New Zealand’s electricity market is in crisis, with soaring wholesale prices driven by a severe gas shortage and dry weather.
The surge in energy costs is threatening to push up household bills and has already forced some businesses to close.
The energy crisis quickly turned into a political crisis.
Energy Minister Simeon Brown blamed Labour’s exploration ban for the gas shortage and said he was considering importing liquefied natural gas."
NZ First’s Shane Jones, an associate energy minister, told RNZ that big electricity companies were “profiteering” from the shortage and that government intervention was possible.
The Treasury has been asked to produce an urgent briefing for Finance Minister Nicola Willis explaining why prices spiked above $800 a megawatt-hour and what could be done about it.
Pan Pac Forest Products, one firm that had to halt operations, said the government should reassess the market structure, which didn’t seem truly competitive.
Gentailer power
The four big companies which dominate New Zealand’s electricity market—Meridian, Contact, Genesis, and Mercury—are ‘gentailers’ which both generate and sell electricity.
Some critics say they use their market power to keep wholesale prices high and use generation profits to subsidise their retail businesses. This makes it difficult for independent retailers to compete.
An internal Commerce Commission memo, released under the OIA, said the “structural framework” that would make this behaviour possible was present in the market.
However, the commission didn’t open an investigation to determine whether it was happening. It said the Electricity Authority was best placed to look at the issue.
In his interview with RNZ, Shane Jones described the regulator as a “chocolate teapot,” which suggests he doesn’t have much confidence in its ability. Neither do some participants.
Electricity Authority chief executive Sarah Gillies released a statement on Friday evening, saying the regulator was stepping up its surveillance of gentailers and other market players.
She said fuel shortages could “only explain so much”. The regulator has asked for more data than usual and planned to publish a new analysis next week.
“We will be testing to see if the prices are justifiable in the circumstances, which is why we are digging deeper and making the companies give us more information, so everyone can see exactly who is making what and to shine a light on the current situation”.
New Zealand was at a 'tricky stage' in its transition to a renewable energy system, with the dry winter and gas shortage putting immediate pressure on the wholesale market.
“It is not acceptable for consumers, large and small, to be carrying the full cost of the transition for the next couple of years until new generation comes online,” she said.
Going bust
Dry winters and limited gas supplies should not come as a surprise to an electricity sector that has long known about the need to scale up renewable generation capacity.
Despite this, new projects have been slow to be built. This may be because the sector is incentivised to build only just enough electricity supply to meet demand and not more.
Each new unit of generation added to the grid reduces the price paid for every other unit already in the market. Energy companies with large amounts of generation capacity do not want to oversupply the market and drive down prices.
It’s like playing blackjack. They want to hit 21 without going bust.
Margaret Cooney, the chief operating officer at independent retailer Octopus Energy, said the price signal had been saying “invest, invest, invest” for a long time, but the market had been slow to respond with additional supply.
“The Government probably has no choice other than to import LNG in the short term. Then the goal should be to bring forward new development quickly, so that high energy prices don’t cripple the economy,” she said.
Small retailers like Octopus would like more electricity generation and lower prices to offer customers but feel the big players make it difficult. For example, they don’t offer long-term supply contracts that would support a new entrant generator entering the market.
They also don’t have to internalise the risk of electricity shortages, and so are more worried about the risk of oversupply.
Trust the process
In a recent note to clients, equity analysts at Jarden said elevated wholesale prices were likely to hang around until 2028 when additional supply catches up with forecast demand.
But they worried the next two years of “super-elevated” wholesale prices could put pressure on the industry to commit to even more capacity and push the market into oversupply.
“Building with the hope that your competitors show constraint is never a great strategy and adding large quantities in one go is an even higher risk strategy,” they wrote.
Equity analysts at Forsyth Barr said higher wholesale prices didn’t boost gentailers’ earnings in the short term, as most electricity was sold at fixed prices. Any benefit would only appear in earnings reports when contracts were renewed at higher prices, likely in 2026 and 2027.
However, prolonged high prices might prompt regulators and politicians to start asking whether the system was broken and in need of reform.
“In our view the answer to both questions is no, the current pricing is a market response to an extreme fuel shortfall that the market has never seen before,” Forsyth Barr wrote.
That may be so, but with businesses closing and households facing another cost-of-living increase, government ministers may be reluctant to gamble on inaction.
168 Comments
It is tragic for NZ that its electricity prices are so expensive and so volatile that major energy users are leaving NZ. We need these sorts of companies to invest and expand not to leave. I don't think it is just price gouging by gentaliers (although that is part of the story). NZ has long known about the problem of dry years causing an under supply of hydro electricity generation, once or twice a decade. And gas was always going to run out at some point. We have coal but it is expensive to have thermal plants sitting idle waiting for spot wholesale prices to spike high enough to make it economic for them to enter the market when hydro is not available. Hard decisions need to be made no matter what the market structure. A fully nationalised electrical system would still face the dry year problem. NZ's short term political and economic thinking has kicked this problem into touch for decades. So here we are, forestry processing companies are closing down, and good jobs are being lost. It is very sad yet also very predictable.
Germany built theirs from scratch in the aftermath of the Russian invasion in a record nine months. Not saying we can achieve that by any stretch of the imagination considering our lack of skilled labour, knowledge and capital in making anything in this country.
The likely option in our situation is a floating LNG terminal that can be deployed rather quickly but will still cost an arm and a leg to the taxpayer. Link
There might be one in the Eemshaven in The Netherlands sitting idle because it is only used in their summer to fill the gas storages up.
You need to understand EROEI.
It isn't a goer- not enough energy return.
Which is that 'fail 'of this article. As per usual, it fails to assess the fact that energy underwrites money, and that all the best options have been dammed, mined and burned.
I - seriously - suggest that we won't be able to maintain the grid we have, in the near future.
Oh, but, invest.....
Not clear to me why the taxpayer should fund it. Government can certainly help with reducing environmental red tape but if it is profitable for Contact and Genesis to import LNG then let them do it.
Besides which, industrial users should be engaging in fixed price or options contracts - no excuses.
I'd say it isn't profitable or we would be doing it. What's profitable is renewables but as the article states it pushes the price of electricity down. We are in this mess because we have a shortage of cheap hydro. The market is failing customers, time to let companies like octopus complete in the generation of electricity.
The Chairman of NZ’s Major Energy User’s Group (inc Fonterra, NZ Steel, Woolworths, Rio Tinto) has written my post on energy for me today. John Harbord has said many more firms are looking at closure if electricity prices remain high. He also says- “The best wind farms are generating electricity 40% of the time, so who is providing the electricity the other 60% of the time?” Energy analysts say the system lacks “firming” – reliable and constant energy to back up supply during abnormal weather conditions. As it stands, much of that firming is left to Genesis Energy’s gas and coal-fired Huntly plant and Contact’s gas-powered Taranaki assets. “The only reliable sources of firming, in the volumes that we need, are coal and gas, and they are problematic,” Harbord said. “It’s just that we have got the mix completely wrong,” he said. He said about $600 million to $1 billion needed to be spent on new thermal firming facilities to back up wind and solar power generation. Link
Do with electricity what we did with Telecom. Our cellphone plans are as cheap as anywhere in the world. Force the gentailers (50% owned by government anyway) to sell off their retail arms so they (generators) focus on generation asset development. The government would still own its 50% of each (unless it sold down its %). The problem is the government has a conflict of interest at the moment in that it reaps fat dividends (you could say 'tax') from the gentailers so doesn't want to upset the gravy train too much.
Just nationalise generation, invest in a hugely abundant supply, incentivise community networked solar, and electrify everything already. It is absolutely ridiculous that we had a huge comparative advantage in renewables and non-fossil generation but we implemented a broken market model that creates the scarcity required to extract rent. Stupid. Stupid. Stupid.
This is a critical issue for New Zealand both short and long term. We want to be a country that creates value onshore, rather than shipping logs and other goods from primary industries offshore.
It’s difficult enough getting anyone to invest in capital infrastructure, almost impossible with electricity price gouging. Unless something changes more mills will close, and there won’t be anything coming up behind to replace them.
The previous government's policies (rapid EV adoption, replacing coal boilers with electric ones, unprecedented population growth, phasing out new piped gas connections for houses and businesses, etc.) added plenty of electricity demand on the system.
They even permitted retailers to remove low-user plans altogether, as an incentive for households to consume more electricity. MBIE literally says that here Link
Meanwhile, the supply side of the market was left broken. All the gentailers had to do this entire time was sit tight and see demand outgrow supply to rake in the big bucks.
The immediate energy crisis is a dry year crisis, it will resolve itself in months and spending money right now does nothing to help.
Better to start thinking ahead on what will actually solve the dry year problem. This is what the NZ battery project was doing, and just about to finish reporting on, before the coalition scrapped it.
Onslow was part of the problem here but I ran out of room to include it in the story.
The possibility of huge amounts of supply was discouraging commercial builds because of the possibility of oversupply discussed above.
Now that it is off the table it’s easier for developers to forecast supply/demand and approve projects. That’s good news.
Also Tiwai Points long term contract has helped certainty.
Not quite Dan. The supposed "Onslow chilling effect on renewables" was always contrived misinformation that has been repeated over and over, all the way up to Simeon Brown.
Firstly, the Onslow scheme would not be a power station. It would purchase more power than it used.
Secondly, the only way it could induce a chilling effect on renewables would be to have an ability to offer power into the market at lower price than renewables. But Onslow could never compete with renewables because it could never offer a price less than the cost of pumping. Wind and sun are free fuels. Onslow would have to pay for its fuel. However, Onslow certainly could offer at a price less than coal and gas power. With less fossil fuel used in power generation, the wholesale electricity price would fall (to the dismay of the gentailers) given the way that even a small amount of expensive fuel has a large impact on raising the wholesale price. The misinformation campaign on the Onslow "chilling effect" is therefore hardly surprising.
Finally, Onslow would certainly not be "part of the problem" as you state. On the contrary, it would be a part of the solution as far as encouraging new renewables is concerned. The reason is that by bidding in for pumping when prices are low, the Onslow scheme would set a floor price for wind and solar at times when abundant wind and sunshine would have otherwise driven prices to almost zero. This helps the economics of new wind and solar generation because it would take less time to recover construction costs. I've copied the below text from p.53 of the Kelly report.
https://pce.parliament.nz/media/lnrayjcz/the-economics-of-four-future-e…
"By pumping when prices are low, an effective lower limit or floor is maintained on wholesale electricity prices. Onslow also reduces peak prices which tend to occur during periods of low renewable availability. This will benefit wind and solar generation which are ‘price takers’. While renewables also benefit from higher prices, these periods tend to occur when there is lower opportunity for renewables to generate. An effective floor price will, on average, increase the overall efficiency of wind and solar generation, reducing the time over which costs must be recovered lowering the overall cost of capital for investment in new renewables. The economic benefits of a lower cost of capital for renewables has not been included in this economic analysis and could be substantial – further research here is therefore warranted and the benefits of this should be included in future cost benefit analysis calculations for Onslow."
It baffles why such a simple concept of using intermittent generation such as solar and wind to recharge a high holding lake when demand was low and releasing that stored energy when demand high is so difficult for many to understand....nevermind the additional benefit of an insurance policy for (predicted to increase) dry year events.
Sadly Onslow will not be revisited anytime soon as it is too politically difficult to admit such an error of judgement.
"Dr Alastair Barnett FEngNZ, points out that the pumping requirement for the initial fill of Lake Onslow, or for refilling it after a large drawdown, would greatly exceed any surplus hydro capacity that might be available.
