Power prices volatile but relief in sight

JASON KRUPP
Last updated 05:00 25/03/2013

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Electricity firms say the wholesale cost of power is likely keep swinging up and down over the next few weeks due to dry weather, but relief could be in store as refurbished generation units come on line.

Power prices have swung wildly in a range between $300 per megawatt hour and about $120/MWh since the end of February, when the North Island drought started to bite in earnest.

The dry conditions have taken a heavy toll on hydro storage levels, with Lake Taupo, which is operated by Mighty River Power, currently sitting at its lowest level since June 2010.

Meanwhile in the South Island, levels at Meridian's Manapouri and Te Anau lakes are currently sitting below their traditional operating ranges.

"With hydro lakes reasonably low and dry conditions lingering, we think the range of outcomes is still probable, with prices at $300 just as likely as $120," said head of wholesale at Meridian, Mike Rowan.

However, energy traders are betting the volatility will ease in the next few weeks as a range of hydro and thermal stations come back online after scheduled summer maintenance breaks.

Among the thermal generation assets set to come on-stream are Contact Energy's combined cycle unit in Taranaki and the third unit at Genesis Energy's Huntly power station.

Genesis's Tekapo A and B hydro units are also expected to re-enter the market after a 14-week outage to complete spillway repair work, with water still stored in the system despite the dry conditions.

Meridian's Waitaki system is likewise fairly flush with water.

The entry of additional supply is expected to ease volatility in the market, but wholesale prices are unlikely to fall much as demand ramps up in the cooler months.

Genesis Energy spokesman Richard Gordon said a mild start to autumn resulted in less power demand in the both islands, and commercial demand was starting to ease in the run-up to the Easter weekend - a trend that should quickly reverse.

"Once demand lifts prices it doesn't take long to start drawing water off the South Island lakes."

The unknown factor hanging over the industry is rain.

"We're really in a similar situation to farmers," Rowan said.

"We know it will rain, it's just a question of when."

The National Institute of Water and Atmospheric Research said rainfall from now until the end of May is expected to be near average, but dry soil conditions make it uncertain about how much will flow into hydro catchments.

THE BIG DRY

Hydro lake levels are at 78 per cent of the 80-year average

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Due to the drought, inflows into the hydro catchments are sitting at just below 50 per cent of the 80-year average

Inflows are below that of equivalent measures in 2008 and 1992 – two of the driest years in recent history

- BusinessDay.co.nz

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