Spot prices – background

Most electricity retailers charge customers a flat rate. This means you pay the same rate for the electricity you use regardless of when you use it or the spot price your retailer paid. To be able to offer these power plans, retailers manage risk on consumers’ behalf.

We’ve had spot pricing (the wholesale market) since October 1996, which many large consumers such as factories have chosen to take advantage of. In the past few years with the advancement of technology, household consumers are now able to access spot market prices.

It’s like the difference between a fixed or a floating mortgage.

Of the 2 million household electricity consumers, only around 1% are on a spot price contract.

For periods of time, people on spot price contracts may have been making savings relative to fixed-price contracts. This is because at times spot prices are relatively low because there are less constraints on resource available for generation – for example lake levels are high or it’s windy.

However, the situation with spot price contracts is that prices will rise when there are constraints on the resource available for generation – for example, when lake levels are low, it’s less windy or there is an unexpected gas outage. Consumers who are on spot price contracts know this can happen but have elected to take on this risk themselves.

We expect spot price retailers have and will continue to:

  • clearly communicate the risks as well as the benefits of spot prices to their customers
  • ensure consumers are fully informed before they take on a spot price contract
  • provide guidance about how to make best use of the spot price deals on offer.

Current situation

There are higher than average wholesale prices currently because of the combination of two factors. Lake levels have been below average for this time of year since late winter. And there have been restrictions on gas production resulting in reduced gas-fired generation. We understand, for example, there have been problems in the Pohokura gas field since late September and these could persist until late November.

Generators have been offering their electricity into the market at a higher price as a result of these constrained supply conditions. It’s important to note that this is the electricity market working as it should in these conditions. It is a means of managing supply.

Only about 1 per cent of New Zealand households are on spot-price electricity contracts.

(Transpower are the electricity system operator and can provide more information about the current generation situation.)

According to the Electricity Market Information (EMI – pronounced “Emmy”) website (which is run by the Authority):

  • The second highest daily wholesale price for the period since 2010 occurred on 13 October 2018 (prices averaged across the 24 hours): $530 per MWh.
  • Average wholesale price for the first 22 days of October was $280 per MWh, compared to the previous highest monthly average for October (since 2010) of $102, which was in 2011. (The previous highest month was March 2013 at $162 average across the month.) Note that the 2018 figure is only for part of the month and it could still change.
More information

There is information for consumers on our website about spot pricing and the risks, and Consumer NZ also have information on their Powerswitch website.

Is a spot price contract right for me?
How could spot prices affect my bill?