Mercury warns electricity prices may rise

Hints of possible electricity price increases are in Mercury’s quarterly update for the three months ended September 30, 2024.

Mercury says near record low national hydro storage and persistent gas supply constraints contributed to the tight electricity market in July and early August, resulting in record high spot electricity prices for the first half of the quarter.

“The situation eased from mid-August due to unseasonally wet conditions in the South Island, which led to major hydro lakes returning to normal levels,” the company says.

“This, along with increased gas volume for generation and sector demand response, resulted in a significant reduction in wholesale spot prices in the second half of Q1 and into Q2.

“Whilst national demand was 2.5% lower for the quarter relative to PCP due mostly to New Zealand Aluminium Smelter’s (NZAS) demand response, actual demand, normalised for the short-term industrial response, would have increased by 0.9%,” says Mercury.

“National hydrological inflows for the period were 88th percentile, belying the drought conditions at the start of the quarter, resulting in spot prices averaging $298/MWh in Auckland.

“Forward prices remain elevated, averaging $193/MWh in Auckland for financial years 2025 to 2027.”

Mercury says Lake Taupo levels are now normal, and that dry Waikato catchment conditions with 19th percentile inflows saw Q1 hydro generation reduce to 965GWh (179GWh, 16% lower than PCP).

Wind generation was higher at 549GWh (19GWh, 4% higher than PCP) due to the full quarter impact of the new Kaiwera Downs 1 wind farm.

Improved performance in geothermal generation resulted in 22GWh higher generation than PCP at 683GWh.

Commercial and industrial yield growth (physical and end-user CfDs) was $17/MWh higher for the quarter relative to PCP because of contract repricing to a sustained higher electricity forward curve, says Mercury.

“We are forecasting hydro generation of 3900GWh for the financial year, an increase of 100GWh from August guidance.”

Daily wholesale spot gas prices peaked at $54/GJ within the quarter, and subsequently reduced as short-term gas availability increased after Methanex on-sold gas and idled its plant from mid-August, says Mercury, adding its higher gas purchase price of $28.6/GJ for the quarter was $14.7/GJ higher than PCP and reflects ongoing spot gas exposure.

“Electricity prices are likely to rise significantly over the next two years,” says the Ministry of Business, Innovation, and Employment (MBIE).

Some generator retailers (gentailers) have indicated household electricity prices will increase slightly in coming months.

More substantial rises are forecast in 2025, coinciding with the reset of regulated allowable revenue for Transpower and various electricity networks. revenue EDBs can earn.

The price-quality path is set every five years – the present one likely to expire on March 31, 2025.

A new decision will be released in November 2024 for implementation from April 1, 2025.

New restrictions suggested could raise household electricity bills by about $15 a month, – about $180 annually.

Ministry of Business, Innovation, and Employment (MBIE) officials warn of possible electricity price rises next year.

Investments in network infrastructure will play a crucial role in upcoming changes to electricity bills, it says.

Some companies recently announced closures – blaming high energy costs as contributing.

The Electricity Authority says it’s keeping watch.