Megawatts megacheap after floods

By CHRIS DANIELS energy writer

Heavy February rainfall has sent the wholesale cost of electricity plummeting to its lowest levels since the market started nearly eight years ago.

Low wholesale prices have little effect on most power users, who buy on long-term fixed contracts. But big users, such as steel works or pulp and paper mills, buy a lot on the wholesale, or "spot market".

When prices soar on this market, these companies have to cut production and, in some cases, send staff home.

The average monthly prices at three major points on the national grid - Benmore, Haywards and Otahuhu - are the lowest since the wholesale electricity market was set up in October 1996.

These low prices were because of the strong flows of water into hydro catchments, particularly in the South Island.

Flows for February were 142 per cent of the average for the month.

By the end of the month, storage was 134 per cent of average.

These strong flows during summer are unusual.

South Island hydro lakes usually fill in spring from rainfall and snow melting.

Ralph Matthes, group executive director of the Major Energy Users Group, said it was not surprising that the price would drop so low after such a lot of rain.

But it would be interesting if the big power companies dropped their retail prices after a few months of low wholesale prices.

The group says there is not enough competition in the market, which is dominated by five big generator-retailers, three of which are state-owned.

Matthes said that if wholesale oil prices dropped oil companies would start using the fall to cut prices and try to increase market share.

In the current state of the New Zealand electricity market, Matthes said, he "wouldn't be holding his breath" waiting for similar action from the big power companies.

One of the more curious figures given yesterday by M-Co, the company that runs the wholesale market, was the drop in power demand for last month.

Rising demand for electricity and little new generation is one reason the big power companies give for looming power price rises.

Last month, average daily demand was 96.9 gigawatt hours, up from January, but down nearly 1 per cent from February last year.

Big power users this year criticised the way the power market was designed after prices in the upper North Island soared from less than 10c a kilowatt hour to 108c a kilowatt hour.

This happened after high winds knocked over pylons, severing the high voltage link connecting the North and South Islands.