Never one to miss a grandstanding opportunity, Associate Energy Minister Shane Jones has accused the generator-retailers of profiteering, but the reality is that nothing is ever that simple in the energy markets.
The price of power reflects supply and demand.
Without the price discovery that the wholesale market provides, new projects – what the system desperately needs – would not get built.
Power generators and the banks funding them need to have a firm idea of what kind of return a project can offer before it gets off the drawing board.
If market-led solutions cannot be reached, then it’s the long-suffering taxpayer who stumps up.
The current situation has been a golden opportunity for political point-scoring and special interest groups to “talk their book”, but what seems to have been forgotten is that this market is notorious for its volatility.
The wholesale electricity market is priced on the half-hour.
There are sharp peaks and troughs on a daily basis, and sometimes unforeseen changes that can take place on the supply side.
Yes, $800MWh is high, but in the second half of 2022, prices fell well below $50/MWh, and at times were very close to zero.
On August 6, 2022, the Central North Island price was just 2c per MWh.
These ultra-low prices were the result of high water levels in the hydro lakes and wind power projects coming on stream heading into summer.
Most consumers are shielded from price volatility – highs and lows – by hedges taken out by the generators.
For industrial users, some decide not to hedge themselves because of the cost, which can leave them badly exposed to price spikes.
The key issue facing the electricity sector is managing the inherent intermittency of a renewable energy supply.
What is there to fall back on when the weather does not co-operate?
Labour’s Lake Onslow pumped hydro project may well have done the trick, but at a monumental cost.
The solution is most likely going to be a combination of things.
For the moment, it’s hard to see gas – either indigenous or imported – not playing a part in supporting the system.
In the longer term, a mosaic of approaches seems likely.
Expect to see more demand-response deals, more renewable power projects – solar and wind – and heavy investment in large grid-scale batteries, biofuels and maybe even pumped hydro.
New Zealand’s already enviable renewable electricity supply system needs friends.
The more, the merrier.
