Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Genesis says no collusion among generators

Genesis says no collusion among generators as deluge fills hydro lakes

By Gavin Evans

Nov. 9 (BusinessDesk) - Genesis Energy says recent stress in the wholesale electricity market does not mean the major generators have colluded against the rest of the sector.

Small-scale retailers Flick Electric, Pulse Energy, Vocus Group and Electric Kiwi have complained to the Electricity Authority and sought a declaration of an undesirable trading situation which they say is caused by the way the biggest players in the market are operating in the futures market for electricity.

Genesis, the country’s biggest electricity and gas retailer, alongside Contact Energy, Meridian Energy and Mercury NZ, acts as market-maker in the electricity futures market. The difference between the price to buy or sell electricity at a future date in that market is meant to be kept within 5 percentage points.

Those spreads have blown out in recent months, making life difficult for independent electricity retailers that have no power stations of their own and rely on the futures contracts to manage the risk of future electricity price volatility.

They are alleging a failure of market-making in the futures market and the failure of timely disclosure about fuel supplies has disadvantaged them and shaken their confidence in the market. Spot prices have also been “atypically” high for the market conditions, they say.

A combination of low hydro lake levels and disruptions to natural gas supplies has led to volatile and skyrocketing wholesale electricity prices in recent weeks.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

However, Genesis and Meridian both reported strong inflows of water into their South Island hydro catchments, with water levels of rivers flowing into the Waitaki catchment hitting the highest levels seen in more than five years during the past day. Wholesale electricity prices, while still high, have been falling in response.

There had been some increased flows into Contact Energy's Clutha catchment, but "nothing abnormal for this time of year," the company said.

Genesis said that with limited fuel supplies, its ability to support futures prices has been “challenging.”

“However, it is without substance to suggest that recent adverse market conditions and challenges being experienced by certain retailers are the product of a co-ordinated exercise of market power by larger retailers,” Genesis said in an emailed statement.

“Consideration should also be given to improve this feature of the market whereby all generators make a contribution.”

Power prices jumped in late September as South Island lake levels fell and Shell shut production from the offshore part of the Pohokura gas field due to a fault on the production platform.

Those factors, combined with very weak wind production some days and other temporary generation outages, saw average wholesale prices exceed $500/MWh on some days in October – the most in seven years.

However, the heavy South Island rain and lower power prices came too late for Dunedin-based Payless Energy, which has sold its customer book to Pioneer Energy. Other small retailers have also stopped taking new customers and others may yet shut. Some, such as Flick, built customer bases over several years of stable, low wholesale prices, which occurred thanks to a combination of low demand growth, excess generation capacity and ample water and gas supplies.

November futures prices for Otahuhu peaked at $333.50/MWh but had fallen to $190 yesterday. The December contract was down to $145 yesterday. Shell is aiming to restore full production from Pohokura by the end of November.

Genesis, which buys all the gas from the Kupe field it parts owns, says it would like to see more transparency in the wholesale electricity market and improved transparency around gas production outages.

But it says it is an inherent feature of New Zealand’s hydro-dependent power system that adverse weather conditions impact the market from time to time. Nor has there ever been a significant gas outage at the same time as lower lake levels.

“It is incumbent on all businesses in any market, to understand the risks inherent in operating, to act prudently and take the necessary steps to manage those risks for the sake of their customers and business. The electricity sector is no different.”

The authority said it is considering the retailers’ request for a declaration of an undesirable trading situation.

Last month the regulator said it was monitoring the performance of the spot and wholesale markets during what it called the “double-whammy” of declining storage and constrained gas supplies.

While it was concerned at the price spreads in the ASX futures market, it noted those impacts were “likely to have been mitigated, to varying degrees, by purchasers buying hedge cover in advance.”

For the authority to act on a UTS, it must be satisfied that the event complained of poses a serious risk to the integrity of the market, or confidence in it. There must also be no other mechanism to address the issue.

There have been eight UTS claims in the past decade. Only one of those has been upheld, which was in March 2011 when prices jumped to $20,000/MWh in parts of the North Island after planned transmission work reduced power available to Auckland.

In that case the authority said that, while Genesis Energy had set very high prices for its output from Huntly plants that weekend, participants couldn’t have foreseen those prices would have stuck due to a combination of erroneous demand forecasts and the unexpected withdrawal by Contact Energy of generation at its Stratford site.

The authority opted to cap prices that day at the still very high price of $3,000/MWh to reflect where prices may have settled had users been able to reduce demand had they seen the risk coming.

It noted at the time that, if there had been a genuine shortage of electricity, it probably would have let the prices stick.

(BusinessDesk)

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
Business Headlines | Sci-Tech Headlines

 
GenPro: General Practices Begin Issuing Clause 14 Notices

GenPro has been copied into a rising number of Clause 14 notices issued since the NZNO lodged its Primary Practice Pay Equity Claim against General Practice employers in December 2023.More

SPADA: Screen Industry Unites For Streaming Platform Regulation & Intellectual Property Protections

In an unprecedented international collaboration, representatives of screen producing organisations from around the world have released a joint statement.More

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.