Market performance review: high South Island reserve prices
The Authority has today published a market performance review into high South Island reserve prices in May 2012. The review finds that by purchasing the right to offer interruptible load associated with the Tiwai Point aluminium smelter, Meridian Energy increased its ability to affect wholesale market reserve and energy prices.
By controlling the offer price of a greater percentage of the available reserves in the South Island, Meridian Energy was able to restrict the ability of North Island generators to compete in the South Island wholesale energy market. As a result wholesale energy prices were higher in the South Island and lower in the North Island than they otherwise would have been.
The report also shows that Meridian Energy's actions did not impact on South Island hydro reserves, and so did not affect security of supply.
Meridian Energy ceased offering high prices for reserves shortly after the Authority began this review. The right to offer interruptible load at the smelter has now passed on to another party, and is being offered at low prices. The review notes that it will be very difficult for any party to influence energy market prices via conduct in the reserves market after Pole 3 of the inter-island HVDC link is commissioned in February 2013.
The report concludes that general restrictions on offer-rights trading may be desirable to promote competition. The specific conduct of Meridian Energy and the smelter operator may in this instance fall within the scope of the Commerce Commission. The Authority has liaised with the Commerce Commission about its findings and the Commerce Commission is now investigating the Meridian agreement under the Commerce Act. The Authority will await a decision by the Commerce Commission before deciding whether to further consider a change to the Electricity Industry Participation Code 2010 (Code).
The review is available at: