Electricity Wholesale Price

IBISWorld forecasts the wholesale price of electricity to surge by 16.3% in 2024-25, to $162.7 per megawatt hour. This projected rise is likely to be driven by electricity supply issues relating to falling annual rainfall that will erode hydropower reserves over the year and a long-term decline in natural gas supply, limiting electricity generation. Given that over 80% of New Zealand’s electricity generation is derived from renewable sources, the level of storage in New Zealand’s hydro lakes is highly influential in shaping electricity prices. A sharp drop in annual rainfall, inflated by an El Nino weather event, has led to low hydroelectric lake levels, reducing renewable electricity generation. While natural gas generation has climbed, limited supply of gas has constrained from fully offsetting hydro losses. Coal power production surpassed wind power for the first time since June 2021, as coal-fired generation was necessary to support gas-fired plants in compensating for the reduction in hydroelectric generation. Limited supplies have driven up wholesale electricity prices and this trend is projected to keep wholesale electricity prices elevated in 2024-25.

Over the past decade, the wholesale price of electricity has been extremely volatile, driven primarily by demand and supply shifts. Fluctuations in hydro-power reserves, due to their large proportion of power generation, have also affected prices over the period. When stored water within hydro lakes decreases, prices increase as the main input becomes scarcer and more valuable. Since 2017-18, volatility has intensified, as supply was uncertain and demand has bounced around. In 2017-18 and 2018-19, snowmelt runoff led to reduced hydro lake storage, ultimately curtailing the generation capacity of hydro firms. Over the same period, maintenance on the Pohokura gas field reduced the supply of natural gas. This increased the cost of gas-fired electricity generation, further exacerbating price tension. The completion of this maintenance, along with increases in hydro-power production, improved power supply and decreased prices over much of 2019-20.