Electricity service price index

IBISWorld forecasts the electricity service price index to rise by 6.1% in 2024-25, to 1061.4 index points. In the first quarter of 2024-25, electricity service prices were up by 9.7% compared to the same period in 2024-25. This spike has largely been driven by the low energy generation from New Zealand's hydropower, the country's main source of energy. Drought conditions driven by El Nino weather patterns in the Pacific Ocean have caused hydro-lake levels to reach record low levels, diminishing their ability to supply New Zealand's energy demand. Natural gas shortages during winter also contributed to waning electricity supply, pushing up electricity service prices. Tight supplies have caused electricity wholesale prices to climb, which has been passed down to end customers. However, electricity service prices could face downward pressure in the case of higher rainfall towards the end of 2024-25. According to the New Zealand National Institute of Water and Atmospheric Research, there is a 60-70% chance of a La Nina weather pattern forming by December 2024, which would see New Zealand's hydro lakes benefit from increased rainfall, increasing energy supply and reducing end electricity service prices in the latter stages of 2024-25.

Domestic electricity prices in New Zealand are often relatively insulated from global trends, as over 80% of New Zealand's electricity generation is derived from renewable sources. Hydro-electric generation makes up the majority of electricity production in New Zealand. As a result, the supply and price of electricity can be significantly influenced by changes in the volume of water stored in hydro lakes, as evidenced by the significant spikes in electricity service prices in 2023-24 and 2024-25. Despite New Zealand's strong reliance on local renewables, global factors can still have an influence on electricity prices. During the pandemic, electricity demand dropped due to the presence of heavy lockdowns. However, volatility in the supply of gas coupled with low hydro storage placed significant stress on New Zealand's electricity market, especially as restrictions eased and demand rebounded towards pre-pandemic levels. The level of storage in hydro lakes dropped as annual rainfall in New Zealand dropped in 2020-21. The Pohokura gas field and production facility, which makes up a significant share of local natural gas production, also suffered from low output during the same period. Both these events caused significant supply shortages that placed upward pressure on electricity prices. The Russia-Ukraine conflict intensified pressure on electricity prices as it disrupted global energy supplies and sent global prices of coal and gas soaring. Taken together, these trends led to a surge in electricity prices in 2020-21 and 2021-22. Yet, in 2022-23, these trends reversed and prices plummeted. Heavy rainfall contributed to a sharp jump in the storage volume at New Zealand's hydro lakes, which depressed prices on the spot market and flowed through to commercial customers. In 2023-24, electricity supplies tightened, driven by the onset of an El Nino weather event. This contributed to drought conditions that have led to the record-low hydro-lake levels witnessed currently. These drought conditions and low lake levels offset the impact of declining prices in 2022-23, as electricity service prices increased by 8.9% over 2023-24. Overall, IBISWorld expects the electricity service price index to increase over the five years through to 2024-25, at a compound annual rate of 4.3%.