Submitted on April 12, 2022

Everyone is wondering why spot and futures prices are so high at the moment. There is more than one extraordinary factor involved here, including fall-out from the war in Ukraine to large a degree, but today we look at one that can be easy to miss.

You might have heard about the drought in Southland and the fact that Lake Manapouri is low, but this is more than just a dry spell.

When we look at Manapouri, we also need to look at Lake Te Anau. This is because together, the two lakes form the storage reservoir for the Manapouri power station, which is located at the head of Manapouri’s West Arm.  A good way to understand this is to look at Manapouri’s generation, because this captures the combined impact of the total storage available in both lakes.

The chart below shows the average daily generation at Manapouri in MW.  The station was upgraded in 2002 and again in 2012/13, to bring it up to total capacity of 850 MW, although resource consent conditions don’t allow output to exceed 800 MW.

Ignoring the 12 days in 2000, when the station did not operate at all, the chart shows that daily generation has now reached a low point over the 9,126 days in the sample. Focusing on recent history, the next chart shows the daily output MW since April 2019. The low point at the far right of the chart, is 6th April when output was 83.4 MW.

How does 5th April rank out the 9,126 days in the sample?

On 28th November 1998 the output was 64.4 MW, then the next two lowest days are 5th and 6th April at 83.7 and 83.4 MW respectively.

This is almost a record low for Manapouri’s generation over the history of the electricity market. On the other hand, it is a record low since the station was substantially upgraded in 2002, when a second tailrace tunnel was added.

The cause of this low storage is twofold. First and foremost, the La Niña weather pattern we are experiencing keeps running longer than expected.  La Niña brings mainly easterly winds, which are not the winds that bring water into the catchments of the major South Is lakes:  Westerly winds do this, particularly southwest for Manapouri and Te Anau, and northwest for the lakes further north.  La Niña is also the weather pattern often blamed for the recent flooding on the East Coast of Australia.

The second factor is the strict operating regime for these two lakes, which limits the ability of Meridian Energy (Meridian being the owner of the Manapouri power station) to hold storage at arbitrary levels for sustained periods.

Storage levels within other controlled lakes are still reasonably healthy, but they are also falling.  Forecasts for La Niña currently suggest the pattern is weakening, but it will persist through into late autumn. Forecasts of this nature are inherently uncertain, and we need to keep in mind that the pattern could weaken faster and sooner or could strengthen and remain longer than the forecasts predict. If the pattern does remain longer, it will only take one decent slow-moving or blocked weather system, to dump massive amounts of rain into the southern lakes, as happened back in February.  

Nevertheless, the low and falling lake levels and continuing forecasts of low inflows (La Niña), both make generators very nervous about what could happen if a dry autumn turns into a dry winter, as it did in 2008, for example. If so, we will need to burn more gas and more coal, with the latter currently at record high prices due to global supply issues and the war in Ukraine.

At Energy Link, we are highly data-driven and approach situations with a sceptical view. We remain emotionally neutral and detached, so that we can provide clients with high quality information and analysis. So, in these situations, we always stay level-headed even while doing rain dances at our daily morning meetings.