The annual production from the Clutha hydro schemes is about 3,750 GWh/yr. The chart on Page 1 shows that surplus generation in the 5 wet years averaged 8% of average production. So, it would take 20 wet years to provide the power to fill Lake Onslow to a level of 760 metres.
Diverting the whole Manapouri output, which is used by the aluminium smelter, would take 1.2 years to fill the lake plus new transmission lines.
...As noted in Table 1, if the level of Lake Onslow is raised to 760 m the lake area would be 68 km2. So the evaporative loss would be 2.5 cumecs; i.e. 80% of the annual typical rainfall. At 800 m level the evaporative loss from the lake would be 3.5 cumecs which is 11% greater than the annual rainfall. The increased areas of the lake would result in a corresponding reduction of lesser evapo-transpiration in the surrounding parts of the Lake Onslow catchment area.
https://www.energywatch.org.nz/issues/EW85_7-2022.pdf
https://www.energywatch.org.nz/issues/EW84_6-2021.pdf
This is just more gaslighting. Why make the argument that only surplus hydro can be used to pump water for Onslow? Any form of electricity generation could be used to run the pumps. Solar, Wind, Geothermal... And if it was going to take too long to fill the pumped hydro scheme then the buying electricity price for pumping/storage purposes would go up, which would induce more generation (of whatever type) to be built.
"Hydroelectric generation has been a part of New Zealand’s energy system for over 100 years and continues to provide the majority of our electricity needs. Currently there's over 5,000 MW of installed hydro capacity. The majority of it is found in the South Island."
Onslow could be filled by massive overbuild of wind and solar - having that additional buffer allows you to build much more intermittent generation as it can smooth out the production. Your hydro argument here is a straw man and I'm not sure why you're persisting with it.
"Massive overbuild of wind and solar" and transmission and balancing - plus building the second longest dam on the planet - is a waste of resources.
"Sustainable Energy forum’s hydro expert, Alastair Barnett, estimates that the Onslow scheme could provide 5000 gigawatt-hours storage. But a simpler pumped storage system between Lake Tekapo and Lake Pukaki could provide over half Onslow’s dry-year storage with minimal construction cost – the two lakes were originally designed to do exactly that.
That scheme was precluded by the separation of ownership within the Tekapo-Waitaki hydro scheme. Genesis owns and manages Tekapo, Meridian owns the power stations below Tekapo. Each gentailer manages their part of the resource to maximise profit and shareholder value, not to minimise financial or environmental cost."
https://www.scoop.co.nz/stories/AK2007/S00524/green-the-grid-no-use-mix…
"What does all the work conducted in the Upper Waitaki in 1977 and before, mean for New
Zealand’s energy future today? It means that, if there is a scope or need for pumped hydro storage
in New Zealand, it has already largely been built and tested on the Tekapo canal. All that is
technically required to make use of this exisng asset is to buy pumps and install them in their prebuilt
locaons at Tekapo A and B power staons. This could be accomplished in less than two years
at an esmated cost of less than NZ$100 million, and, assuming the completed pumped hydro
scheme would be operated coordinated with other adjacent generaon assets, could provide backup,
firming and energy storage capacity for several hundred MW of new and future wind or solar
generaon development. There are no technical barriers prevenng the compleon of the pumped
hydro scheme at the Tekapo canal and the comparavely small financial outlay required, would
make it one of the most cost-effecve pumped hydro schemes realizable anywhere in the world."
https://img.scoop.co.nz/media/pdfs/2308/Pumped_Hydro_its_already_built_…
The idea of adding 2.5 TWh (half of the Lake Onslow scheme's energy storage capacity) onto the existing Lake Tekapo energy storage capacity is a non-starter. There are two reasons - one social and one hydrological.
The social reason is that the new Lake Tekapo upper operating level would result in the existing Lake Tekapo township being totally submerged - which is unlikely to go down well with the local population.
The hydrological reason is that a large-magnitude pumped storage scheme must be able to pump when the hydro lake levels are high - the time of lowest-cost power. High hydro lake levels means that Lake Tekapo would most likely already be at a high level before pumping from Lake Pukaki started. There would thus be minimal space available for adding Lake Pukaki water into Lake Tekapo at the very time when pumping is financially most optimal.
However, this doesn't preclude a Tekapo / Pukaki pumped storage scheme as a green peaker for buffering short-term fluctuations. In that context, Genesis might have been looking at the Lake Taupo / Lake Rotoaira possibility, with the Tokaanu station converted to pumped storage. With or without Onslow pumped storage, such green peakers are likely to be of increasing importance in providing short-term buffering beyond the scale of grid batteries as gas supplies dwindle.
You don't recall Lake Tekapo township being flooded when the test was done? I may be wrong but I suspect the reason for that was that the testing (whatever that was) did not involve introducing a massively spectacular volume of water into Lake Tekapo that equated to 2.5 TWh of additional potential energy.
The calculation is trivial - anyone can do it. I leave it to all as an exercise. Find the present energy storage capacity of Lake Tekapo (GWh), then find the present consented operating range (metres) of the lake (which creates the energy storage capacity). Now divide the first by the second. That gives the energy storage of Lake Tekapo per metre of water level change. Now find how many metres (m) of increased water level are needed to provide 2.5 TWh of additional storage capacity. Then add m to the present upper consented water level. That gives the new upper level n (metres above sea level) that drowns Tekapo township (consult the NZ topo map). First person with the right answer for n gets a chocolate fish (if chocolate fish are still around). And yes, I do know the surface area of the raised lake will be a little larger, but it won't make any practical difference.
Yes, I was in the garden most of the day. I had thought that "profile" might have wanted to rush in and do the calculations, because he seemed a bit concerned.
