Lake Pūkaki, New Zealand's biggest hydro storage lake. Photo / NZME
Lower water storage in New Zealand’s hydro lakes and high gas prices are driving wholesale electricity prices higher.
Over the last few days, wholesale electricity prices have traded up at around $200 per megawatt hour (MWh).
That’s down from around $500-$600/MWh this time last year, and last year’s August peak of $820/MWh, but up on the $180/MWh winter average from 2018 to 2023.
“[Water] storage is lower than average for this time of year,” Mark Nelson, principal consultant at Dunedin-based Energy Link, said.
“The risk of it not being able to fill back up again for next year is elevated, and so we’re seeing higher prices in the market because of that,” Nelson said.
“The culprits are Lake Tekapo, which is really low, and Lake Pūkaki, which is our biggest storage reservoir,” he said.
“We’ve also got Hāwea, which is low. Wānaka and Wakatipu were low last week but they’ve had quite a bit of rain this week,” he said.
Lake Manapōuri had been low but was improving.
Meanwhile, gas prices, as measured by the Frankley Road monthly index, have gone from $15 a gigajoule (Gj) a month ago to $21/Gj this week.
“Gas prices are definitely making their presence felt,” Nelson said.
Gas is responsible for around 8% of New Zealand’s baseload electricity supply but domestic production of the fossil fuel has been in decline since 2018.
Chris Garr, Meridian Energy’s head of operations, said there were no capacity issues, despite conditions being slightly drier than average.
“We started with the lakes being above average, but we had quite a dry period over May, June and July,” Garr said.
“Even up until last week, it’s been very dry and our Waiau catchment has been quite low.
“The key driver is what’s going on with gas and what’s going on with thermal fuels, and that’s really the thing that’s been having probably the largest influence on prices.
“We’ve had quite a long period where wind has been relatively low, with small periods where it’s been very, very busy, so that’s also caused price volatility.”
Snow melting into the catchments can have a big impact on the market.
Garr said the snow pack, which starts accumulating around March and April and peaks around October, was below average for this time of year.
Meridian is seeing about 500 gigawatt hours of below-average storage in the snow pack from what it would see in an average year, he said.
Last month, the BusinessNZ Energy Council and energy management firm Optima said the gas market was in crisis, with big users already curtailing operations due to rising costs.
Fertiliser manufacturer Ballance Agri-Nutrients has said it may have to temporarily shut its Kapuni plant in Taranaki if an affordable gas supply cannot be secured.
Optima managing director Martin Gummer said almost half of the gas consumers (31 of 66) in a survey of businesses have already reduced operations, increased prices or cut staff due to rising gas costs or unreliable supply.
Last winter’s price spike was put down to high electricity demand and low wind generation during a fuel shortage, due to low hydro storage and gas supply.
The Electricity Authority, in a report on the event, said generators were unable to run baseload thermal generation at full capacity due to low gas availability.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.