Wholesale Markets — Energy Pulse NZ

Market Overview

New Zealand's wholesale electricity market operates 24/7, calculating prices every 30 minutes

48

Trading Periods

per day (every 30 min)

~285

Pricing Nodes

across the grid

~12,000

Prices Calculated

every day

~80

Generators

+ 62 retailers

How it works: Electricity can't be stored easily, so supply must match demand in real time. The wholesale market does this by running auctions every 30 minutes. Generators offer to supply electricity at various prices, and the cheapest combination that meets demand gets selected. Everyone who gets dispatched receives the same price — the price set by the most expensive generator needed. In practice, prices are also influenced by transmission constraints (creating different prices at different nodes), hydrology-driven water values, fuel availability, and risk-based bidding strategies.

Key Participants

Generation companies	~80
Retailers	62
Gentailers (generator-retailers)	6
Distribution companies	29
Grid injection points (GIPs)	59
Grid exit points (GXPs)	226

Market Operators

System Operator	Transpower
Regulator	Electricity Authority
Clearing Manager	NZX
Pricing Manager	NZX
Reconciliation	NZX
FTR Manager	Energy Market Services

Sources: Electricity Authority, Wikipedia (NZ electricity market)

The Spot Market

Real-time price discovery through continuous auctions

How Prices Are Set

1

Generators Offer

Submit offers via WITS (Wholesale Information Trading System)

2

Stack & Rank

Transpower ranks offers from lowest to highest price

3

Select & Dispatch

Cheapest combination selected to meet demand

4

Price Set

Highest accepted offer sets the price for all

5

Final Prices

Published next day ~10am by NZX

The "Merit Order" Stack

Generators are dispatched in order of price. Cheap renewables go first; expensive thermal is used only when needed.

Source	Typical Offer Price	When Dispatched
🌊 Hydro (abundant storage)	$0–$50/MWh	Almost always — base load
🌋 Geothermal	$40–$80/MWh	Constant — must-run baseload
🌬️ Wind	$0–$20/MWh	When wind is blowing
☀️ Solar	$0–$10/MWh	Daylight hours
🌊 Hydro (low storage)	$100–$300/MWh	Conserving water — prices reflect scarcity
🔥 Gas (combined cycle)	$100–$200/MWh	Peak periods, dry years
🪨 Coal (Huntly)	$150–$400/MWh	Emergency backup, dry years
🛢️ Diesel (Whirinaki)	$300–$500+/MWh	Last resort emergency reserve

Marginal pricing: All dispatched generators receive the same "clearing price" — the price offered by the last (most expensive) generator needed to meet demand. This means during a dry year when coal or gas is needed, even hydro generators get paid at the higher thermal price.

Trading Timeline

36 hours before

Initial bids and offers submitted to WITS

4 hours before

Pre-dispatch forecast prices calculated

1 hour before

Gate closure — offers locked in (with exceptions)

During trading period

Real-time dispatch prices published every 5 minutes

Next day ~10am

Final prices confirmed and published

Sources: Transpower, Electricity Authority, LEANZ presentation May 2024

Nodal Pricing

Why electricity prices differ by location

Locational Marginal Pricing (LMP): New Zealand uses nodal pricing where the price at each of ~285 locations reflects the actual cost of delivering electricity to that point, including transmission losses and any grid constraints.

Why Prices Vary by Location

⚡ Transmission Losses

Electricity loses energy as heat when transported over long distances. The further from generation, the more loss — and higher prices.

🚧 Grid Constraints

When transmission lines reach capacity limits, cheaper distant generation can't reach constrained areas. Local expensive generation must be used instead.

🔌 HVDC Link Limits

The Cook Strait cable (1,200 MW capacity) can bottleneck, causing North and South Island prices to diverge significantly.

Reference Nodes

Node	Location	2024 Avg Price
Ōtāhuhu	Auckland (main North Island reference)	~$140/MWh
Haywards	Wellington (HVDC receiving)	~$130/MWh
Benmore	South Island (main reference)	~$126/MWh

Price separation: North Island prices are typically 10–15% higher than South Island due to: more demand in the North, most hydro in the South, and HVDC transmission costs.

Typical Price Gradient: South → North

Benmore (SI)

Ōtāhuhu (Auckland)

$126/MWh avg Losses + constraints add ~14% $140/MWh avg

In dry years with HVDC constraints, this spread can widen dramatically — Auckland saw $23,000/MWh in 2011 during a UTS event.

Sources: Electricity Authority EMI, Interest.co.nz wholesale electricity charts

The 2024 Price Spike

A case study in market stress: July–August 2024

📊 Normal Conditions (2018–2023 avg)

Average wholesale price ~$180/MWh
Hydro storage ~100% of mean
Gas supply Adequate
Thermal generation ~5–10%
Wind contribution ~9%

🔥 August 2024 Crisis

Peak wholesale price >$800/MWh
Hydro storage 6-year winter low
Gas supply Severely constrained
Thermal generation ~15–20%
Wind generation Often <300 MW

Timeline of the Crisis

April–July 2024

Hydro storage steadily declines due to low rainfall. Prices begin rising from ~$150/MWh toward $300/MWh.

22 June 2024

Meridian activates demand response agreement with Tiwai Point smelter — 50 MW initial reduction.

July–early August

Perfect storm: low hydro, declining gas supply, weak wind generation. Prices surge from $300 to $800+/MWh.

10 August 2024

Seven-day average peaks at ~$800/MWh — highest ever recorded. Daily range: $164–$854/MWh.

