That these crop up again in the context of our electricity supply is usually the result of unexpected or somewhat out of the ordinary lengthy weather patterns which deplete the South Island’s hydro-electricity generating lakes.
Our geography, our long, thin and mountainous country, is both our benefactor and our bogeyman.
The hydro lakes, lying on the sheltered leeward side of the Southern Alps, need either heavy rainfall spilling over the main divide from the west into their catchments, significant southerly or easterly rains, or substantial spring snow melt to boost or at least maintain their levels.
A dry summer or autumn, as much of the east and inland South Island has experienced this year, means inflows are greatly reduced. The water then available for power generation becomes more valuable, and the electricity price goes up accordingly.
This is why South Island manufacturers are now really feeling the pinch. The price at which they are buying electricity from the spot, or wholesale, market, has been spiking well above the usual $600 to $800 per megawatt hour, peaking at close to twice that at times in the past weeks.
Such peaks have traditionally been a signal to generators to produce more power. If lake levels are low, as they are now, that means other forms of generation, such as wind, geothermal or thermal, including coal, oil or natural gas, may be needed to make up the shortfall.
The hydro lakes are certainly very low. South Island storage is down to about 880 gigawatt hours, compared with an average of about 2000GWh, and national storage is about 45% below normal. The current level is still well above the less than 700GWh of storage in the South Island hydro lakes during the winter 1992 power crisis, but it is still worryingly depleted.
Householders are yet to feel the influence of the falling lakes on their pockets. Their contracts with their electricity retailers are based on longer-term hedged purchases of large quantities of power made by retailers when the prices were lower. However, if spot price volatility continues, it won’t be too many months before the next tranches of hedged prices also climb.
At Otago Lumber, kilns and heaters are being switched off to lower its power costs. Two North Island timber mills have shut down for a fortnight.
The effects of the capricious spot prices are most unwelcome, especially coming at a time of year when demand is high and there is already a lot of pressure on industrial and domestic consumers due to a cost-of-living crisis.
Associate Energy Minister Shane Jones is now promising what others have tried before him — to intervene in the market and force the big generator-retailers, such as Meridian Energy and Genesis Energy, to cut their high wholesale prices.
Mr Jones says he believes these generation and retailing companies have too much sway, and he accused them of windfall profiteering, saying the Crown has options on how it can intercede.
Like those words "spot prices" and "wholesale market", undertakings to do something about the situation are made from time to time. None of these reviews have recommended significant changes to the market set up in the mid-1990s.
The size of New Zealand means there will only probably ever be a few major generator-retailers, as there are in other sectors, such as building suppliers and grocery companies. This inevitably means fairly frequent calls for more competition.
For many consumers, the electricity industry and the way it operates seem shrouded in mystery. One potentially good outcome from Mr Jones’ call is that it might kick-start the Electricity Authority into better explaining how it all works.
Perhaps the spiking spot prices are also a reminder to us that our electricity supply, as wonderfully renewable as it is, is not endless and we should remember to be careful about just how much power we use.
