Changes planned by the Government for the electricity industry have the potential to cause high prices on the spot market, state-owned Meridian Energy says.In an offer of renewable energy bonds seeking up to $200 million, released to the NZX today, Meridi
Changes planned by the Government for the electricity industry have the potential to cause high prices on the spot market, state-owned Meridian Energy says.
In an offer of renewable energy bonds seeking up to $200 million, released to the NZX today, Meridian pointed to the impact of changes proposed by the Government for the electricity sector.
The changes include a mandatory floor on spot prices during conservation campaigns and rolling outages, intended to improve incentives on market participants to manage supply risks and to remove incentives on those over-exposed to spot prices to push for conservation campaigns.
"This may lead to upward pressure on hedge prices and has the potential for high spot prices for major users choosing to buy on the spot market," Meridian said.
On the spot market, buying and selling of wholesale electricity is done via a pool, where electricity generators offer electricity to the market and retailers bid to buy it.
Among other changes planned by the Government, Meridian would be required to transfer the Tekapo A and B hydro power stations, in the South Island, to state-owned Genesis Energy. The two stations have a combined capacity of 185 megawatts, equivalent to the demand from 98,000 households.
It is also proposed that Meridian enter into one-off long term two-way energy hedge agreements with each of Genesis and Mighty River Power, also state-owned.
The intention of the hedge agreements was to act as a virtual asset swap, by providing each of Meridian, Genesis and Mighty River with access to electricity at fixed prices in the island where they currently had little or no generation capacity.
At the end of 2009, neither Genesis nor Mighty River had the ability to generate electricity in the South Island, while Meridian had relatively limited capacity to generate electricity in the North Island, Meridian said.
It was expected the implementation of the hedge agreements would result in Meridian divesting some of its South Island customer base, and getting a larger North Island customer base.
