Electricity Authority chief executive Sarah Gillies says the regulator is committed to a competitive retail electricity market.
Electricity Authority chief executive Sarah Gillies says the regulator is committed to a competitive retail electricity market.
Electricity Authority (EA) chief executive Sarah Gillies says the New Zealand energy sector is facing challenges on multiple fronts.
The EA, which is responsible for the governance and regulation of the industry, says wholesale electricity prices – which last week traded up to about $500 per megawatt hour (MWh),from $280/MWh a month ago – are reflecting tight supply conditions.
This is not uncommon in the winter months, when electricity consumption rises and the “fuel” – water – available for generation can be constrained.
“But to exacerbate things our hydro lakes are also lower than usual for this time of year, with some well below historical levels,” she said in comments supplied to the Herald.
Hydro generators are conserving that storage to help see the country through winter demand.
High power prices are in part a reflection of a constrained supply of gas, which powers a significant amount of the country’s electricity needs when lake levels are low.
“Some of our other fuels are also not as available as they have been previously, making New Zealand even more reliant on hydropower to keep the lights on,” she said.
Declining gas availability and high gas prices have driven high electricity spot prices, especially during periods of low wind.
“Uncertainty of gas supply has been affecting the market since the unexpected Pohokura gas field outage in 2018 and this is one reason why wholesale electricity prices have not returned to those pre-2018 levels,” Gillies said.
“Right now, some participants – especially retailers and large electricity users – were feeling the pressure of those prices more than others, particularly those exposed to the wholesale electricity price, who may not have the right insurance in place to ride the volatility wave unscathed.”
Most residential consumers are shielded from big moves in the wholesale electricity price because their retailers manage the volatility.
Retailers take on board insurance through a variety of risk management products to help protect them against periods of high wholesale electricity prices without having any impact on the end consumer.
Last month, Vector chief executive Simon Mackenzie said it was time the regulatory framework was upgraded, following on from the 1998 electricity reforms.
Gillies said the EA, as the regulator, was committed to a competitive retail electricity market.
“Any barriers to retail competition are not in the interests of consumers and we are looking into the availability and pricing of risk management options for retailers.”
The EA closely monitors the wholesale electricity market.
She said markets are future-focused and were going through a period of dynamic change.
“New technologies, innovation, changing consumer behaviour and expectations, and new patterns of generation and demand are all shaping what the future electricity system will look like,” she said.
“We have legacy systems – and, in some cases, thinking – as well as innovations and ideas that may or may not serve our consumers well.
“There is no one-size-fits-all fix for this.”
The authority said it was working on a range of levers to drive down the cost of electricity.
“After a period of limited activity in new generation development we are now seeing double the number of committed new generation projects in the space of 18 months, including new solar farms, wind farms and battery projects.”
The Electricity Authority says the electricity industry is facing challenges.
About 30% of committed projects are from new, independent, generators and private investment is coming into the market at an unprecedented pace, Gillies said.
“All this is taking place without the need for government intervention to encourage that investment, unlike in many other countries.”
She said “demand response”, when consumers can better manage their energy use, is gaining traction overseas.
‘We have some examples of demand response happening in New Zealand, from big industrials such as the Tiwai aluminium smelter reducing its electricity demand to help conserve hydro storage to retailers paying consumers to reduce demand when there are periods of high electricity demand.”
Gillies said New Zealand can do better in the demand response area.
“There are some exciting technologies and products available giving consumers much greater control of their energy in the future. Smart meters are part of the picture, as are smart switchboard technologies which are being explored by New Zealand companies.”
She said the EA is responding to questions from independent retailers with a review on whether the availability and pricing of risk management options are harming competition by creating a barrier to retailer entry or expansion.
“What we’re experiencing right now is the turbulent time of a transition to an increasingly renewable future,” she said.
“There is volatility and security of supply issues that we are trying to manage in the next few years, while at the same time laying the groundwork for the future, where consumers have more choice, more affordability and there is resilience for future demand.
“The authority knows that the electricity system can neither afford to be purist nor pedestrian.”
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
