The electricity market
The price and volume of electricity we generate is determined by competitive bids and offers in the wholesale electricity market. The market is operated in real time by the System Operator (Transpower) and closely regulated and monitored by the Electricity Authority (EA). They ensure all market participants act fairly to competitors and customers. It’s important that the markets we operate in are open, fair and efficient - benefiting consumers and contributing to our long-term success.
Wholesale electricity prices are highly variable
In New Zealand, wholesale market prices vary a lot depending on the balance between which power stations are available to generate, and how much electricity customers need at any one point in time. Customer demand can change a lot at different times of the day or year. For example, on cold winter evenings demand is high, but it’s generally much lower in summer and overnight.
The amount of electricity available to supply customers also varies. At Meridian, we’re dependent on wind (for our wind farms), and rainfall and water in the lakes (for our hydro stations). Maintenance outages on all types of generators can also affect availability.
Price certainty for our customers
Most homes and businesses aren’t directly exposed to the risk of wholesale prices changing dramatically, because we offer fixed contracts at a fixed price. We also offer financial contracts to businesses who buy directly from the wholesale electricity market to limit their exposure to price variations.
Reliable returns for investors
Changeable weather conditions and electricity demand, along with the price volatility they create on the wholesale market, are part and parcel of our business. In New Zealand we have stakeholder agreements and resource consents that give us flexibility in how we use lake water storage.
We also have financial contracts with other generators, so we’re protected from higher wholesale market prices. One of these is a hedge contract or “swaption” with Genesis Energy. We have similar financial contracts with other generators which together with a range of other financial instruments, help us achieve greater price certainty for our customers and more reliable returns for our investors.