Electricity in the spotlight
20 February 2019
The electricity and gas supply industry has seen a spike in producer input and output prices over the December 2018 quarter, Stats NZ said today.
Prices paid by electricity and gas supply producers rose 23 percent for the December 2018 quarter. Prices received by the industry also increased 18 percent over the same period.
“Contributing factors included lake levels being lower than average, and the Pohokura gas field outage, which meant less resources were available for electricity generation. The industry hasn’t seen increases of this magnitude since the power crisis of 2008,” business prices manager Sarah Johnson said.
Commercial electricity prices for businesses increased 8.2 percent over the December 2018 quarter. Businesses on spot price contracts (the wholesale market), particularly the large consumers of electricity, were the key drivers of this increase. High spot prices over the quarter reflected decreased resources for electricity generation.
Spot price electricity markets do not fully feed into prices received by producers and paid by customers. This is due to hedging, industrial customer response (eg cutting back demand at peak-price hours), and transmission charges. Hedging is used to manage price volatility. Hedging options for electricity purchasers include contracts and fixed pricing for agreed volumes.
Electricity is a production input for industries – from farms to factories. The farm expenses price index measures price changes for inputs across various farm types. Electricity prices for dairy farms increased 6.1 percent over the December 2018 quarter. They increased 5.1 percent for all farm types – slightly lower than fertiliser and shearing costs at 7.0 and 5.2 percent respectively.
Electricity prices reported in Consumers price index: December 2018 quarter decreased slightly (down 0.2 percent). In general, electricity retailers do not pass on wholesale pricing to households, unless they are on a spot price contract (around 1 percent of households).
Overall, input prices for businesses showed a relatively strong increase (up 1.6 percent), while output prices increased moderately (up 0.8 percent).
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