Wholesale Electricity Market Conditions

Wholesale Electricity Market Conditions

Contact Energy’s Chief Executive Steve Barrett commented today that very unusual conditions appear to be prevailing at present in the wholesale electricity market.

“Wholesale electricity prices in the last few days have reached up to $256/MWh at Otahuhu, which is much higher than usual for this time of year. Prices have been especially high in peak demand periods and in the upper North Island” said Mr Barrett.

“These high prices appear to be due to a number of influences, which are making the market very tight at present. These include high demand, lower than average hydro storage in the North Island, the lack of generation from Contact’s Otahuhu B power station due to a planned maintenance shutdown until late January, and some restrictions on gas availability.”

As announced previously, Contact’s average level of hedge is approximately 85% of its generation volume. This is the average over a year, and the actual level varies within each day.

Because of seasonal demand reductions, even with Otahuhu B not running, Contact expects to be a net generator on a volume basis over the next few weeks. However, the shutdown at Otahuhu B does increase Contact’s exposure to locational and time of day mismatches between the company’s generation profile and its purchase commitments in the wholesale market.

In normal circumstances, this would not present any particular issues. However, because of the unusual conditions currently prevailing in the wholesale market, Contact does have heightened exposure to periods of high spot prices, and to locational price differences.

In line with its established risk management procedures, Contact has taken a number of steps to manage the situation. These include maximising available generation from Contact’s geothermal and hydro stations, and obtaining additional fuel for the company’s other thermal plants. Contact is also examining other options and is continuing to monitor the situation closely.

“Based on present information, we would expect the conditions to have some impact on Contact’s net income for the quarter. However, it is not possible to precisely forecast the financial impact. It will depend on the duration of the unusual conditions, and the pattern of wholesale prices that prevails during the period” said Mr Barrett.

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