Meridian warns wholesale electricity prices could stay high for “some time”

The country’s largest electricity company predicts that wholesale electricity prices could remain high for “some time yet”, with gas shortages affecting prices and likely to take a year or two to settle. reabsorb.

Speaking at the company’s annual general meeting, chief executive Neal Barclay said Meridian’s “vertically integrated model” has allowed it to protect most of its retail customers from high wholesale prices.

“But we recognize that some of our business customers have been pushing hard,” Barclay said.

“We have worked with these clients to help them with extended contract solutions that help smooth their costs over time. “

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The vertically integrated model Barclay referred to enables gentailers, including Meridian, to deliver low-cost hydroelectric generation directly to their own retail customers.

Broker Forsyth Barr said wholesale prices have gone from an average of $ 72 per megawatt hour between 2010 and 2018 to $ 150 / MWh over the past three years.

In the first half of this year, spot market prices often held above $ 300 / MWh, prompting manufacturers, including NZ Steel and paper mills, to cut production.

Meridian chairman Mark Verbiest said at least $ 7 billion should be spent on the next generation of renewables over the next 10 years for the industry to ensure New Zealand “reaches its climate objectives “.

The company then clarified that this included $ 2 billion in investments already planned by the industry, but said the total required could exceed $ 10 billion depending on the pace at which electricity replaced other sources of energy. ‘energy.

The estimates allowed for the withdrawal of all “base load” thermal generation, the withdrawal of aging renewable power generation assets and modest organic growth in demand, a spokesperson said.

Despite the need for investment, Barclay said the long-term trend is to lower the cost of electricity for consumers.

“I know this may not seem obvious when we look at recent high wholesale prices, but it’s hard to argue with given forecasts of future wind and solar costs, which will continue to fall,” did he declare.

Neal Barclay, Managing Director of Meridian Energy, said 100% renewable energy was

Provided

Neal Barclay, chief executive of Meridian Energy, said 100% renewable energy was “on the cards” for 2030, but then appeared to qualify that.

The Electricity Authority is due to release the results of a wholesale market review on October 27.

John Harbord, chairman of the Major Electricity Users Group, which represents large users of electricity, called for major reforms, including electricity prices “more reflective of the cost of supply.”

The Ministry of Enterprise, Innovation and Employment (MBIE) estimates that the “discounted cost” of producing electricity from new hydroelectric, geothermal, wind and solar power plants would have been equal to or less than $ 70 / MWh, or 7 cents per kilowatt hour, in 2019.

This cost calculation takes into account the cost of constructing power plants and operating them throughout their lifespan.

Barclay told shareholders that rapid growth in renewables was inevitable as costs fell “and I think a 100% renewable electricity grid by 2030 is on the cards.”

But he later appeared to make it clear that he was planning to use some gas production beyond that date.

“I think by 2030 we’re probably looking at around 98%, 99% renewables in most years, with some dependence on gas, especially during times of severe drought,” he said. .

A $ 7 billion investment in renewable energy is needed over 10 years for New Zealand to meet its climate change targets, Meridian said.

Provided

A $ 7 billion investment in renewable energy is needed over 10 years for New Zealand to meet its climate change targets, Meridian said.

MBIE is investigating the possibility of instead building a massive pumped hydroelectric system at Lake Onslow in the South Island, in part to provide an alternative to gas spikes when normal hydroelectric production is insufficient.

But, responding to questions from shareholders, Verbiest said Meridian sees this as “a pretty expensive option”.

“Having said that, there is a lot of water to flow in terms of looking at all of these options and we really look forward to participating in this debate,” he said.

Commenting on the business impact Lake Onslow could have on Meridian, Verbiest said there were a lot of questions that needed to be answered.

“It is not entirely clear who could own the project, how it would play in the market, its price, etc.

“But clearly, a key from our perspective for New Zealand to meet its decarbonization goals is to ensure that we don’t upset the rest of the industry’s investment incentives in terms of building. a new generation. “

It was something that had to be viewed with “some caution,” he said.

Verbiest was asked during the online meeting about Meridian’s involvement in an “unwanted business situation” which the Electricity Authority said occurred in 2019.

“We have always disagreed with the charge that we have deliberately spilled water, which is not what we always have been,” he said.

“But despite this, we accepted the decision of the authority and the important thing is that we move forward.”

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