GNE - Genesis Energy

[Jiggs]

Here at Ohakune we are paying about 20c a kWh for electricity from Pulse Energy, and another 20c to TLC for breaking the voltage down to 11,000 volts, then delivering it to our house.

But the pulp mill and timber mill nearby have had to close down (temporarily?) because spot bulk prices have suddenly gone from 2-10-20 cents a kWh, or an average of about $10 per MWh, to $600-$700 per MWh, (more home heating, more EVs, but less water in hydro lakes) making the production for export of pulp and dressed lumber uneconomic.

Nevertheless, power retailers are bound by contract to keep delivering power to consumers, for far less than 70c a kWh. So will Pulse and all the other power retailers make huge losses, while Genesis, Contact et al. make huge profits, sending their share prices sky high?

[Snoopy]

Here at Ohakune we are paying about 20c a kWh for electricity from Pulse Energy, and another 20c to TLC for breaking the voltage down to 11,000 volts, then delivering it to our house.

20c per energy unit plus 20c per unit network charge equals 40c per unit (kWh) delivered to your house.

But the pulp mill and timber mill nearby have had to close down (temporarily?) because spot bulk prices have suddenly gone from 2-10-20 cents a kWh, or an average of about $10 per MWh, to $600-$700 per MWh, (more home heating, more EVs, but less water in hydro lakes) making the production for export of pulp and dressed lumber uneconomic.

1,000kWh = 1MWh. So 40c per kWh equates to 40,000c per MWh or $400 per MWh.

I am not sure where you are getting your numbers from. But if a local timber mill is only paying $10/MWh on average, that is only 1/40th of the cost that the public are paying ($400/MWh) for power to the house. Tiwai got some good power deals over the years, but nothing anywhere as low as that. I think you might need to recheck your figures.

I presume the $600-$700 per MWh figures you quote are spot prices? It doesn't seem likely that a substantial manufacturer would sign a contract for their energy at $600-$700 per MWh, while domestic houses are only paying less than one third of that figure in energy costs ($200/MWh) in the same region.

Furthermore I think it is unlikely a manufacturer would signup to buy all of their power at spot market rates. More likely they would be on a fixed price contract fro 80% of their expected power use, and 20% spot price charge for the remainder - or something like that. So while they may be paying $600-$700 per MWh for their spot power right now, the average price being paid, I am sure, is a lot lower than that.

Even so, I am not denying that the profitability of a wood plant may be put at risk by high spot power prices. But to blame more heating being turned on and more EVs being charged is unlikely to be the reason. Domestic demand is readily forecastable. Much more likely a reason for high spot electricity prices is low lake levels. Thus we are facing a 'supply side problem', not a 'demand side problem'.

Nevertheless, power retailers are bound by contract to keep delivering power to consumers, for far less than 70c a kWh. So will Pulse and all the other power retailers make huge losses, while Genesis, Contact et al. make huge profits, sending their share prices sky high?

If the power market pricing was entirely determined via the spot market, then what you suggest above would happen. But pure retailers do not buy their power wholly from the spot market. Exactly what long term contracts and hedging arrangements a pure retailer has will determine their fate.

SNOOPY