OPINION: Flick Electric CEO Steve O’Connor explains why the independent power retailers are calling out the major gentailers.
When we started Flick Electric Co. back in 2014, we had a dream in mind: an Aotearoa backed by a reliable electricity industry, where our most vulnerable communities can afford the cost of power, and where our tamariki thrive in warm, dry, healthy homes.
But you need only take a quick look at the current wholesale electricity market to realise that we’re not there yet. In fact, we’re not even close. Even after the government’s Electricity Price Review (EPR) announcement in early October, we’re continuing to encounter unreasonably high power prices, a market that’s being manipulated by those with the power to do so, and an Electricity Authority (EA) that is slow to react and enforce change. Everyday Kiwis are copping the brunt of it, and that is simply not fair.
So we – along with independent power retailers Ecotricity, Electric Kiwi, Pulse Energy and Vocus Group – have supported a complaint to the EA (also known as an Undesirable Trading Situation, or UTS) laid by Haast Energy Trading that brings attention to recent behaviour by gentailers Meridian Energy and Contact Energy. It’s behaviour that does not meet the High Standards of Trading Conduct requirements.
The complaint highlights the actions of these gentailers, in which they’ve controlled hydro storage in such a way that results in unnecessary wasted water, an unnecessary increase in carbon emissions, and higher wholesale pricing. We believe the situation is so serious that we’ve asked the EA to immediately intervene to call out the bidding behaviour of these big generators and reset prices near the zero value of water being wasted down a spillway.
So, just what has been going on? Since 10 November 2019, Meridian and Contact have been spilling from their hydro stations at Manapouri (Meridian), Roxburgh and Clyde (Contact). There has been plenty of water to run the stations at maximum capacity. Instead, they’re choosing to run the stations at a lowered capacity, spill the excess water, and offer wholesale prices that, in the context of current high hydro storage levels (which are the highest they’ve been for 13 years), are extraordinarily steep.
This has resulted in a situation where thermal generation is now cheaper than our plentiful hydro generation, which is problematic on a number of levels. Again, it pushes up the price of power, but our reliance on thermal generation means that, as an industry, we’ve now released an estimated 6,000 tonnes of avoidable carbon emissions in just one month. To put that into perspective, a month of hydro spill at 300MW is equal to the annual CO2 emissions of 43,000 small cars.
When water is in plentiful supply, as it is now, its value drops. Historically, high lake levels and the potential of spilling water has resulted in low wholesale prices of around $40/MWh. But, instead of offering that generation at lower prices, we’ve seen offers ranging from $89/MWh to greater than $200/MWh. The UTS Claim by Haast Energy Trading estimates that Contact and Meridian have earned excess revenue of at least $23 million and $38 million respectively in the month since 10 November 2019, and this is ongoing.
Right now, it’s apparent that we have the worst of both worlds. We have a captured consumer market of people who need affordable electricity to live good lives, and we have unconstrained generators who are misusing market power. And it’s crystal clear that the actions of these gentailers are symptomatic of what happens when market design means they make more money by constraining supply of electricity that’s cheaper and more sustainable. This is a fundamental market design flaw when we as a country have such significant energy affordability and sustainability issues. It’s currently in the generators’ interests to operate in a way that is bad not just for our people, but for the planet, and we’ll likely see this kind of behaviour time and time again if the gentailers aren’t kept in check.
Our full hydro lakes usually mean hydro generation can run at maximum capacity, and that helps drive down wholesale prices and retail prices for Kiwi families. Instead, at this time, higher-cost thermal generation is setting the wholesale price, and it’s highly likely this will be passed on to customers. In fact, Genesis, Contact and Meridian recently contacted their customers to inform them of retail price increases and said the reason for the increase is high wholesale prices over the last year, which they are manipulating to keep high. This is fundamentally wrong.
What we want is simple, really. We want fair and affordable wholesale power prices, and we want the Electricity Authority to stand up and do its job of regulating gentailer behaviour.
The EA is proposing tinkering with the existing market rules, but that doesn’t go far enough to fix fundamental market design flaws and prevent such a glaringly evident abuse of market power. The energy minister has asked for affordable wholesale prices for Kiwis – and enacting that change requires swift and decisive action by the EA.
DISCLOSURE: Flick is the sponsor of The Spinoff’s politics section.
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