National energy prices increase last December expected to stay around

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National energy prices rose in December and are expected to remain high as hydro-lake inflows have dropped, causing pricier thermal generation to be fired-up.

Energy forecaster Energy Link’s data indicated a significant increase in wholesale spot energy prices, while longer-term wholesale contract prices were expected to roughly follow the cost of new generation, plus an allowance for risk.

The four biggest power companies have reported increased pricing as national hydro storage fell to 84 percent from 88 percent of historical averages, with South Island storage down to 75 percent of average, though North Island storage rose to 132 percent of average following heavy rainfall in early January.

Overall, average retail prices rose by as much as 18 percent in the December quarter, over the year earlier, with significant variations in the mix of retail pricing offered by suppliers.

Contact Energy chief financial officer Dorian Devers said prices would come down as increased renewable energy offset the need for thermal generation.

However, he said the transition would take time and in the meantime, pricing will continue to rise in line with increased thermal fuel costs.

“Certainly longer term, as you get more renewables coming to market and you get things like batteries for renewable [power] flexibility supporting the market, that will ultimately lead to prices coming down.”

In the meantime, he said thermal energy would continue to be required to back up hydro generation in dry years.

However, Devers said most retail customers were on fixed-cost contracts which shielded them from spikes in volatile spot prices.