There are two types of electricity prices – wholesale or spot prices, which cover just the actual electricity and are typically used for trading and contracts between electricity generators, retailers and large industrial consumers, and retail prices which include both the actual electricity and lines charges (the cost of transporting the electricity) and are charged by electricity retailers to homes and businesses.
Wholesale prices are volatile, changing every half hour depending on supply and demand. When there is plenty of supply, such as when hydro lakes are healthy and wind and solar generation are strong, prices tend to be lower. When supply is tighter, prices rise.
More than 99% of homes and businesses are on fixed-price electricity contracts where the price usually only changes once a year. These are based on a longer-term view of wholesale prices, protecting customers from the volatility of the wholesale market.
The retail prices you pay as a home or business reflect the costs of generating electricity (about 38% of the bill), the costs of getting power to your home or business (around 33%), your electricity retailer’s costs (about 11%) and GST, metering company costs and Electricity Authority levies (around 18% of your bill).
In recent years electricity prices have risen, partly because of the declining natural gas supply and the need to build new renewable generation. Gas fuels a number of power stations, so as the volume of gas has fallen, its price has gone up. Another reason for rising electricity prices is increases in lines network charges, which are regulated and approved by the Commerce Commission, and which form part of the bill you get from your electricity retailer.
What Meridian is doing
Meridian is focused on the practical changes that will reduce prices. We’re building more renewable generation to increase supply and strengthen the resilience of the electricity system. We’re also supporting customers by rewarding them for using electricity when it is more plentiful across the day. These actions reduce scarcity and help deliver lower prices.