TIMARU POWER PRICES RISE AFTER LAKE LEVELS DROP
28 May 2008Low hydro lake levels are a factor in Meridian Energy increasing residential power prices.
However, other retailers say residential users should have a slight buffer from the extreme fluctuations of the wholesale market.
The shortfall in hydro generation has North Island thermal plants sending power to the South Island and spot wholesale prices have been five times greater than average.
Meridian Energy spokesman Alan Seay said this extra cost was of a scale that could not be smoothed out over a longer period of time. It would affect residential customers as well as industrial users.
The increases were likely to be announced this winter and be greater than the rate of inflation.
"Put it this way it will be sooner rather than later. I wouldn't want to predict a time, but quite possibly during the winter. "
He said reduced hydro generation drove up all electricity prices.
"Typically as our resources diminish, primarily due to a lack of inflows, then we are forced to buy more and more from the market. There's pain in this situation for us too."
He said for the last three years price increases equalled the rate of inflation, but this round would be different.
The region's other electricity retailers, TrustPower and Contact Energy, said the winter drought would affect residential prices only if it raised long-term prices.
However, both these retailers said residential power prices would be going up.
TrustPower spokesperson Graeme Purches said the annual review was in July and low lake levels would only influence price if they affected the long-term electricity price.
"Next year it could flow on, in terms of long-run prices."
Mr Purches said so far increases around the country ranged from four per cent to nine per cent.
A significant factor was the amount of infrastructure work needed in the local networks. Last month Alpine Energy, South Canterbury's lines company, increased its lines charges by about three per cent.
"I think it is far too early, based on few weeks of high wholesale prices, to call what's going to happen in the residential market in months ahead." Mr Purches said.
Contact Energy communications manager Jonathan Hill said Contact usually adjusted prices on an annual basis; this was likely to be around July.
"I can't say by what amount prices are likely to increase right now, but short-term fluctuations in the wholesale price are not a factor.
"Retail customers are protected from short-term wholesale price fluctuations, which may be high now, but may be much lower later this year and next year."
Mr Hill said there was a shortage of power and this would continue to drive prices up.
"That generation needs to come from more expensive renewable sources, such as wind, and gas prices continue to rise sharply which flows through into electricity pricing."
Mr Seay said new generation was the only solution to an ongoing shortage of supply.
© 2008 Fairfax New Zealand Limited. All Rights Reserved.
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