19 August 2024

Tiwai Point demand response increased to 185 MW. Later extended to 205 MW (36% of smelter load).

Mid-August

Contact and Genesis secure gas from Methanex. Rainfall improves. Wind picks up. Prices crash.

Late August–September

Prices plummet to <$100/MWh. Wind generation hits record 15%+ of mix. Hydro storage recovers.

Economic impact: Several industrial users who had not hedged were devastated. Winstone Pulp closed permanently (September), citing energy costs. Oji Fibre closed its Penrose mill. Pan Pac Forest Products scaled back. The Electricity Authority later noted that hedging options had been available to these users but were not taken up.

What Helped

✅ Tiwai demand response — 330 GWh saved (7% of hydro storage)
✅ Methanex gas deal — freed gas for power generation
✅ Weather improvement — rain in September/October
✅ Wind generation surge — record 15%+ contribution
✅ Seasonal demand drop — spring reduced heating load

Regulatory Response

🔍 Energy Competition Task Force formed (EA + Commerce Commission)
📋 8 initiatives announced to improve market performance
⚖️ Energy sector review launched by government
📊 Enhanced surveillance of gentailer conduct
🔋 Battery storage acceleration (Meridian's 100 MW Ruakākā)

Sources: Electricity Authority, Russell McVeagh, MartinJenkins, MBIE Energy in New Zealand 2025

Risk Management

How market participants protect themselves from price volatility

Why hedge? Spot prices can swing from $1/MWh to $800+/MWh within weeks. Retailers need stable costs to offer fixed-price plans. Generators need revenue certainty to finance new projects. Large industrial users need predictable energy costs. The hedge market makes all this possible.

Three Risk Management Markets

📈 ASX Futures Market (Exchange-Traded)

Standardised electricity futures traded on the Australian Securities Exchange. Prices reference two nodes: Ōtāhuhu (North Island) and Benmore (South Island). Cash-settled contracts — no physical delivery of electricity.

~19,800 GWh Open interest (2021)

470% Growth since 2016

3 years Forward visibility

Base + Peak Contract types

🤝 OTC Market (Over-the-Counter)

Bilateral contracts negotiated directly between parties. More flexible than exchange — can customise volumes, locations, and timing. Used heavily by gentailers and large industrial users. Voluntary Code of Conduct signed by major participants in 2023.

13 signatories Code of Conduct

CFDs Most common type

Custom Terms negotiable

Monthly Cash settlement

🔀 FTR Market (Financial Transmission Rights)

Hedges against locational price risk — the risk that prices at two different nodes diverge due to transmission constraints. Run by Energy Market Services (Transpower subsidiary) since 2013. Sold via blind auction process.

Since 2013 Market started

Monthly Auction frequency

Hub-based FTR structure

NI ↔ SI Key routes

What Gets Hedged

Price level risk	ASX futures, OTC CFDs
Location risk	FTRs
Shape risk (peak vs off-peak)	OTC shaped products
Volume risk	Swing contracts

OTC Code of Conduct Signatories

2degrees, Contact, Electric Kiwi, emhTrade, Flick Electric, Genesis, Haast Energy Trading, Manawa, Meridian, Mercury, Prime, NZ Steel, Octopus

The vertical integration advantage: Gentailers (companies that both generate and retail) have a "natural hedge" — if wholesale prices rise, their generation arm profits even as their retail arm's costs increase. Independent retailers without generation must buy hedges, giving gentailers a structural advantage.

Sources: Electricity Authority, ASX, SRG Expert economic analysis

Market Surveillance

Keeping the market honest and competitive

Trading Conduct Rules

All wholesale market participants must maintain a "high standard of trading conduct." The rules were introduced in 2014 to prevent generators from exploiting situations where they become essential to meet demand ("pivotal").

Key Requirements

Offers must reflect genuine costs and commercial drivers
Cannot exploit pivotal situations for excessive profit
Must not deter participation by others
"Safe harbour" provisions provide clarity on compliant behaviour

Undesirable Trading Situations (UTS)

An extraordinary event that threatens confidence in, or the integrity of, the wholesale market. Anyone can report a suspected UTS. The Electricity Authority investigates and can reset prices if needed.

Notable UTS Event: March 2011

Genesis Energy became "net pivotal" north of Hamilton during planned transmission outages. Auckland spot prices spiked to $23,047/MWh (vs normal ~$100). The Authority declared a UTS and reset prices to $3,000/MWh. Decision upheld by High Court.

Market monitoring: The Electricity Authority continuously monitors the wholesale market through its EMI (Electricity Market Information) system. Trading periods with unusual prices are flagged for further analysis. Generators must disclose hedge contract information, and the Authority publishes energy margin data showing what generators earn above their costs.

Regulatory Oversight Structure

Body	Role	Powers
Electricity Authority	Market regulator	Sets rules (Code), monitors conduct, investigates UTS, can reset prices
Commerce Commission	Economic regulator	Regulates Transpower & lines companies, monitors competition
Rulings Panel	Independent adjudicator	Hears alleged Code breaches, can impose penalties
MBIE	Policy advisor	Energy policy, legislation, coordinates reviews

Current focus: Following the 2024 price spike, the Energy Competition Task Force (EA + Commerce Commission) is examining 8 initiatives including Power Purchase Agreements (PPAs), hedge market liquidity, and ways to help independent retailers compete with gentailers.

Sources: Electricity Authority, Wikipedia (NZ electricity market), OECD Competition Committee paper