43,000 cars worth of emissions from hydro spillings

Meridian and Contact Energy have been accused by independent power companies of intentionally spilling water from their South Island dams to drive up the wholesale price of power, Marc Daalder reports

In a complaint to the Electricity Authority, Haast Energy Trading, Ecotricity, Electric Kiwi, Flick Energy, Oji Fibre, Pulse Energy Alliance and Vocus have blamed Meridian and Contact for an Undesirable Trading Situation (UTS).

The UTS arose when Haast Energy noticed on November 10 that hydro-powered electricity generators owned by Meridian and Contact were not operating at capacity. While the lakes that power these generators had above average water levels - more than enough to operate some of the stations at peak capacity - much of this water was instead going unused.

Haast calculated that "Meridian’s generation business has extracted excess revenue of $38m in the month since 10 November 2019 and Contact’s by $23m". Moreover, fossil fuel-powered stations in the North Island have had to make up the shortfall for some companies, leading to the generation of 6,000 additional tonnes of CO2 equivalent.

A month of hydro spilling equal to 300MW is 108,000 tonnes of CO2 equivalent, or enough to power 43,000 small cars for a year, Flick says.

Electricity Authority asked to resolve dispute

Grant Benvenuti, acting general manager of market performance at the EA, said that the regulator would publish a decision after it had considered the claim. "We are taking this very seriously and we have started our process to see if an ‘undesirable trading situation’ exists," he said.

For its part, Meridian has denied the allegations. "Meridian rejects the allegations of an Undesirable Trading Situation and breach of the Code requirement to observe a High Standard of Trading Conduct," a spokesperson said.

"We will engage fully in any process initiated by the Electricity Authority in response to the allegations. Plant availability and transmission constraints restrict the volumes we can generate. We don’t spill unless we have to and only do so when required by environmental rules or to manage our dams safely during high inflow events."

Contact's chief generation and development office, James Kilty, said he was "surprised to see the claim and we disagree with the allegations. We don't spill water unless we absolutely have to. In this case there is more water than we can use for generation. There are also transmission constraints around getting the energy we produce out of the lower South Island, which limits our ability to generate power."

"Transmission has limited our ability to generate at full capacity from the Clutha for many years and particularly so in summer months."

In their complaint, the independent power companies have asked for the wholesale market price to be reset on the basis of a $5 offer price and for sanctions to be laid against Meridian and Contact.

"They need to reinstate the wholesale prices for this period of time but also they need to set, via some pretty firm sanctions, some really clear expectations on what's acceptable trading conduct," Electric Kiwi chief executive Luke Blincoe told Newsroom.

"It's unusual behaviour. It appears that it's designed to maintain high wholesale prices. It's unfortunate for Kiwis. So, we're seeing rounds of price increases at the retail end now. Genesis announced recently a five percent lift on average in prices on their customers' bills, which is pretty significant and they seem to say high wholesale prices is the reason they've done that," Flick's CEO Steve O'Connor said.

"As far as we can see, it's the operating behaviour and the trading behaviour of the generators that are causing these high wholesale prices."

Wholesale prices high

Newsroom previously reported that retail power prices were likely to rise in 2020 due to high wholesale prices. 

"What we're seeing [now], and certainly for the next 12 months, wholesale prices are continuing to be elevated," Murray Dyer, founder and CEO of Simply Group, an energy consultancy firm, said at the time.

What happens next "will depend a little bit on the gas market. There's work going on now to try and get more more gas out of some of the existing fields and there's some additional work going on with some new fields. The reality is, we are reliant on gas."

Jonathan Young, National's spokesperson for Energy and Resources, agreed. "Essentially, the high price is because people understand that the Maui gas field is at the end of life, Pohokura is off its peak, gas supply at this point is only diminishing. Added to that, we've got the ban on exploration," he said in November.

"Everybody, from what I hear, is really uncertain about gas being a backup for when lake levels are low. We've ended up having to burn coal [due to gas shortages]," he said.

Retail prices keyed to rise in election year

Given that, wholesale prices will remain high through 2020 at the very least. "The question is, when does that need to flow through to the retail electricity market, because you can't continue to have a wholesale price that's four or five cents above the long run average that doesn't impact on electricity retail prices," Dyer said.

While transmission or network costs may come down because of increased access to capital to invest in the grid, there may be "a corresponding price increase on the electricity or the energy component of your electricity bill".

However, Energy Minister Megan Woods pushed back on that. In Parliament in October, she told Young that "there is no reason to think that higher wholesale rates will necessarily flow through to retail rates. I remind that member again that it didn't in 2017 when we saw prices in the $300 range per megawatt hour."

"I'd also like to tell that member that I am confident that we will see price drops, because as I told him in the answer to the primary, we have already seen $5 million flow back into the pockets of consumers, and the Electricity Price Review said that if all companies do away with their late payment fees, we could see $45 million flow back into the pockets of consumers."

In a statement to Newsroom, Woods said it was good the EA was looking closely at the claim.

"It would be very concerning to me if gentailers were looking to game the wholesale market by spilling when they don’t need to. The EA is best equipped to look into this accusation, and it’s good they are taking it seriously,” she said.

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