In this issue:

• Spot Market Overview
• Mercury Energy to Launch New Energy Management Tool
• Mighty River Power Geothermal Exploration
• World Electricity Market Trends
• Mallard Rejects Nuclear Power Option

Spot Market Overview

February

Unseasonably warm weather increased the temperature of the Waikato River, causing the Huntly Power Station to reduce production due to resource constraints. Half hour prices spiked to over 100.0 c/kWh. Huntly uses the Waikato River water for cooling when it generates and must keep the water temperature at the outflow below certain levels. The resource constraints contributed to 74% of prices being higher than 7.0 c/kWh and 15% higher than 10.0 c/kWh in the month of February. Nationally February was the eighth warmest on record.

The national hydro storage situation was at 5% above the seasonal average. However South Island inflows were below seasonal average (94% of average) leaving South Island storage at 101% of normal. North Island storage was at 139% of historical average by the end of the month.

March

Prices through March stabilised as the Waikato River heating resource constraints ended. However the warm weather continued with the national average temperature 3°C above the seasonal average.

Hydro storage for March was 13% above the national seasonal average. South Island storage was at 110% of normal with inflows above the seasonal average at 119% of normal. North Island storage was at 151% of historical average with Taupo at 61% full.

April

Spot prices were firm in April as South Island hydro generators operated at a conservative level to ensure that they have adequate lake storage heading into the peak winter period. This combined with some constraints in the South Island contributed to less electricity travelling from the South Island to the North Island. As a result North Island prices increased due to the need to run more expensive thermal generation to meet national demand for electricity.

The market traded within a tight price range with low intraday volatility. Prices are expected to remain firm in the near future due to a number of factors including the onset of winter and the subsequent increase in demand. Firm prices will also be influenced by the high use of thermal generation while hydro generators await inflows.

The national hydro situation slipped to below seasonal average levels in April. The South Island hydro inflows were below the seasonal average at 57% of normal, leaving South Island storage levels at 92.5% of those expected. North Island storage was at 128% of the historical average.

Despite some excellent weather, national average temperatures were below the historical average in April. It was an unsettled month with record sunshine levels in Auckland and Northland and below average rainfalls for the middle of the North Island and much of the South.

National transmission constraints continued a downwards trend in April with the number of binding constraints decreasing from the previous month. The number of constrained trading periods decreased from 177 in March to 144 in April. Constraints on the HVDC link decreased from 110 in March to just one in April. The majority of constraints during April took place in the South Island.

May

Prices in May were generally firm due to thermal plants operating at a higher level. Prices also sat in a tight range with 70% of prices between 6.0 c/kWh and 8.0 c/kWh.

Temperatures were warmer than usual throughout much of the North Island and in the north of the South Island, with the average national temperature 1.0°C above the seasonal average.

National hydro storage levels remained just below the seasonal average for May with South Island storage at 92.2% and North Island storage at 130% of historical averages. South Island inflows were below seasonal averages during May at 89% of normal.

Mercury Energy to Launch New Energy Management Tool

Mercury Energy customers who spend between $50,000 and $500,000 on electricity each year now have the benefit of a new web-based management tool.

Energy Challenger is an easy-to-use analysis tool that assesses your business's energy management and identifies ways to reduce costs. This powerful tool is available on the Mercury Energy website and is a joint initiative between Mercury Energy and the Energy Efficiency and Conservation Authority (EECA).

Using an online questionnaire the tool produces a report identifying energy management strengths and weaknesses and a list of critical actions to take. It also benchmarks your business against similar businesses in your sector and provides a simple short-term action plan to address your top priorities. You'll also be given links to other websites containing support on implementing your action list.

For more information about Energy Challenger, click here.

Customers who use more than $500,000 worth of energy may still find this tool useful. Alternatively you can contact your account manager who can approach EECA on your behalf to ascertain what energy management options may be available to you.

Energy Challenger Approach

Mighty River Power Geothermal Exploration

Mighty River Power, which has geothermal exploration plans that could lead to an investment of up to $1 billion in geothermal development, has begun exploratory geothermal drilling in the Mangakino field north of Lake Taupo.

The company said drilling was being carried out on remote forested land owned by Carter Holt Harvey 8km west of Mangakino. Mighty River Power will use 100 people in the drilling programme including international experts and its own geothermal specialists. The well is being drilled to between 2500 and 3000 metres.

Mighty River Power already operates two geothermal power stations - the 32MW Rotokawa Station and the 55MW Mokai Station. Mighty River Power said earlier this month it had spent 18 months recruiting geothermal specialists for a new team of 20.

Each well is expected to cost about $5 million and the company plans to spend about $100 million in the next few years drilling wells. Chief Executive Doug Heffernan said up to another 400MW of geothermal power could be developed in the central North Island, costing about $1 billion, but that extensive drilling would be required to find suitable fields. (Source: New Zealand Herald, 17 March 2005)

World Electricity Market Trends

World electricity demand is projected to double between 2000 and 2030, growing at an annual rate of 2.4%.

Coal is currently the most widely used generation fuel worldwide, however it is expected that the next three decades will see a shift in the generation fuel mix towards gas. The role of nuclear power is also expected to decline as existing reactors are retired and few replacements built. Nuclear production is projected to peak at the end of this decade and then decline.

Source: International Atomic Energy Association website.

Mallard Rejects Nuclear Power Option

Energy Minister Trevor Mallard crushed suggestions that nuclear power may be the saviour of an increasingly electricity-hungry New Zealand. In his first speech to the industry at the New Zealand Power Summit, Mr Mallard said the issue of nuclear generation was on the agenda and has the support of some. But though he was new to the portfolio he told the more than 200 delegates that the Government remained philosophically opposed to nuclear power. "I had a bit of warning that nuclear [power] would come up. Simply, we have a Government policy that is not up for review. It is that we are nuclear-free and includes a policy of no nuclear power stations." There were other reasons: safety, transport and the storage of waste, the question of living in one of the countries most prone to earthquakes, regulatory systems, and many other pragmatic and practical reasons. (Source: The Dominion Post, 4 March 2005)

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