1. What Factors Contributed to Wholesale Electricity Market Developments in the 2001 Winter?
1.1 Drought
- It was widely recognised that the leading cause of the developments in winter 2001 was the low inflow of water to the hydro-power systems in both islands.
"In hydroelectric terms, 2001 is the worst drought we have experienced in the last 71 years, for the first seven month period of each year. From being very full at the start of the 2001 year, hydro storage levels fell rapidly during the summer so that, by the beginning of winter, hydro storage was as low as it had ever been in the last 22 years, barring 1992. During April, May, and June hydro storage continued to fall rapidly, until the end of June when there was a rain storm which refilled the lakes somewhat. In July inflows reverted to the drought pattern and lakes fell more rapidly as the increasing winter demand required extra generation" - Infratil.
Alliant International, Business NZ, Contact, Federated Farmers, Fletcher Building, Grey Power, Infratil, M-co, Meridian, Mighty River Power, Robbie Morrison, Network Tasman, NZEM, New Zealand Geothermal Association, Health Sector EBG, Norske Skog, Pan Pac, Sinclair Knight Mertz, TrustPower, Waikato DHB, WEL Networks
1.2 Increased Demand
- In addition, early winter 2001 was unusually cold, which led to record high demand for electricity. Buoyant economic activity also stimulated increased demand.
"A combination of increased overall demand plus an early cold snap resulted in demand levels reaching new record levels in June" - Infratil.
Contact, Federated Farmers, Infratil, M-co, Mighty River Power, Robbie Morrison, Network Tasman, NZEM
1.3 Exacerbating Factors
- A wide range of factors (such as market structure, pricing arrangements, and market participant behaviour) were cited as having exacerbated the situation. These factors were cited by some submitters as causes of the situation (question 1 in the Terms of Reference), and by others in the context of questions 2 and 3. These factors are all dealt with in sections 2 and 3 of this summary.
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