Anyway, here are the calculations as specified. The Lake Tekapo consented operating range is listed as between 701.8 and 710.9 metres asl, and the energy storage capacity of Lake Tekapo is given by Transpower as 773 GWh. That gives 84.9 GWh per metre of lake level change. To get 2.5 TWh (2,500 GWh) of additional energy storage therefore requires an increase of 2500/84.9 = 29.4 metres of water level above the existing maximum consented level of 710.9 metres asl. So 710.9 + 29.4 gives 740.3 metres asl as the new upper lake level operating bound.
Now go to the NZ top map and zoom in to the Lake Tekapo township. The contours are at 20 metre intervals and the contour nearest the lake is 720 metres asl. The next one up is 740 metres, which marks the upper level of the new raised lake. It takes a bit of time to locate the line of the 740 contour around the town because it is hidden by roads in places. However, there is enough to confirm that the township would be flooded.
The calculation approximates the lake as having vertical sides. The true amount of required lake raising will in reality be somewhat less than 29.4 metres because the raised lake will have a bigger surface area, taking note in particular the gentle gradient of the Godley River delta at the top of the lake. However, the township will still be flooded.
There may be something entirely incorrect or missed out in the calculations - happy to be corrected if so. But in the absence of an error somewhere, this should mark the final demise of the concept of storing significant energy in Lake Tekapo as part of a Tekapo / Pukaki pumped storage scheme. As mentioned, that scheme could still in principle serve as a fast-response green peaker. Genesis may or may not have interest in that.
While Lake Tekapo won't be playing a role in significant new energy storage, that does not mean that the Onslow scheme must be the best option for energy storage against dry years. Other options may be better. We won't know of course unless a change of government creates a restart of the NZ Battery investigations. If the Onslow scheme is finally selected as part of the solution then I will regret I hadn't thought of it back in the ECNZ days. In the absence of gentailer opposition, ECNZ would have built it as national infrastructure. The Onslow 1000 MW of relatively cheap power would certainly be very welcome right now.
Thanks Earl. I was out planting flax. Topomap is a great resource for this kind of thing.(I use it alot in another hobby horse of mind, straightening out Railway lines). Looking at it on my phone , it appears there is a Around 20 metre drop between the bottom of Tekapo a dam, and the headstock of Tekapo B? So either they need to build the canal walls up to 20 metres higher at the B end, or pump and pipe it all the way back. Possibly why they haven't used it as a peaking unit. For longer term storage, it would seem to me if Tekapo is low, so would Pukaki, and v.v when it's high.
Earl " in regard to your comment "the testing (whatever that was)" you can learn about it here. I'm surprised you are so ignorant of the fact. Perhaps give Dr Alistair Barnett a call and he can give you first hand knowledge. You could ask him about the Tekapo flooding too while you at it. you're welcome.
"At that time the Tekapo canal was under construction to link the two main storage reservoirs (Lakes Tekapo and Pukaki) in the Upper Waitaki power development, and an obvious option was to design the canal to take pumped flow from Pukaki to Tekapo as well as gravity flow from Tekapo to Pukaki. The canal design was duly analysed, constructed and tested to have the required reverse flow capacity.
Instead, the newly developed Maui gas field was utilised and the Huntly thermal power station continues in use, and the importation of coal means that our thermal emissions have actually increased.
The disastrous outcomes of poor power planning have now been recognised, but the reaction seems to be one of panic, adopting the first scheme to come to mind while ignoring the alternatives, especially the final 10% of the Tekapo-Pukaki scheme."
https://esr.org.nz/papers/members/pumped-storage-planning-1970s-vs-2020/
Ahh, Doctor Burnett is talking about overflow at the canal, caused by the water hammer effect of differing water flows , and sudden changes in it . Earl is talking about how much water would need to be pumped back up to Lake Tekapo dam to provide meaningful dry year storage.
The "bow wave" would effect the Tekapo B end , and the river below Tekapo township.
Neither would effect Tekapo township , but in order to provide enough storage water , the lake level would need to be above Tekapo township.
It does negate my point that the canal level falls by 20 metres , I was way out there.
I would have been happy to explain to Alistair Barnett why large scale energy storage via pumped storage into Lake Tekapo was never going to be acceptable. However, I never heard from him. Anyway, the basic analysis is public now and the Lake Tekapo storage idea is well any truly dead. The Tekapo enthusiasts should get over it and move on.
Oh bless you Earl.
In a series of posts you have gone from tabloid science, to unreferenced assertions, to no testing, to there was testing and it is in the public domain. No wonder Barnett doesn't return your calls! Though just stating he proposes to flood the township of Tekapo probably would take you off his Christmas card list.
The Editorial of EnergyWatch(84) is titled “The Dry-year Myth”. What we are experiencing at present can presumably therefore be best-described as a “high-impact myth”?
The reference to the annual energy output of the Clutha power scheme is mystifying. Surely it is not assumed that Onslow during pumping will only derive its power from the Roxburgh and Clyde stations, or even from hydro power for that matter.
Also, there will be a large amount of installed wind generation by the time the Onslow scheme is completed (if it was constructed). In wet and windy times that means even greater energy spill loss than now, from times of wind spill plus water spill. A few wet years of spill from the Waitaki scheme alone can equal the total Onslow energy storage capacity. The presence of an energy store like Onslow will be helpful to mop up otherwise lost energy. Onslow would be operating near-continuously of course, with or without spill situations.
The Onslow fills will not be uniform upwards – more like a rising saw-tooth because there will be high-price times when it is more economical during a fill to generate for a while. In this way it can be possible to generate income while (on average) still increasing the energy reserve.
With respect to the Onslow water balance, to save my two typing fingers, go down through the discussion below the recent Interest article:
Incidentally, the assumed annual evaporation value in EW84 of 1.2 metres is a considerable error. Direct measurement by NIWA found annual Lake Onslow evaporation to be 0.7 metres. Measured annual Onslow rainfall is 0.6 metres. This is the problem with what I sometimes disparagingly call “tabloid science” – giving the illusion of scientific analysis via newsletters, without having to go through peer review by experts in the field. If there is concern over the Onslow water balance, tub-thumping is not the way to go. I would encourage anyone to carry out their analysis and submit a manuscript to the NZ Journal of Hydrology for review. They will also consider water-related energy articles - I published my original Onslow short paper there back in 2005.
