ERANZ welcomes the Electricity Authority’s (EA) report (Market options were available to large energy users in winter 2024, released today), which confirms that while some significant industrial users referenced high energy costs as a factor in their decisions to close, they were offered a chance to hedge at lower than the overlapping ASX forward prices even as a fuel shortage constrained electricity supply.
Electricity consumers can use the hedge market to manage their exposure to high wholesale prices. All electricity market participants in New Zealand know that our wholesale electricity market is volatile due to our dependence on intermittent renewables, and hedging is a risk management tool available to them. Hedging while wholesale prices are low will naturally deliver a lower-priced hedge.
Being under-hedged can allow users to benefit from lower prices. However, it also carries risks when wholesale electricity prices rise as they did this past winter due to low hydro lakes and a shortage of gas. The EA’s analysis runs from 1 July to 30 September, when wholesale prices were extremely volatile, therefore affecting the price of hedging products.
ERANZ Chief Executive Bridget Abernethy says that, while we feel for the families and communities affected, the EA’s stress testing regime highlights the risk to large commercial and industrial customers seeking hedges during periods of wholesale market volatility and encourages large users to seek hedges before supply constraints affect wholesale prices.
According to UK Department for Energy Security and Net Zero data, New Zealand’s industrial wholesale electricity prices rank fourth lowest of 28 countries.
“The electricity market delivers this outcome with few or no government subsidies or the ability to import additional electricity from neighbouring countries,” Abernethy says.
ERANZ also agrees with the Government’s recent Policy Statement (GPS) on electricity which sets out an expectation that; "Each wholesale buyer and seller of electricity is to have in place risk management arrangements appropriate to its wholesale market risk position...”
-ENDS-
Media enquiries: Rob Zorn, ERANZ Communications Lead: 021 726 273 | media@eranz.org.nz
