'Are prices too high?' Energy Minister Megan Woods puts market on notice amid soaring wholesale prices

Energy and Resources Minister Megan Woods has asked for advice on whether wholesale electricity prices are too high. Photo / Mark Mitchell

Energy Minister Megan Woods is seeking advice about whether wholesale electricity prices are too high, with analysts warning current pricing risks political intervention.

At an event hosted by the Electricity Retailers Association of New Zealand (ERANZ) in Wellington on Wednesday evening, Woods acknowledged that low inflows to New Zealand's hydro catchments, coupled with a shortage of gas supplies, meant prices were likely to be above average.

"But I question whether they need to be as high as they have recently been," Woods said, according to speech notes published on the Beehive website on Thursday morning.

"I also question whether forward wholesale contract prices for the coming months are higher than they need be."

This week financial analysts began warning that the current state of wholesale electricity prices was likely to be drawing the attention of the Beehive and the Electricity Authority.

On Wednesday morning Forsyth Barr analysts Andrew Harvey-Green and Scott Anderson warned New Zealand's hydro storage was now at 58 per cent of average, the lowest level for this point of the year since the wholesale electricity market was established in 1996.

This was being reflected in both wholesale spot prices and near term futures prices, currently above $230 per megawatt hour, more than double the long term average.

"The risk of political/regulatory intervention is rising," the analysts wrote in a note to clients. If rain did not come soon, prices were likely to increase and Meridian was likely to require the Tiwai Point aluminium smelter to curtail demand.

As well as low rainfall, New Zealand's energy market is being constrained by a shortage of gas, with production from Pohukura, New Zealand's largest gas field, dropping sharply since the middle of 2020.

Woods said companies which bought electricity on the wholesale market "are suffering" and that retail prices for commercial and households were rising.

"Electricity consumers can ill-afford higher power prices. This is why I have asked officials for advice on the level of wholesale prices," Woods said.

"I want to be assured that the current level of wholesale prices is commensurate with the level of scarcity in the market and the risk of a shortage later this year.

"And I want to know what, if anything, might be done to moderate wholesale prices without increasing the risk of a power shortage."

Woods did not specify exactly what she had asked officials to do to address her concerns, but she said the work was not meant to duplicate the existing work programme of the Electricity Authority on improving the performance of the wholesale electricity market.

The Electricity Authority was "reviewing current spot prices to determine whether they reflect supply and demand fundamentals," chief executive, James Stevenson-Wallace, said in a statement.

It was "also examining the extent of immediate exposure of residential, SME, and large consumers to higher spot prices and if they will be passed through to customers on fixed price contracts" Stevenson-Wallace said.