Electricity supply and price situation

A dry year for New Zealand's hydroelectric system is a distinct possibility for 2003 and the situation will become clearer in the next several weeks, says Energy Minister Pete Hodgson.

Mr Hodgson met major electricity users last week to discuss their concerns and his. He also met electricity industry chief executives yesterday to discuss the situation. The electricity industry leaders are agreed that an electricity savings campaign needs to be planned now and implemented progressively. The minister expects to see early action on this next week.

Mr Hodgson said current high wholesale electricity prices reflected the risk of a dry year, the unavailability of some thermal generation plant due to maintenance or faults and some residual uncertainty regarding the availability of fossil fuels for electricity generation later in the year. Hydro generators have been putting a high value on water and thermal plant – mainly gas-fired – has been running harder and earlier this year.

"The government is well aware that high wholesale prices for electricity are a significant problem for major industrial electricity users who buy power on the spot market," Mr Hodgson said. "Spot prices are usually lower than hedge contract prices, but are currently much higher. The wholesale market is designed to signal supply constraints through higher spot prices.

"The government is maintaining a very close watch on the industry's response to this year's conditions and I am personally engaged as an intermediary where necessary," Mr Hodgson said. "I have also ensured that better quality modelling of possible winter supply scenarios will be made available soon, to enable more effective contingency planning."

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