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High Electricity Prices Impact On Manufacturing

High Electricity Prices Impact On Manufacturing Sector

“High electricity prices this year have already forced major energy users to cut manufacturing output”, stated the Chairman of the Major Electricity Users Group (MEUG), Mr Terrence Currie.

“Electricity spot prices this year have averaged each month between 1.61 c/kWh for January in the South Island to 4.66 c/kWh in March for the upper North Island. For the month of April to date spot prices have averaged about 7 c/kWh.

“Spot electricity prices do tend to rise in winter as demand increases and more expensive generating plant needs to used. However the rise so far this year does not appear to be justified.

“Lake inflows and lake storage are better than this time last year.

“The thermal plant are well prepared having had all summer to undertake necessary maintenance and Transpower have ever since last winter been investigating and implementing ways to ensure the grid configuration and system security requirements do not inhibit efficient use of generation resources.

“The loss in manufacturing output due to last years crisis ran into hundreds of millions of dollars. It had a significant impact on the international competitiveness of the manufacturing sector and damaged New Zealand’s credibility as a place to invest.

“The level of prices we have seen this year and the continued evidence of market power exercised by the vertically integrated generating retailers raises concerns that we are starting to see a repeat of the market crisis of last winter.

“There is a serious risk that once again manufacturers who have not been able to secure hedges will be held ransom by generators. Even where hedges are available, it’s a choice between accepting hedges at prices set by generators with market power; and having all or some exposure in the spot market where the same generators also have market power.

“Last year only Mighty River Power in Auckland offered household consumers a buy-back scheme to conserve energy. We are not aware of any other retailers who have any similar product in the market for this year. If spot prices continue to be around 7 c/kWh or above, we will once again see a decrease in GDP as manufacturers cut production.

“Households and small commercial power users, who may have a lower price at which they would be prepared to conserve part of their demand, remain an untapped opportunity. Given the market power of suppliers to raise prices to offset dry-year risks, there is probably little incentive on the large suppliers to promote buy-back products.

“The Government’s request to suppliers to demonstrate that they are competing and initiatives to examine a mandatory hedge market are welcome. The problem lies with electricity suppliers who restrict hedge supply, gouge consumers left stranded on the spot market and have failed to introduce new products to develop a market for conserving power across all classes of consumer” concluded Mr Currie.

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