Electricity Authority kicks spot price inquiry into New Year

Electricity Authority kicks spot price inquiry into New Year

by Pattrick Smellie

Dec. 23 (BusinessDesk) – Major electricity users hoping for answers before Christmas on the in wholesale market spot prices have jumped so high will have to wait until the new year, the Electricity Authority said today.

The EA has been undertaking an informal review to determine why wholesale spot prices, which were low and averaging around $55 per Megawatt hour in the last few months, rose to be well above $200 per MWh at regular intervals since Dec. 1.

Prices have dropped back sharply following recent heavy rain, which has seen national hydro storage lake levels jump from close to the 80 year average to 124% full, compared to average for this time of year.

Spot prices well below $50 per MWh are now prevalent, and at 2pm this afternoon, spot prices at key national grid nodes were below $12 per MWh.

BusinessDesk inquiries have established that all generators adopted more cautious approaches to the value of water stored for hydro-electricity production after 10 weeks of low inflows into catchment lakes.

They have been concerned partly because there is less snow than usual this year to melt from mountains into the catchments, and stiller weather caused by La Nina weather patterns have reduced the availability of wind power.

The potential for gas supply constraints during a Maui gasfield maintenance shutdown next February is also in market participants’ sights.

Under electricity reforms introduced by Energy Minister Gerry Brownlee, power generators and retailers face additional penalties if they provoke another winter power savings campaigns, of which there have been four either undertaken or threatened in the last decade.

Electricity companies argue the wholesale price spike shows the electricity market is working because the sudden jump in prices saw major users respond to make potential shortages next year less likely by reducing production to avoid the high prices for that part of their consumption not covered by fixed price contracts.

Most large electricity users buy the bulk of their power at a fixed price, but leave a portion of their total potential demand “unhedged” in the hope of exploiting periods when spot prices are low.

The EA inquiry, undertaken at the urging of market participants including members of the Major Electricity Users Group, is seen as an early test of the newly created replacement for the Electricity Commission, which was widely perceived to have been insufficiently proactive in such inquiries.

An EA report had been expected by the middle of this week. However, in a two line statement on its website, the EA says it has been “gathering a complete set of facts and conducting thorough analysis of available information.”

“Given the factors involved and the importance of providing clarity around the issue, work will continue, with the release of the Authority’s assessment expected in the New Year.”

(BusinessDesk) 14:05:30

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