Low rainfall and low lakes push up electricity costs

Hydro lake storage falls to under 80% of average, wholesale prices double in 90 days

26th Sep 11, 6:13pm by David Chaston

Hydro lake storage for electricity generation has fallen to under 80% of average for this time of year, raising fears of faster rising retail prices in 2012.

As at September 25, these lakes held 77% of normal levels, but average daily inflows have been very low, barely two thirds of normal levels at this time of the year. One month ago, storage was at 85% of normal; one year ago it was at 132% of normal.

The drop in lake levels and potential impact on retail prices comes ahead of the National Party's plans to float stakes on the sharemarket of up to 49% in three electricity generator-retailers - Meridian Energy, Mighty River Power and Genesis Energy - if it's returned to power in the November 26 general election. Treasury currently has a range of investment banks working on scoping studies ahead of the likely initial public offerings.

Meanwhile, wholesale demand remains muted, level-pegging with a year ago.

But that stagnant demand has not stopped wholesale electricity prices rising.

Ignoring the still-unresolved cost spikes associated with 'Big Saturday', market prices have risen from about $30 per megawatt hour in the May and June period, to over $100 per megawatt hour in the latest week to September 25, 2011.

New Zealand's hydro-generation system has allowed us to enjoy some of the world's highest rates of 'sustainable electricity' - 74% according to the 2010 assessment by the Ministry of Economic Development.

New Zealand ranks second among developed economies - behind Iceland and ahead of Austria - in its level of electricity produced from renewable resources.

However, climate variations have a significant impact on wholesale pricing, and if they last these higher costs will flow through to retail pricing.

The low-lake issue is mainly in the South Island. In contrast, Auckland's drinking water lakes are almost full.

(To see the impact of recent rising wholesale prices in the chart below, set the view to exclude the 'Big Saturday' event in March 2011.)

Wholesale electricity

Select chart tabs

Source: MCo

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

6 Comments

by David Chaston | 4th Oct 11, 7:22am 1317666158

As at October 2, lake storage levels have fallen in one week to 72% of normal, from 77% the previous week. Lake inflows on Sunday were only about half of normal. The situation is getting serious.

Only 1992 was worse. http://www.electricityinfo.co.nz/comitFta/ftaPage.hydrology

by steven | 5th Dec 12, 7:19am 1354645198

Thanks....

The interesting thing to put against that, would be the power consumption...in particular comparing 1992 levels and use v 2012. I guess we are using something like 20%? more per annum than in 1992? Though the mix with extra wind these days needs to be corrected.

regards

by Wolly | 4th Oct 11, 7:27am 1317666465

Does this not mean that Contact Energy will have good times ahead....fatter dividends for share holders...a read of the reasons for the poor profits recently, pointed to the abundance of hydro gen water storage...too much water!....

by steven | 5th Dec 12, 7:07am 1354644456

Well if you think that buy their shares, Ive sold all mine btw.

Also demand was growing every year until the last 3, 4? that doesnt look to change much soon.

regards

by steven | 5th Dec 12, 7:26am 1354645597

The price of energy is rising because energy is rationed via the price mechanism.

We can however calculate many factors as a long term trend, and I think I read the long term trend was for less rain in the catchments. So really its the duty of a Govn to make sure there is resiliency on the grid and generation system....that went bye bye 30 years ago.

I cant get much context/sense from your post....the two parts dont seem connected?

regards

by powerdownkiwi | 5th Dec 12, 8:04am 1354647891

The cost of each 'next' generation source is always 'the next cheapest', so sequentially it gets 'more expensive.

The cost of competing energy sources - and oil has gone from $30 a barrel to $110 in ten years - obviously impacts.

Ultimately, when it got to the end-game, we were going to find we use the wrong measure to 'value'. For a while, 'growth' hid reality. A lawyer could charge 300/hr for 'advice', then go out and 'buy' a Beamer. Beyond peak energy supply, he can't (or if he does, it displaces someone/thing else). Given that real underwrite comes back to things real, and that goods/services are produced only by the expenditure of energy, I've long reckoned that the calorie is a better trading-reference than the dollar.

In a physical sense, we've got a host of efficiencies to implement, a lot of wastage to curb, and by whatever mechanism scarcity will drive both.