Dropping hydro lake levels could see wholesale power prices rise
'Spot' power prices, paid by wholesale customers, look set to keep rising this winter as hydro lake levels drop across the South Island.
Hydro-generated energy makes up about 60 per cent of New Zealand's electricity and with hydro lake levels falling due to a drier than normal winter so far, wholesale prices could continue to rise.
University of Auckland Associate professor Nirmal Nair said wholesale prices on average sat at about 10 cents per kilowatt of power, compared to about 27 cents for retail customers.
However the wholesale market was "highly volatile" and while some customers may save money when demand for power was not high, during the months of peak demand, from June to August, they could expect to see large increases in power bills.
Most of the South Island's hydro lakes are low after a drier than normal start to winter. Lake Pukaki's current level is 524 metres above sea level, against a minimum consent level of 518 metres, and Lake Ohau at 519.9m, against its minimum consent level of 519.45m.
Lake Waitaki, the country's first hydro lake, was at 230.226m, with a minimum consent level of 227m, Lake Aviemore was at 268.064m (265.5m), and Lake Benmore at 361.1m (355.25m). Lake Tekapo, which had its summer minimum level set at 704.1m in 2008, is at 706.1.
Further south, Lake Manapouri is at 177.314m, with an operating range of 176.8-178.6m, and Lake Te Anau's current level is 201.443m, with an operating range of 201.5-202.7m
Meridian Energy investor relations manager Owen Hackston said the levels of the lakes the company operates, Pukaki, Ohau, Aviemore, Waitaki, Benmore, Manapouri and Te Anau, had been low for at least the last four months.
Between Pukaki and Genesis Energy-owned Tekapo, the two plants held half of New Zealand's hydro storage, Hackston said.
Long-time Tekapo resident Graeme Murray said lake levels would often drop away but this year he was "a bit more alarmed".
What was particularly concerning about Lake Tekapo's low level was that it was at the top of the Waitaki Power System, feeding seven stations below it.
"We're just watching it fall away ... it does start to get quite worrying."
He said this winter was definitely warmer than previous years. Usually people would be "ice skating at this time of year".
Hackston said the Te Anau and Manapouri catchments had been particularly dry.
Contact Energy Head of Corporate Communications Shaun Jones said March, April and May had seen the lowest average inflows into the Clutha River since records began, about 85 years ago.
Contact operates the Hawea Control Structure, and the Clyde and Roxburgh dams and power stations. Lake Hawea is currently at 338.82m, just above its minimum operating level of 338m.
Hackston said while most consumers would buy electricity on contract from retailers, who, in turn, purchased electricity on the wholesale market and sold to customers at a fixed price, some retailers would provide customers electricity off the wholesale market at "spot prices".
These were set at certain points across the transmission grid and changed every half hour, meaning the cost at which a wholesale customer would pay for their power would fluctuate.
Customers signed up to retailers on fixed prices would not see a price increase, but those on wholesale prices would feel the sting.
"It is the nature of the market."
While continued dry winter weather is likely to raise concerns of an electricity conservation campaign being initiated by the Government, currently the alert system is in a "watch" stage.
Hackston said the hydro risk curve set up by Transpower, which operates the national power grid, must be at a minimum of 10 per cent to put the hydro system in a "risk" zone, when such a campaign would be considered by the Government.
Currently the system was in the "watch" stage, "floating around 3 per cent".
Energy analyst Stephen Goldthorpe raised concerns that if hydro lake levels were to continue to drop, it would put more pressure on alternative power sources in New Zealand this winter, which could have great environmental impacts.