look A closer Have you ever wanted to look into what makes up electricity prices and find out how the electricity market works? at electricity prices

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1 Electricity prices explained Have you ever wanted to look into what makes up electricity prices and find out how the electricity market works? Then this information may help because it s important to Contact that our customers understand what factors influence electricity prices. Here you ll find an overview of the electricity market and how it works, an explanation of electricity pricing and answers to some frequently asked questions. A closer look at electricity prices This brochure is general in nature. Therefore before relying on it, you should seek advice specific to your circumstances to evaluate its accuracy, currency, completeness and relevance for your purpose. This information was correct as at November

2 01 The electricity market Electricity s journey to you Geothermal Generation Gas Hydro Coal Wholesale electricity market Wind All energy generated in New Zealand is sold to the wholesale or spot market, effectively creating a single pool of electricity. Electricity generators compete with each other by offering their generation to the market at a certain price, with the cheapest power used first. The wholesale electricity market is the exchange through which electricity is bought and sold. This buying and selling occurs 24 hours a day, seven days a week at half hour intervals. Each half hour the price is set by the lowest cost of generation required to meet all demand. 01 The electricity market What makes up electricity prices? Electricity prices include the cost of: Energy (the cost of generating electricity) Transmission and distribution of electricity (the cost of moving electricity between power stations and your home) Retail services (billing, metering and customer support). Retail tariff breakdown Cents per kilowatt hour Energy (the cost of generating electricity) cents Transmission & distribution (the cost of moving electricity to your home) Retail (customer support, billing, metering, margin, Electricity Commission Levy, energy profile and demand location etc) Electricity retailers Electricity retailers purchase electricity from the wholesale market to sell to their residential, industrial and commercial customers. Contact is both a generator and a retailer of electricity, as are a number of other New Zealand electricity companies. Transmission Transpower transports power from areas of electricity generation to substations across the country through the national transmission grid. Substations Distribution Lines companies move electricity from substations to your home and businesses. Based on an average Contact residential customer. New Zealand s electricity prices reflect both the cost of providing electricity and the cost of building new generation to meet New Zealand s electricity demand in the future. The New Zealand electricity market is unique in that: Most generation is from renewable sources (hydro, geothermal and wind). Hydro lakes have only limited storage capacity which means low hydro conditions can occur relatively quickly. New Zealand is an isolated market, with no means of importing or exporting electricity. Residential Small business Customers Large business 3 4

3 02 Prices and your electricity use ity use Why are electricity prices rising? The costs of generating electricity and moving it from power stations to homes and businesses across the country in many cases are increasing, as is the cost of building new power stations. Over the last year alone, the cost of natural gas has gone up by around 25 per cent. Natural gas costs have a significant impact on the electricity prices we pay because around a quarter of the country s electricity is generated using natural gas. These gas-fired power stations are essential for ensuring New Zealand s electricity system can manage when the wind isn t strong or when hydro lakes are low, as well as in times of peak demand like the early morning. Electricity transmission and network distribution prices are also increasing in some areas. Growing demand for electricity means we will need new power stations, which are more expensive to build and run than existing power stations. These power stations will most likely use geothermal, wind and water for fuel. The graph below shows the cost of the energy in today s electricity prices (seven cents per unit) and the cost of energy for future electricity generation options. Based on what we know today, the energy component in tariffs will need to move to between 10 and 12 cents per unit on the basis that wind and/or hydro options will need to be developed. While gas-fired generation may appear attractive, at this stage it is not regarded as feasible due to lack of available gas reserves in New Zealand. Components of tariff 21.1 cents 5.8 (Retail) 8.3 (Transmission and distribution) 7.0 (Energy) 7 8 Cents per kwh Base cost of energy Range many things make up the whole Retail tariff breakdown Geothermal Wind Hydro Gas (at today s gas price) ($25/tonne carbon) Gas (if NZ has to import gas) ($25/tonne carbon) To ensure that investment in new electricity generation occurs to meet future demand and keep New Zealand s lights on electricity prices will need to rise over the coming years. 5 6

