No collusion among generators: Genesis

Genesis Energy says recent stress in the wholesale electricity market does not mean the major generators have colluded against the rest of the sector.

Small-scale retailers Flick Electric, Pulse Energy, Vocus Group and Electric Kiwi have complained to the Electricity Authority and sought a declaration of an undesirable trading situation, which they say is caused by the way the biggest players in the market are operating in the futures market for electricity.

Their call  comes in the wake of the closure of boutique electricity retailer Dunedin company Payless Energy this week.

Genesis, the country’s biggest electricity and gas retailer, alongside Contact Energy, Meridian Energy and Mercury NZ, acts as market-maker in the electricity futures market. The difference between the price of buying and selling electricity at a future date in that market is meant to be kept within 5 percentage points.

Those spreads have blown out in recent months, making life difficult for independent electricity retailers that have no power stations of their own and rely on  futures contracts to manage the risk of future electricity price volatility.

They are alleging a failure of market-making in the futures market and the failure of timely disclosure about fuel supplies have disadvantaged them and shaken their confidence in the market. A combination of low hydro-lake levels and disruptions to natural gas supplies has led to volatile and skyrocketing wholesale electricity prices in recent weeks.

Genesis said that with limited fuel supplies, its ability to support futures prices had been ‘‘challenging’’.

Power prices jumped in late September as South Island lake levels fell and Shell shut production from the offshore part of the Pohokura gas field because of a fault on the production platform.

Those factors, combined with very weak wind production some days and other temporary generation outages, resulted in average wholesale prices exceeding $500 per megawatt hour (MWh) on some days in October — the most in seven years.

While the larger energy companies have said the market is working as it should, smaller companies cannot so easily absorb repeated peak prices.

A case in point is Dunedin’s Payless Energy, which quit trading this week and transferred its 754 customers to another retailer, citing the recent high spot prices cost as unsustainable for its business model.

Spot prices have recently been up to six times higher than average. Last year’s price of $50  per  MWh soared to almost $350 last month.

Other small retailers have also stopped taking new customers and others may yet shut. Some, such as Flick, built customer bases over several years of stable, low wholesale prices, which occurred thanks to a combination of low demand growth, excess generation capacity and ample water and gas supplies.

November futures prices for Otahuhu peaked at $333.50 per MWh but had fallen to $190 on Thursday.

— BusinessDesk, additional reporting ODT

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