Forget Onslow. Build a few of these and synthesise our own ethanol, ammonia, urea, etc. If we are going to spend billions at least build something useful for non dry years.
https://interestingengineering.com/energy/meltdown-proof-nuclear-reactor
https://www.neimagazine.com/news/newsdanish-companies-support-smr-use-f…
Some small scale nuclear plants could certainly be useful, but it is not true to say Onslow isn't useful in normal years. As well as the long term smoothing function over years, it can do shorter term smoothing - fill in the day when solar is abundant and release some of it back in the evening, or fill when wind is abundant and release a week later when the weather is still.
Funnily enough , the first pumped hydro systems were built to store nuclear power for use in the peaks. Also to provide a load should the grid to the nuclear power station went down, and a gravity fed cooling water supply. I visited one in Wales.
Most on here would not also believe I worked in an engineering shop building thermo couples for nuclear plants. 100 mm thick walls to protect a 5mm probe.
This is what happens when you put what is a public good in to a market model that drives decades of underinvestment in generation and network in pursuit of short term profit, and then after creating those conditions, you create a regulatory environment that makes creating new sustainable generation a costly nightmare. Could you imagine trying to get the Waitaki dams built now?
Now: who wants to create a market for our water...
The big4 gentailers made nearly $8 billion in profits last year, half of which belongs to the public coffers courtesy of the Crown owning nearly half of each of those companies.
There has been clear conflict of interest for policymakers to act on the broken market fleecing customers and undercut a major revenue stream.
100M? You're not even on the same planet.
https://www.consumer.org.nz/articles/profits-surge-for-new-zealand-s-ge…
Ok, two things. Firstly, your link states 2.7 billion which is much lower than your initial post.
Secondly, your link reports EBITDAF. Earnings before interest, tax, depreciation, amortization and fair value adjustments. This means the article is reporting earnings before some very real costs. Depreciation on power plants is huge, the gentailers have large debts and pay lots of interest. They even pay some tax.
Interesting that there are still quite a few thumbs up on a comment which is complete misinformation. A brief calculation would tell you that 8 billion profit would mean nearly 4000 dollars of profit from every household in New Zealand, it clearly doesn't pass the sniff test.
“In our view the answer to both questions is no, the current pricing is a market response to an extreme fuel shortfall that the market has never seen before,” Forsyth Barr wrote.
huh????
from 2021
“
The Employers and Manufacturers Association has added its voice to concerns over power prices saying it has heard “shocking” reports of businesses facing a tripling in their power bills.
Spot market prices have peaked above 70 cents a kilowatt-hour at times this year and have frequently sat above 30c/KWh – several times their normal historical levels.
Low hydro inflows brought about by La Nina weather conditions, a decline in gas production and a long period of low investment in new generation capacity has put the sector on the edge of crisis, amid a warning from an analyst that there is no cover for any unexpected supply outages.
"Energy Minister Simeon Brown blamed Labour’s exploration ban for the gas shortage and said he was considering importing liquefied natural gas."
Maybe in his imaginary world.
They are doing exactly what they were set up to do.
https://norightturn.blogspot.com/2024/08/reaping-what-they-sowed.html
"the current pricing is a market response to an extreme fuel shortfall that the market has never seen before,” Forsyth Barr wrote."
Was Forsyth Barr writing this at the behest of the Gentailers?
It is a market response, true. But the response is to the deliberate blocking/slowing of new generation and initiatives like Onslow to control the market in their favour.
It is a myth that high electricity prices in dry years will encourage more generation investment. It that were the case, we would have had that after the 2008 dry year.
https://www.theguardian.com/environment/2008/jun/10/drought.energy
The reason is that nobody is going to invest in new generation capacity, renewable or otherwise, beyond what is needed to meet demand in a normal hydrological year. Generation overbuild is not a good commercial investment. If left only to the market, we can anticipate the economic and social impacts of high electricity prices from coal (and perhaps LNG) in every dry year to come.
Close. The fault lies with with the short termist industrial users who never see more than 3 years ahead. They went on spot, they took on the dry year risk. In return they got cheap power in wet years. Now comes the time to pay the piper some of them kick up a fuss.
If industrial actually valued having security from dry years they could buy long term futures or other contracts. Generators would have a guaranteed price for their power, they would build additional generation to back these contracts, and even if the spot prices dropped under the cost to supply, that doesn't matter.
Worth noting that it's not all industrial users failing here. Competent players like Tiwai pt signed a long term agreement and its doing exactly as you'd expect, kicking off huge generation investments in Southland. And currently they are curtailing use and onselling what power they did sign on to buy to the market.
Yes....they can choose to hedge but those futures are starting at about 105 NZD for Dec 2027 expiration. But because they compete internationally it is economic not viable for them because overseas power pricing is much lower than NZ. (Scandinavian wholesale pricing sits between 25 and 30 Euro which is about 50 - 55 NZD; see https://www.statista.com/statistics/1271491/sweden-monthly-wholesale-el…)
The New Zealand producers are relative small players within those markets and their products pulp, paper, sawn timber are commodities.
The Scandinavian energy markets are dominated by well-regulated state-owned players that have made strategic long-term investments in keeping their countries well-supplied at low costs.
Statkraft for example is based in a country with a similar population size as NZ but has lowered their cost of doing business at home by expanding construction and operations beyond their own borders to achieve better economies. It is now the largest renewable company in Europe.
FYI the major energy users in those countries are processers of commodities such as steel, hydrocarbons, forestry products, chemicals, etc. Appliances, machinery and vehicle manufacturing is higher value exports but lower volume and so uses less energy per $ of output.
Can't find it now , but Mbie data on generation costs show generation costs are nowhere near these spot prices.
