024 and 2025 at Otahuhu (Auckland) for the last 2 years.

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

Future prices jumped at the start of the month, especially for CY2023 and CY2024. This followed the announcement at the end of August that Genesis was launching a new market security option (MSO) for the use of Huntly power station running on coal as a back-up for security of supply. The MSO mechanism is complicated but based on current coal and carbon prices it is estimated that it would cost around $480/MWh – more than 2.5 times the swaption that Genesis currently has in place with Meridian and Contact that expires at the end of the year. The sharp increase in futures prices may be, at least in part, due to this increased cost that would be required to be paid in the event of a dry year.  

CY 2023 prices closed at $216 – a 17% increase for the month. CY 2024 finished higher at $196 (+9%).  CY 2025 also increased ending the month at $168/MWh – a 6% increase. 

There were some more solar and wind projects announced over the last month. Known projects are shown below (new entries in bold).

Hydro Storage

Inflows remained high during September. In the NI inflows were lower than last month but still around 150% of average levels throughout the month. SI inflows started the month well above average but reduced to be slightly below average for the rest of the month. 

Despite the high inflows, energy storage levels in New Zealand’s main hydro storage lakes decreased through September. Storage ended the month at 3,793 GWh or 86% full, down 370 GWh over the month. 

Security of supply risks are minimal at the moment with high levels of water storage, reduced demand, and as we enter 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 shows that snow pack stayed largely flat during the month, falling towards the end of September. Storage is now at close to the 75th percentile level 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 — La Nina was declared again on 13 September and has officially become a rare “triple dip” event, only the fourth time this has been recorded over the past century. This pattern typically sees a low-pressure anomaly across the North Island, while high pressure builds south and east of the South Island with typically drier conditions. La Nina will likely persist through the start of summer with a gradual weakening trend early in 2023. A strongly negative Indian Ocean Dipole (IOD) event continues to bolster the frequency of north Tasman Sea lows across the North Island, before weakening away later this spring. Sea surface temperatures remain about 0.5C above average around the New Zealand coastline.

October 2022 Outlook — An unseasonably cold and potentially record-breaking Antarctic air mass spreads up the country this week, delivering a wintry blast across much of New Zealand. Hard freezes across the South Island are likely to impact spring greenery over the coming days – with potential hardship to animals, while snow is likely to very low levels across southern and eastern South Island. The North Island isn’t out of the woods either, with temperatures falling to near freezing as far north as Whakatane and a risk of snow in Wellington. This cold blast loses steam over the weekend as high pressure moves onto the country.

Next week sees a Tasman low make its way towards the South Island and bring some rain to western regions, while temperatures continue their warming trend in a northwest flow. Another low could herald a northerly rain event to the upper South Island, along with northern and eastern North Island, areas which have been heavily impacted by recent rain events.

The third week of October sees high pressure emerge across South Island, helping to keep potential weather makers further north across northern and eastern North Island. While the odd cold front could bring deliver a brief cold spell, a northerly wind flow is conducive to warmer than average temperatures across the board, albeit with a few chilly nights for South Island under clear skies.

High pressure remains across parts of the South Island during the final week of the month, though this could weaken and allow a return to more seasonable springtime weather with a mobile westerly flow. Meanwhile, the weather situation heats up across North Island. The north Tasman Sea becomes more active under a combined La Nina and negative IOD regime, bringing a potential low with a warm and moisture-laden air mass onto the country, with yet more rain possible from Northland to Bay of Plenty and Gisborne.

The Gas Market

Gas prices were largely flat through September ending the month at $11.8/GJ – 1% down on August. Prices are currently on a par with what they were at the same time last year.

On the supply side Pohokura continued at the increased production levels seen over the last couple of months. Output averaged 105TJ – a 2% increase on last month. OMV announced that the unplanned outage at Maui which has reduced output by about 20TJ per day will continue until the end of October. 

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 completed maintenance work in the middle of September. Consumption averaged 95TJ/day for the first half of the month, then increased to close to 160TJ per day at the end of September. Huntly’s gas usage decreased during September. Its usage averaged 54TJ/day, down 17% on August. TCC did not generate at all through the month. Methanex Waitara was consuming around 6TJ per day for the month. The following graph shows trends in the major gas users over the last 3 years. 

Global energy prices remained high during September as ongoing lack of supply in Europe, brought on by the strong post-COVID lockdowns economic recovery, followed by the war in Ukraine, has continued to result in elevated wholesale prices for gas and electricity. 

LNG netback prices increased again in September ending the month at $66.99/GJ – up 19% from last month. Expected prices for the rest of 2022 have fallen slightly, the average for the year down now to 43.55/GJ (a 7% decrease on last month). Forecast 2023 netback prices increased 4% to $61.07/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. 

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 $US435/T all of the month, dropping at the end of the month, closing at $US404/T – down 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’s Market Security Option mentioned earlier in this report links the MSO’s to the international coal market price meaning any party contracting with Genesis using this mechanism will want to factor this in to their pricing. Genesis will still be using Huntly to manage its own retail book and will presumably be using stockpiled coal that it already has to provide this. However the longer high international coal prices remain around the more likely these high prices will feed through to NZ 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” price scheme closely linked to international schemes. However, there are “upper and lower guard rails” 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. In September prices decreased $4.5 to $82.5/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 rising carbon prices. 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 prices 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 decreased to 67 Euro/tonne in September – down 26% on concerns that Europe is heading into a recession and the resulting declining manufacturing activity and hence reduced demand for permits. 

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/


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.

© Copyright, 2022. Smart Power Ltd