Government will not intervene in wholesale electricity market: Simeon Brown

Energy Minister Simeon Brown says neither the Government, the Electricity Authority nor Transpower will step in to insulate wholesale electricity market participants from adverse moves in power prices.

A Government Policy Statement (GPS) - released by Brown today - said individual wholesale parties were best placed to understand the risks they face and how best to “insure” against those risks for their particular circumstances.

It was therefore important for each wholesale buyer and seller of electricity to have in place risk management arrangements and for wholesale buyers and sellers to regularly sign off on their company’s risk management position.

“Neither the Government nor the Electricity Authority nor the System Operator [Transpower] will step in to insulate wholesale market participants from risk or to protect them from their failure to manage their own energy supply risks.”

The statement follows the closure of Winstone Pulp International’s two mills in the central North Island.

Winstone, which sourced power directly from the wholesale market, blamed high power prices for the mills’ closure after the spot rate spiked to more than $800 a megawatt hour (MWh) in early August in response to low hydro lake levels and a gas shortage.

Prices are now well below normal levels - around $40MWh - thanks to an abundance of water in the hydro lakes.

Brown said the GPS sets out the Government’s role in delivering affordable and secure electricity at internationally competitive prices.

“New Zealand’s economic growth and prosperity relies on Kiwi households and businesses having access to affordable and secure electricity at internationally competitive prices,” he said.

“The GPS outlines our expectation that the Electricity Authority will drive a more competitive, fuel agnostic, electricity sector that works in the long-term interests of consumers and avoid excessive prices,” he said.

Energy Resources Aotearoa - which has a raft of big and small energy companies as members - said this winter’s price spike highlighted that the country still needed thermal generation to ensure a secure energy system.

“We must keep our options open with facilities like Genesis’ Huntly Power Station, which can generate energy from domestic gas, coal, and biomass,” Carnegie said.

He noted the Government’s statement on intervention in the wholesale market.

“We couldn’t agree more.”

The energy sector has said that the previous Labour Government’s ban on new oil and gas exploration - which the current government has pledged to reverse - had set the industry back at a time when more gas was needed.

“Now we need the right regulatory and market conditions to encourage the development of gas-fired peaking plants and the fuel we so badly need to keep the lights on,” Carnegie said.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.