The country’s largest electricity company predicts that wholesale electricity prices could remain high “for some time,” with the gas shortages that affected prices likely to take a year or two to resolve.
At the company’s annual general meeting, CEO Neal Barclay said that Meridian’s “vertically integrated model” has made it possible to protect most of its retail customers from high wholesale prices.
“But we recognize that some of our commercial customers have made it tough,” said Barclay.
“We have worked with these customers to provide advanced contract solutions that will help smooth out their costs over time.”
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The vertically integrated model that Barclay was referring to enables gentailers, including Meridian, to directly supply their own retail customers with inexpensive hydropower.
Broker Forsyth Barr said wholesale prices rose from an average of $ 72 per megawatt hour between 2010 and 2018 to $ 150 / MWh over the past three years.
During the first half of this year, spot market prices were often above $ 300 / MWh, causing manufacturers such as NZ Steel and paper mills to cut production.
Meridian Chairman Mark Verbiest said that at least $ 7 billion would have to be spent on new renewable energies over the next 10 years for the industry to “meet its climate goals.”
The company later clarified that this would be $ 2 billion in investment already planned by the industry.
The estimates allowed the shutdown of all thermal “base load” generation, the shutdown of aging renewable generation assets, and modest organic demand growth, a spokeswoman said.
Despite the need for investment, Barclay said the long-term trend is for electricity costs for consumers to fall.
“I know this doesn’t seem obvious given the recent high wholesale prices, but given the projected future costs for both wind and solar that will continue to decline, it’s hard to argue against it,” he said.
The electricity authority plans to publish the results of a review of the wholesale market on October 27th.
John Harbord, chairman of Major Electricity Users Group, which represents large electricity consumers, has called for major reforms, including electricity prices that “more closely reflect the cost of supply”.
The Department of Economics, Innovation and Employment (MBIE) estimates that the “tiered costs” for generating electricity from new hydro, geothermal, wind and solar power plants would all have been at or below $ 70 / MWh, or 7 cents per kilowatt hour. in 2019.
This cost calculation takes into account the cost of building power plants and operating them over their entire service life.
Barclay told shareholders that the rapid growth of renewables is inevitable as costs fall, “and I believe that 100 percent renewable electricity is in sight by 2030”.
However, he later appeared to make it clear that he intended to produce some gas beyond that date.
“I think by 2030 we will likely see about 98 percent, 99 percent renewable energy, with some reliance on gas, especially during periods of severe drought, in most years,” he said.
MBIE is currently investigating the feasibility of building a giant pumped hydropower plant on Lake Onslow in the South Island, in part as an alternative to gas peaks when normal hydropower becomes scarce.
When asked by shareholders, however, Verbiest replied that Meridian saw this as “a fairly expensive option”.
“Still, there is a lot of water to consider all of these options and we really look forward to being part of this debate,” he said.
Commenting on the commercial impact Lake Onslow could have on Meridian, Verbiest commented that there were many questions to be answered.
“It’s not entirely clear who could own the project, how it would fare in the market, what the price is, and so on.
“But from our point of view, obviously one of the keys to achieving New Zealand’s decarbonization goals is to make sure we don’t mess with the sector’s remaining investment incentives in terms of building new generations.”
This is something that needs to be considered with “some caution,” he said.
Verbiest was asked at the online meeting about Meridian’s involvement in an “undesirable trading situation” that had occurred in 2019 after the electricity authority had determined.
“We have always disagreed on accusations that we deliberately spilled water, that’s not what we ever bothered about,” he said.
“But still we accepted the decision of the authority and the most important thing is that we carry on.”