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.

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.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Government: New Year Border Exception For Seasonal Workers In The Horticulture And Wine Industries

2000 additional RSE workers to enter New Zealand early next year employers must pay these workers at least $22.10 an hour employers will cover costs of managed isolation for the RSE workers RSE workers will be paid the equivalent of 30 hours work a week ... More>>


Grey Power: Is Disappointed To Learn Of More Bank Closures

Many older people are being left without essential services because of cost cutting and the march of modern technology. It is now expected that most banking transactions can occur via the internet or telephone. Jan Pentecost, President of the Grey Power ... More>>


Economy: Supply Chain On Brink Of Overload Says National Road Carriers

The New Zealand supply chain is on the brink of overload and it looks like the upcoming peak imports season may push it over the edge says National Road Carriers Association (NRC) CEO David Aitken. “Worldwide supply chains are in disarray,” says Mr Aitken. ... More>>

Stats NZ: Annual Goods Trade Surplus At 28-Year High

New Zealand’s annual goods trade surplus reached a 28-year high of $2.2 billion as imports tumbled in the year ended October 2020, Stats NZ said today. “This is the largest annual surplus since the July 1992 year, driven mainly by much lower ... More>>

ComCom: How Real Is That Bargain?

The Commerce Commission urges retailers and consumers to think hard about the bargains being offered as ‘Black Friday’ and Christmas draw near. Black Friday has now overtaken Boxing Day in terms of retail spending, according to data from electronic ... More>>

Stats NZ: Births And Deaths: Year Ended September 2020

Births and deaths releases provide statistics on the number of births and deaths registered in New Zealand, and selected fertility and mortality rates. Key facts For the year ended September 2020: 57,753 live births and 32,670 deaths ... More>>


Forest & Bird: Kākāpō Wins Bird Of The Year 2020

The nation has voted and Aotearoa New Zealand has a new Bird of the Year. New Zealand’s moss-colored flightless parrot has climbed to the top-spot for the second time in Forest & Bird’s annual Te Manu Rongonui o Te Tau/Bird of the Year competition. ... More>>