What is happening is profit taking , and using the spot price to cover the cost of generation that is above long term contract prices. but a hydro genration plant is not changing in cost from , say , $ 100 /mwh , representing a 800-1000% mark up on its cost price.
Sure, but there is a reason why we use markets ration resources in times of scarcity.
Take away the prices, nobody curtails, low value users keep pumping, the dams fall to 0% and the lights go out. High prices discover who values a resource the most and allocates it to them. Generators getting a windfall is of course a nice benefit for them. But its not why the market is set up like this.
No, what is happening is price is balancing the market. Price rises until supply and demand meet, like any market. As the spot price rises, expensive supply is teased out and low value demand is switched off, or those with contacted cheap supply decide to not use it and sell on at a price that makes sense.
When supply is low we have to ration somehow. A price mechanism sounds better than random rolling brown/black outs to me.
To help you: Cost of generarting 1 MWh of electricity
Hydro 26.02 NZD (Based on Meridian monthly operations report which are made available to share holders)
Geothermal 43.65 NZD (Based on Mercury data only; small generators like Eastland don't report publicly)
Thermal 113 NZD (coal and gas combined Based on the latest quarterly report from Genesis)
The paper mill is the electricity user - but note the word modern. "A modern Kraft pulp mill is self-sufficient in energy; it can meet all internal steam and electricity demand for the processes. This energy comes from combustion of black liquor in the recovery boiler (also known as Tomlinson boiler) and existing bark in the power boiler. The recovery boilers perform dual purposes; first recover energy from the black liquor and secondly recover pulping chemicals."
I am not talking about a kraft pulp mill. I am talking about a mechanical pulpmill, just like PanPac and WPI. A mechanical pulpmill uses 2.7 MWH/ ton pulp and that pulp is for special purposes like printing and light weight packaging papers.
Yes.. you are right with your comments about a kraft pulp mill. 21st century kraft pulp mills, nowadays called bioproduct mills are net electricity exporters. (See:https://www.metsagroup.com/globalassets/metsa-fibre/attachments/brochur…) Unfortunately New Zealand's kraft pulp mills OJI Kinleith and OJI Tasman are still using technology from the last century and therefore are net energy, electricity AND gas, importers.
I thought while the last gov was talking Onslow what was the point of a generator investing in quick on plant?
Onslow was blocking investment...
re costs, sure running the gens is very cheap, but every week the power companies revalue the water in their damns... then they price so that the do not win if its below that estimate, water is short thus prices are in a spiral until its rains and the damns fill.... its the percieved value of the stored water thats rising, not the cost of generation itself.
The marginal power pricing auction system assumes competition and does not really work in times of low water storage. well its working like you would expect it too....
Onslow would encourage investment in intermittent generation. We can handle a much bigger load of wind with Onslow balancing things out. Remember Onslow does not add supply, it just opens the door for others to generate more.
What was blocking investment was uncertainty over Tiwai - was touch and go whether we were about to lose 15% of our electricity demand, that puts a dampener on supply.
So 'dry year' problem only exists because uncertainty over Tiwai? Really?
The real problem is that the gentailers can manipulate the price until it rises enough that further investment in generation results in a massive ROI for them.
Split the gentailers into generators and retailers and suddenly we'll see the generators focus on generating rather than price manipulation and gouging.
That's not what I said. The gentailers aren't incentivised to fix the dry year problem - for them this means massive overbuild which destroys their business the 80-90% of the time we don't have dry years.
Splitting the companies up doesn't solve the problem either - probably makes them even less likely to build the kind of infrastructure that would actually solve the issue.
The market has worked just fine in general, but we need the government to deal with the dry year problem by building the infrastructure like Onslow or coming clean (no pun intended) that our real backup strategy is fossil fuels, and we need to invest in our backup thermal plants to have a sustainable and reliable electricity grid that will allow users to electrify their processes.
The marginal power pricing auction system assumes competition and does not really work in times of low water storage. well its working like you would expect it too....
It's working perfectly! Tiwai are curtailing and selling their contracted power onto the market. Low value users are shutting down. Users that hedged or produce very high value goods continue to run.
If anything this is the time the spot market shines. Making sure there are sufficient reserves to not put us into rolling blackouts, and discovering the lowest value users to kick off now. It forces everyone to be honest about how much they actually need the power.
re ... "Tiwai are curtailing and selling their contracted power onto the market."
So you're saying that Rio Tinto with their massive buying power (and secret purchase price!) are part of the electricity cartel rorting NZ Inc?
Cheaper electricity in NZ gave NZ Inc a competitive advantage on the global scene. Not so now, ay?
First observation. The gentailers have been given the opportunity to play blackjack by decades of poor regulation and government policies. Because the government has 2 hats on, gentailer majority share holder and market regulator of the last resort, I expect nothing will change because our finance minister needs the dividends provided to plug holes in her budget.
Second observation. Last year there was plenty of hydro storage and wind available so the market experienced long periods of 0.01 NZD wholesale pricing. Nobody complained about that!! The market is set up for wet years not for dry years! The main electricity users need those periods of low pricing otherwise they can't compete in the international markets. Hedging for 110 NZD/MWh is NOT viable for them because of the small scale of their operations and overseas electricity pricing is lower than NZ.
Third observation. New Zealand supply chain of coal and gas are not very well developed to handle long periods of thermal generation efficiently. Port facilities are very poor. Auckland takes 5-6 days to unload a 35000 ton of coal from Indonesia and can't load into trains. (A sophisticated port unloads 35000 tons coal in 4 hours directly into rail wagons!) Everything has to go by dumptruck. Huntly needs currently about 8000 tons a day to run their Rankines on coal fully. As you can see the supply chain can't deliver more than 7000 tons at best so they have to switch their Hybrid Rankine to gas so now and then. And...gas is also in short supply. Maybe Simeon Brown should call the Eemshaven harbour master and ask him whether he could borrow their floating LNG terminal which is currently sitting idle. (Europe fills their storage up in their summer!)
