If 2024 taught us anything, it’s that unpredictability is the new norm. From gas shortages and hydro lake levels nearing rock bottom to record highs and lows in pricing, the year had it all.
One thing is clear: the current market structure isn’t serving commercial and industrial customers well. Short-term issues have impacted long-term pricing, forcing customers to pay a premium for future energy, even when conditions might improve.
In a previous article, I delved deeper into how coal sets the overall price in a largely renewable energy grid. You can read more about it here.
Looking Ahead to 2025
As we step into 2025, hydro storage levels are at 85% capacity, which is 22% higher than usual for this time of year. Wholesale electricity spot pricing remains low, with thermal generation contributing only about 3-5% to the grid. Current prices are around 4-5c/kWh, a significant drop from last January’s 25c/kWh. However, with limited natural gas availability and coal firming the market, price volatility is more pronounced, especially during dry periods when wind generation drops.
The ASX Energy Futures Market
Forward market pricing remains stubbornly high on the ASX Energy Futures market, which sets the overall forward price for retail contracts for large commercial and industrial customers. The current quarter (Jan-Mar 2025) is priced around 12c/kWh in the North Island and 7.4c/kWh in the South Island.
The ASX Energy Futures market is dominated by the big four generators: Contact, Genesis, Mercury, and Meridian. These generators offer volume into the market for participants, which can include other generators, retailers, major energy users, or investment houses.
Long-Term Pricing Trends
Over the past year, long-term pricing on the ASX has steadily increased as natural gas supplies dwindle. The market seems to be factoring in more risk as coal becomes the dominant fuel for managing limited hydro storage.
North Island pricing for 2026, 2027, and 2028 has risen by 19%, 26%, and 11% respectively since January last year. Similarly, South Island prices have increased by 28%, 35%, and 14%. Notably, pricing for 2028 only became available on the market from October 1st last year. The forward price curve has also shifted from a staggered reducing price to an almost flat price within any given year.
The Future of Firming Fuels
This trend suggests that coal will remain the firming fuel of choice for the foreseeable future, despite calls for liquid natural gas imports as a lower carbon emission option. The industry appears divided on future firming solutions, adding to the uncertainty.
As we navigate through 2025, staying informed and adaptable will be key to managing the ever-changing energy landscape.
Navigating the Future of Renewable Energy and Market Volatility
The announcement of new renewable generation projects is exciting, but it comes with its own set of challenges. Much of the new capacity is in solar and wind, both of which are intermittent and cannot be relied upon for firming. While battery storage is becoming more economically viable, it hasn’t reached the point where it can fully replace traditional firming methods. New hydro or geothermal developments, which could provide the necessary baseload generation to support intermittent sources, are facing lower priority due to high costs and resource consent issues.
What to Expect in the Coming Year
As we look ahead, the energy market is expected to remain volatile. Both Transpower and the Gas Industry Company have warned that natural gas production may fall below demand during the upcoming winter. This shortfall will likely keep energy prices unstable. Additionally, the commissioning of new generation projects is progressing slowly, meaning the reliance on fossil fuels for firming will continue in the short term.
Preparing for Contract Expiry in 2025
If your electricity contract is set to expire in 2025, it’s crucial to start planning early. Seeking market pricing well in advance of your contract’s expiry date allows you to set realistic budgets and mitigate the impact of short-term volatility.
Consider exploring solar options, whether on-site or off-site. Both approaches enable you to purchase solar energy as a commodity, reducing your exposure to price fluctuations in the broader energy market.
How Total Utilities Can Help
Total Utilities is here to assist you in navigating these complexities. We offer advisory services to help you evaluate your options and make informed decisions about your energy contracts and renewable energy investments. For more detailed advice, you can read our article on managing utility contract expirations here.
By staying proactive and informed, you can better manage the uncertainties of the energy market and make strategic decisions for your business’s future.