Business / Energy

Power spot prices forecast to climb as rainfall returns to normal levels

08:13 am on 27 January 2023

Auckland-based Mercury says average spot prices in the region were weak over the fourth quarter due to full hydro generation lakes. Photo: RNZ / Russell Palmer

Power is forecast to cost perhaps four times more than spot prices charged in the last three months of 2022.

Auckland-based energy generator and retailer Mercury said average spot prices in the region were weak over the fourth quarter at between $47 a kilowatt hour (MWh) and $59 MWh, as wet weather kept hydro generation lakes full.

Wet weather also kept third quarter average prices down at $70/MWh.

However, Mercury chief executive Vince Hawksworth said renewable energy supply would need to be supplemented by more expensive thermal energy as rainfall returned to average levels.

"It was the wettest first half ever for our hydro - up 38 percent in hydro inflows - and that was pretty similar across the country which was in the top 30 percent of hydro inflows, and that meant spot prices were low," Hawksworth said.

"So we wouldn't expect it to keep raining in the way that we've all enjoyed across the summer."

Future prices for thermal fuels were running at $190/MWh over the next three years, he said.

"That's the price that currently the market is suggesting will occur and includes the fact that we will need some thermal fuel, which is increasingly expensive as we've seen globally - gas, coal and the cost of carbon - to make sure that we have a secure system.

"I guess the solution to all of this is to continue the really important build-out of new renewables and there's lots of projects being built ... and that will that'll help soften those prices as time moves on."