High wholesale power prices questioned

High wholesale power prices questioned

“The high wholesale power prices are out of step with current lake levels which are average for this time of year” said Terrence Currie, Chairman of the Major Electricity Users’ Group (MEUG).

“Wholesale power prices yesterday at Haywards Grid Exit Point averaged 12.4 c/kWh. Lake storage levels yesterday were 100% of average for this time of year in the Waitaki (New Zealand’s largest hydro system), 97% of average for the Clutha system and 116% for Waiau (supplies Manapouri). This suggests there is little storage risk this year.

“When lake levels are at average levels, then wholesale power prices should be neither very low nor very high. We consider spot prices of 12.4 c/kWh as being very high.

“Retailers must also be feeling the pinch. For example using the Ministry of Economic Development quarterly residential electricity prices survey to 15th February 2010 the New Zealand weighted average cheapest retail price was 21.89 c/kWh. Netting off the New Zealand weighted average line charge of 8.96 c/kWh leaves 12.93 c/kWh to cover wholesale and retail costs. Yesterday retailers would only just have covered wholesale costs leaving no margin to cover retailing costs.

“If the market perceived a possible supply risk this winter then the electricity forward price curves for 2010Q3 would have been increasing. In fact 2010Q3 forward prices for Haywards have slightly decreased since a peak on 22nd February .

“With no immediate risk of running out of water, the likelihood is therefore that some generators are exercising market power. That is expected of any market; the problem being that in the electricity market it can be sustained and repeated time and again. Hence the decisions by Government on 9th December 2009 following the Ministerial Review into the Electricity Industry are welcome as a means to improve competition and reduce opportunities for excessive use of market power.

“In particular we look forward to the establishment of the new Electricity Authority which can actively monitor, assess and find solutions to overcome excessive use of market power. The current mismatch between price and lake levels emphasises the need for robust competition in the wholesale electricity market” concluded Mr Currie.

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