4 02 Prices and your electricity use A closer look at how New Zealand prices compare internationally Energy prices are increasing around the world for very similar reasons to those listed on the previous pages. However, New Zealand s electricity prices are still relatively low by international standards. International residential electricity prices for the September quarter 2008 NZ /kwh Denmark Italy Ireland Germany UK France Japan New Zealand Norway United States Australia Mexico Ministry of Economic Development 2009 Energy Data File. 03 Frequently asked questions Why don t retail prices come down when lakes are full and wholesale prices are low? Wholesale prices can change rapidly as a result of weather events, a change in demand, an unexpected power station outage that reduces supply, and transmission constraints. Wholesale prices can vary anywhere between $0 and more than $1,000 per megawatt hour. Fixed retail prices shield customers from these fluctuations, providing you with greater certainty around costs from month to month. Where does New Zealand s energy come from? In New Zealand, electricity is generated from a number of sources with hydro and gas representing 76 per cent of New Zealand s total electricity generation in Electricity generation by fuel type for 2008 Gas 23.7% Geothermal 9.4% Hydro 52.3% Handy tip: Refrigeration counts for around 10 percent of home energy use. To ensure your fridge and freezers operate efficiently, ensure they are not overloaded and defrost your freezer regularly to reduce ice build-up. Use the most efficient temperature settings i.e. set your freezer at -18 C and your fridge between 2 C and 5 C and replace worn seals on your fridge and freezer so hot and cold air can t escape. For more ideas on how you can reduce your electricity bill take our online check-up at Coal 10.5% Other Other = Wind 2.5%, Wood 0.8%, Biogas 0.5%, Oil 0.3%, Waste Heat 0.1% 7 8

5 03 Frequently asked questions Where will our electricity come from in the future? New Zealand s electricity will continue to come from a range of different sources in the future. This is likely to include geothermal, hydro and wind. Contact is currently building a number of new power stations to help ensure New Zealand has enough generation, not just for today, but for the future. Why do my bills vary? Bills mainly vary because of changes in your electricity use. This could be a result of: Weather being cooler than usual A change in the number of people occupying the house Increased electricity demand as a result of new appliances, for example heat pumps. Another reason that bills can vary is that some are based on estimates. We usually read customer meters every two months, so every second bill may be estimated based on your previous electricity usage. Who can I contact for more information? Our customer care team in Dunedin and Levin are happy to answer any questions you may have: Phone: Hours: help@contactenergy.co.nz 7am 9pm Monday to Friday 8am 5pm Saturday 04 Exploring the benefits of Contact There are many benefits of being a Contact customer and there are lots of ways we can help you save money and manage your energy bill: Take advantage of our 10 per cent prompt payment discount when you pay in full and on time, or our 12 per cent Online OnTime prompt payment discount for residential customers who receive their bill online and pay via direct debit or internet banking (excludes payments by credit card). Become a DualEnergy TM customer when you get both your electricity and natural gas or Contact Rockgas LPG from Contact and receive a discount of 40 cents a day (excluding GST) that s over $160 including GST every year. If you re a residential electricity or natural gas customer you are eligible for Fly Buys points. You can build up your Fly Buys points and redeem them for great products. Take advantage of SmoothPay our bill payment system that enables you to pay a fixed amount every month to smooth out seasonal fluctuations in your bill. For more information, and full terms and conditions, visit contactenergy.co.nz Contact s customer care team are here to help. Online OnTime, SmoothPay and Fly Buys exclude Contact Rockgas LPG and PrePower. The DualEnergy TM discount is 40 cents a day excluding GST and excludes automotive LPG and cylinders less than 45kg. The Online OnTime prompt payment 12 per cent discount replaces the 10 per cent prompt payment discount. 9 10

6 Contact has many benefits worth discovering CXXX Internet: contactenergy.co.nz Toll Free: Address: PO Box The Terrace Wellington 6143 New Zealand