Doesn't Huntly have a coal stockpile? They're not running a just-in-time system. You may well be right that the supply chain is inefficient, but I'd hope some forward thinking by Genesis would allow the stockpile to be replenished at times when the plant isn't needed.
They have but their stockpile is strongly reduced, way below their safety levels, due to their current generation commitments which was initially unplanned. I am talking about 6 months ago. They will need half a dozen boats a month to keep up. Port of Auckland can't handle Cape Size bulkers.
We have a good methanol export system, this could be rapidly converted to import (if local Methanex production is insufficient). All our gas turbine units in Taranaki could be converted to run on methanol. Cost of electricity from this would be around $300 MWhr, much less than current market price.
It seems to me Tiwai was the problem. Until this was resolved no one wanted to build in fear of losing money. I'm involved in a number of larger land blocks and since Tiwai was confirmed I'm getting bombarded with groups wanting an option to build wind farms on these blocks. I know talking to others the same with them. No one is going to build something to then have your market crash because a huge supply of the cheapest power in NZ, Manapouri, is released to the market.
If we want to stop this don't allow these large contracts to almost expire. Have a 5 year lead in so the market has clarity.
As noted earlier no complaints when power went to virtually zero in a wet year.
We could also incentivise house solar on scale by pricing surplus closer to input. This is starting to happen and I've just had my batch done, the solar guy is very busy plus you can get cheap money from banks for this. The Government could back the loans on a cheap rate as well. This saves Hydro for dark and peak hours.
We have biomass but it's not cheap, but it is an option over coal and is reliable.
The Gentailer model - where generators are also retailers - was always highly suspect.
Why invest in generation when a gentailer can continue make the necessary profits for their shareholder through retailing?
The National Party were told the model was flawed over and over again when they created the legislation to enshrine this model. Did they listen? No.
Chickens coming home to roost, ay?
Now we will see who the National Party is really working for.
Will they split up the gentailers into pure generators and pure retailers for the benefit all NZ?
Or will they kowtow to the rich and powerful with some silly workaround like 'importing LPG' while the rest of us get stuffed?
So we're suffering another 'dry year problem', huh? Nobody saw that coming, right?
So NACTF government, how's the solution going? Ya know, the Lake Onslow scheme. The scheme whose primary goal was to address the dry year problem?
Oh - that's right. The NACTF government cancelled it ... Much to the delight of the gentailers.
Remind me again ... Who is our government supposed to be working for? Vested interests? Or everyone in NZ Inc?
If you can't see you're being screwed Voters, please don't vote.
The biggest mistake the new government did was cancel the Battery Project investigation which was about to report on what was best way to address the dry year back-up electricity supply problem. The media has mainly focused on Onslow because they only have small bandwidth understanding of the problem (as illustrated by them falling for the gaslighting argument that considering Onslow was causing a chilling effect on new generation investment), Yet the Battery Project were doing a thorough study on all the different back-up supply options. A portfolio approach of different generation options (other hydro schemes, biofuels, geothermal etc) was being investigated as well as the Onslow option, but the NZ public will not get the comprehensive report on what these options are and their relative costs.
NZ electricity generation situation is tragic. NZ has massive renewable energy resource potential. For instance, we shouldn't just be exporting commodity logs. We should be using our plentiful renewable energy resources to add value here in NZ. But that will not happen because we have not addressed the dry year problem. We have left it to the electricity pricing mechanism which responds to the periodic dry year shortage problem by raising prices, so the most expensive generation comes into the market (in NZ this is fossil fuel peaker plants) and by pricing off some demand.
This electricity price volatility is causing large scale energy users to close down and leave NZ. This is the real investment chilling effect that the dry year problem is causing.
How certain are you that increased gas exploration would have led to new gas fields to compensate for the emptying of the existing fields like Maui? There is still exploration permits available in Taranaki, but no private companies are willing to take the risk on continued fruitless searching.
At some point NZ was always going to have replace gas with some other energy source because there is only a finite amount of gas, so what is the plan when that happens? Import LNG forever?
P.S Profile using words like Captain Cindy to refer to a former PM is a sign your brain favours a particular political biased explanation over a rational examination of the problem. Unfortunately, this partisan thinking is common in NZ, even with otherwise intelligent and thoughtful people.
"rational examination of the problem". Get off you high horse Brendan. Where was the rational examination from Captain Cindy? Her lack of rational examination gave us Indo jungle coal. It was a "captain's call" devoid on any rational examination, public consultation, industry consultation - plus ignoring advice that banning gas would increase CO2 emission. It was all political - to the point she made the President of Indonesia wait around for 40 minutes so she could address some random greenpeace activists. She new when she banned exploration she was effectively torpedoing oil and gas below the water line - who is going to keep specialised field maintenance gear here to maintain existing fields - let alone look for new ones.
You continue to ignore the decades of exploration before the ban that found no viable fields despite the fact we have been projecting the decline of the existing fields for the same period....if it aint there (in viable concentrations) it cant be found....and why the ban was an easy action for the previous coalition.
Nothing to lose.
Regardless of whether it was a good or bad idea to stop gas exploration in 2017 (i think it was an unnecessary performative announcement because no new gas fields were likely to be found given the amount of previous searching) committing to gas being the energy option to stabilize our electricity grid in 2024 is a bad idea.
Almost certainly it would means permanently relying on imported LNG which is expensive and in short supply around the world. It also means the expensive construction of LNG import facilities (new port infrastructure which as the Interislander debarkle shows can be more expensive than first thought). It means gas peaker plants sitting idle most of the time waiting for wholesale electricity prices to spike high to cover these peaker plants high startup and energy use costs.
All the advantages NZ should have due to its abundance of low cost renewable energy resources would be thrown away.
