What's propelling electricity prices?
Welcome to the first Between the Lines, Tenco's new publication, highlighting our capability, people, and ideas. This edition discusses New Zealand's high electricity prices and explains what's driving the cost up. What Contact Energy taking full ownership of Simply Energy means for Tenco. And we get to know Mike Peters, Tenco's Senior Commercial Manager and how he sees the business evolving in the years to come.
Electricity generation in New Zealand is dominated by hydro generation, with inflows to lakes impacting electricity pricing. However, prices are rising due to low rainfall and a limited supply of gas for generation.
What Do I Need To Know?
Lake levels in 2021 continue to track very similarly to the last material dry period in 2008. As of 20 June, hydro storage is at 80% of the average for this time of year and 50% maximum storage. The National Institute of Water and Atmospheric Research (NIWA)'s three-month seasonal climate outlook for June to August 2021 is below-average rainfall and river flow in the critical lower South Island catchments. Even though the chance of running out of water still appears soft, a combination of drought in hydro catchments, dwindling gas production and sustained weak wind conditions have pushed up power prices and increased coal generation.
To compound this, on 14 January 2021, Meridian Energy announced that New Zealand's Aluminum Smelter (NZAS) had accepted contract terms from Meridian and Contact to continue its operation through to December 2024. The previously informed decision was that the smelter would shut down in August 2021. If the planned shutdown had gone ahead, New Zealand's electricity demand would have fallen by 13%. The anticipated reduction in demand had already paused or halted several renewable energy developments.
Source: Transpower, 23 June 2021
Implications For My Property?
Low hydro lake levels and a dry La Niña weather pattern are placing continued strain on the electricity supply. As a result, prices for forward contracts have increased sharply since the beginning of the year, with the market factoring in high costs for the two winter quarters. More recently, we have seen some political and regulatory comment on the current situation. However, while both the politicians and regulators observe the problem, there is no significant shift in approach. As a result, even with the benefit of a competitive procurement process, organisations encounter supply pricing increases north of 30%, depending on when they last entered the market.
Energy Procurement
Tenco operates an in-house tender desk and is well versed in the process of sourcing electricity and gas contracts for your business. We assess your business's energy requirements and are here to provide independent, tailored advice on your contract.
Recently, we are seeing electricity retailers being more open to renegotiating existing agreements during the term in exchange for extending the duration of the agreement to smooth out the impact of these elevated prices. So be prepared to sign up for an extended contract term (>3 years).
Several different pricing plans are available to businesses, depending on the type of meter you have on your site. As part of your procurement process, you should review which meter type is most suitable for your user profile, as metering downgrades can lead to significant cost savings.
What Does This Mean For Me?
Suppose you are not currently on a fixed-term electricity contract. In that case, we recommend you rectify this sooner rather than later, as current signals point to these higher prices hanging around for some time until the gas and hydro challenges ease.
Want to discuss how this affects your business?
Speak to Gordon Napier, Head of Client Services
027 605 4585
gordon.napier@tenco-ebs.co.nz
What's new
Effective 31 March 2021, Tenco completed the demerge from the broader Simply Group to allow us to continue operating as an agile, stand-alone company, enabling us to stay nimble, focused, and innovative. The demerge from Simply Group followed Contact Energy assuming 100% ownership of Simply Energy. In compliance with the Electricity Code, we continue to work with Simply Energy on arms-length commercial terms to leverage market licenses, vacant tenancy, construction supply, and embedded network gateway installation control point (ICP) services.
We also maintain close working relationships with all electricity retailers within the New Zealand market. Tenco has invested significantly in its system and IT infrastructure over the past two years to ensure our capability is at the forefront of the market - while complying with the regulatory framework and requirements. But, most importantly, the same great team continue to work with you to ensure that our services remain the best in class.
Tenco has also changed its postal address. Although we appreciate the majority of communication occurs electronically these days, if you need to send us any hard copy correspondence, please ensure this is sent to PO Box 1266, Christchurch 8140 going forward. Our collateral and stationery are updated to reflect our new postal address.
Schedule your private utility network assessment today
0800 359 500
info@tenco-ebs.co.nz
Team spotlight
Before arriving in New Zealand, Mike ran a fund for a utility based in the New York City area that provided financing to solar system owners. He also worked within corporate strategy to support their executive team as they repositioned the company in a world where decarbonisation is front of mind. Prior to that role, Mike led the development of some of the early solar systems for multi-national corporates while working for a Silicon Valley based energy company.
Q: What drew you to Tenco, and how do you see the business evolving?
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Tenco has a strong history going back 20 years of providing private network services to nearly all of the listed property companies in New Zealand. Reputation matters – both in large and small markets.
I enjoy the challenge of growing our business within new industries and supporting our clients as they grapple with the rapidly changing energy landscape. Our clients depend on Tenco as an independent advisor when they want to understand the new energy solutions available to them and how they will integrate these alternatives into their existing networks.
The energy space is only becoming more complex, and our clients will continue to rely on our input -- so they can focus on their core business
021 893 910
michael.peters@tenco-ebs.co.nz
What's coming up...
In July, we will be sending out our Customer Feedback Survey, which we'd love you to be a part of. We are continuously looking to improve here at Tenco, and it is important that we hear from you.
