$89 per year cost to domestic consumers

$89 per year cost to domestic consumers of electricity asset swap

Government’s electricity asset swap is set to cost domestic electricity consumers at least $89 each year.

Wholesale prices rose in February and soared in March. Meridian Energy explains that it needs to “conserve” water in its South Island hydro lakes, because its Tekapo power stations are being transferred to Genesis. It claims that this creates a risk of running out of hydro energy if the year is dry.

Meridian held back so much generation that spot prices in the North Island rose to 12 c/kWh in March. If the trends of the previous three years had been followed, the price would have been only 6c/kWh.

That delivered extra revenues to the generation sector of $180 million during March alone. February also saw high spot prices which the Domestic Energy Users’ Network estimates at $90 million based on the report commissioned by MEUG, and released on 3 May.

High spot prices are soon passed on to domestic consumers, as the Wolak Report to the Commerce Commission confirms.

The MEUG report attributes these high prices mainly to Meridian’s changed hydro management strategy, resulting from the transfer of hydro assets that was required by Government.

Spot prices would have not risen so high if all the planned thermal generation had in fact been available. However the low-cost gas-fired power station at Otahuhu has had a long unplanned outage, so higher-cost power stations had to be used.

This supports DEUN’s recent submission expressing concern that thermal generation was withheld from the market late last year, leading to excessively high spot prices.

DEUN considers that Government’s recent policy decisions will lead to higher, not lower, prices to consumers.

Government’s electricity decisions were designed to make the market more competitive. This may well happen – but competition comes at a cost.

The report to MEUG shows these costs can be very significant, and we may not yet have seen the end of them.

ENDS

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