Reminds me of what happened in 2002(?), a couple of years or so after ECNZ was broken up and local lines companies were required to sell their retail/commercial customer bases. NGC owned Transalta (the largest retailer but reliant on the baby ECNZ and Contact generators for supply), as soon as its generation contracts lapsed, a supposed dry winter and heh presto, rocketing wholesale prices meant Transalta faced certain default. Until that is, it sold its customer base to none other than the generators...then prices fell.
I always felt that the market was rigged, the regulatory environment not properly developed even though NGC was probably negligent in not hedging itself.
And I never understood why Genesis shut down 250MW at Huntly and Contact shut the near-new Otahuhu C co-gen. This was well before the days when carbon emissions were a thing. Would be very useful now.
For those interested in how we are generating our electricity here's a link that takes you to pretty much live data on what's producing it
https://www.transpower.co.nz/system-operator/live-system-and-market-dat…
It's live so the solar will be zero in the dark. Wind isn't great as it only averages 40% of installed capacity on average.
We need a reliable base load and if we don't burn coal, and no gas available, it really leaves biomass as the option. I'm told geothermal is limited.
Pretty sure 40% capacity factor is way better than the the stratford peakers or Whirinaki get. Solar and wind produce energy that offsets hydro or thermal gen. That energy just needs to be produced at any point over the year, and month to month, or year to year, its pretty reliable. Energy, not just capacity or reliability, has a lot of value.
Check your solar system on a clear full moon.😉.
Some on here seem to think solar produces nothing in winter. But on a cold clear morning, solar can produce above their rated output.
Generally , solar averages around 4 hours full output year round. Probably 6 hours summer, 2 hours winter. So storage or alternative generation is necessary, ideally hydro.
Protip if you are not getting sunlight then moonlight is also a wash. Try producing solar when in permanent direct shadow, at night inc. The more you learn. This is year 9 science by the way but you can play with string, mirrors and a torch if you need more education on it.
I'm pretty sure year 8 science would realise you don't put solar panels in permanent shade. Probably for similar reason you Don't heat the jug in the fridge. Solar panels are like eggs they work best sunny side up.
I've spent a good part of the last 25 years figuring out where to put solar panels for maximum sunlight. They have all sorts of fancy apps for it, I prefer a analog watch, and the time of day, providing you can see the sun. The apps are good when you need to take into account the angle of the sun at different times of the year, I.e valleys or trees. The photography ones are better than the solar ones, they don't try to sell you solar panels.
Build the best option for the dry year problem already. It was very much looking like a pellet plant using forestry as fuel and converting Huntly to use those pellets, which was tested successfully, according to the NZ battery project. Just do it maybe instead of dithering and waiting for the next dry year and blaming everyone else while NZ gets more and more screwed?
Cheapest generating yet so expensive to install and maintain that most home owners cannot afford it and secondarily most those in poverty will never see benefits from it. The installation costs alone are so high that it does not add up for most households over the effective lifetime of the product given much of NZ housing and roof stock. But sure rich arrogant patronizing arseholes are everywhere to tell the poor to eat cake.
Jeez , you got a big chip on your shoulder.
I've installed solar for heaps of people who can't afford a mains connection, or have had their mains cut off. I know heaps more that are relying on cheap solar lights from the warehouse, a has hob, and a water barrel. I've lived that way myself, and don't have power at my farm, too busy installing it for everybody else.
Why do you believe that installation costs don’t add up? I ran some numbers and figured that it would take 7 years to pay for itself, installed a 12kw system 20 months ago and now have a projected return on investment of just under 6 years due to the rate paid for my solar rising 63% from 8 cents per kWh to 13 cents per kWh and the price of electricity rising. The system is warranted for 30 years. This essentially means that I get free power starting 6 years after installation.
Hindsight:
What the government officials were recommending before Minister's chose not to accept their advice.
Ah but not to save the lungs and respiratory system of their family and neighbours but hey NZ loves having high rates of respiratory disorders & deaths compared to the rest of the OECD with the worst air conditions in NZ in areas of lower population with more walking less vehicles used but high rates of household fire use. Fun fact with respiratory disorders the risk of heart attacks go up as well (knock on effects). But its not like respiratory problems & effects are a leading cause of death eh.
Have you got any evidence of this? I'll bet you haven't.
I've just spent a few weeks in Europe, heaps of them smoke, it's hard to get away from, and the ground is littered with cigarette butts. People standing outside pubs smoking, and not just a few of them.
Cigarette smoking is massive in Europe, and you reckon fireplaces are bad.
Your argument won't be gaining much traction for kiwis who are getting shafted by electricity companies.
The global warming scam's starting to wear thin. Especially when the COP29 conference will be in Baku shortly, one of the world's biggest oil producers and attendees will arrive in hundreds of private jets.
I'm amazed the world populace tolerates such fraud. Esp. since COP28 was the biggest carbon event in history.
a) sheer stupidity of running unsustainable net inbound immigration over successive governments. This is another example of NZ not being able to keep up with infrastructure.
b) sheer stupidity of turning power generation into a business where the generators get paid even more the more scare electricity is. There is zero incentive for generators to spend scarce capital and add capacity.
Looking at a topographical map. I would have thought the hills just south of Huntly would be a good place to create a (smaller) pumped hydro. Not talking a total dry year solution, here. As in, it is down stream off all existing dams (like Onslow, but unlike Lake Maowhango).
Genesis seem to be the most useless, by far, of the Gentailers.
By my reckoning. Since creation in 1999 all they have done to add to the generation capacity is double the size of the small windfarm in South Wairarapa back in 2004. Maybe they've been involved in some of the cogen plants? I believe they are in legal trouble with Kinleith over building a crappy co-gen plant for them.
What else have they built? Yet the histories of many NZ windfarm sites are fill of Genesis aquiring consents and then letting the lapse.
I understand Genesis have stakes in NZ oil and gas fields, so maybe I'm being unfair and perhaps that is where there capital has been going? (Or are they stakes they inherited before privatisation?)
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