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.)
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