Record spot prices in May

Fairfax

POWER WARNING: Major electricity users are urging the Government and the public to cut back now or face blackouts.

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Electricity spot prices hit record levels in May, which big users say reinforces the need for all power users to cut back now or risk blackouts in future.

Spot prices were more than 50c a unit at times in the South Island this week, compared with about 6c a year ago, and are expected to go even higher in the next two months as winter hits in force.

Major Electricity Users Group executive director Ralph Matthes called on the Government to abandon the planned ban on new gas or coal-fired power stations, which he said had always been a daft idea. "We would be mad to ban thermal base load power stations in New Zealand, especially as it tends to be gas in New Zealand when other countries would love to be shifting from coal to gas."

Power company bosses are expected to meet on Monday and give the green light to a public power-savings campaign, like the one run during the 2003 shortage. The advertising campaign may start as soon as the middle of this month.

In May the average spot wholesale price for power was 27.2 cents a kilowatt hour at Haywards, and prices are reported to have risen in the past few days.

The previous highest monthly average was 23.7c-kwh in July 2001 - another year of power shortages. The average energy cost component of a household bill is less than 10c-kwh.

"The record high spot prices for May 2008 are an indicator that the market considers we are in a riskier situation than in any prior crisis," Mr Matthes said.

Demand will increase dramatically in the next two months as households use more heating. "That will drive spot prices up even further," Mr Matthes said.

Power companies had said the high spot prices would feed into higher household prices, so saving power now could minimise the impact on domestic prices later and avoid blackouts.

New Zealand should be proud of having one of the highest proportions of renewable generation in the world, but it had come at a high cost over the past seven years with four hydro storage-related crises, he said.

Lake storage is down to just 53 per cent of average from 74 per cent at the start of April, because of drought in the South Island. The central North Island lakes received a top-up a few weeks ago, but have also started to run down again.

Because of the shape of New Zealand's lakes and shallow rivers, the hydro power system has, in effect, just six weeks of water storage, from full to empty, if there is no rain. That means New Zealand is much more vulnerable to dry weather than some countries, where dams on fiords can hold many years of water supply.

"We need a mix of new generation sources to balance out the risks associated with renewable generation such as hydro and wind," Mr Matthes said.

The government decision to build the emergency diesel-fired power station at Whirinaki four years ago meant that was now setting the effective market price, and that was much higher than it would have been if the plant had been gas-fired.

The price for Whirinaki power had been expected to rise to almost 38c a kwh as a result of higher diesel prices, but the Electricity Commission has effectively capped that price at just under 29c a unit and would recover the difference by a levy on the industry, Mr Matthes said.

"We suggest they send the bill to Meridian, because they are the guys who have failed to provide back-up generation in their portfolio." 

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