NEW ZEALAND ELECTRICITY FORECASTS

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Powerfutures Group Forecasts

THE POWERFUTURES GROUP FORECAST OF SPOT ELECTRICITY PRICES

in cents/kWh as of 17 January 2012 for the following selected weeks for the North, Central, and South of New Zealand are as follows:

NOTE: For information on the PowerFutures Group, established on 2001, please see the end of this web page. For further information please contact the following: Dr John Maunder at climate@ihug.co.nz, Dr Jonathan Lermit at jonathan.lermit@paradise.net.nz, or Professor Emeritus Blair Fitzharris at bbf@geography.otago.ac.nz

NOTE: These forecasts are based on the weather/climate forecasts as made on 24 November 2011.

5 May 2012: 8.9 18.4 7.0

4 Aug 2012: 33.3 10.5 25.1

27 Oct 2012: 9.8 15.7 7.8

9 Feb 2013: 8.8 31.2 7.0

4 May 2013: 12.9 19.4 10.0

THE PREDICTED "CLIMATE-HYDRO-ELECTRICITY INDEX"

for the following selected months# in 2011/2013 issued on 24 November 2011, are as follows".

February 2012: North Island 60, South Island 42, New Zealand 50

April 2012: North Island 74, South Island 53, New Zealand 61

June 2012: North Island 65, South Island 56, New Zealand 60

August 2012: North Island 64, South Island 52, New Zealand 57

November 2012: North Island 48, South Island 48, New Zealand 48

March 2013: North Island 53. South Island 68, New Zealand 62

May 2013: North Island 54, South Island 64, New Zealand 60

where the extent of the values above 50 indicate wetter and/or warmer conditions than average, and the extent of the values below 50 indicate drier and/or colder conditions than average. NOTE: #The values given are for the three-monthly period ending at the month shown.

Commentary: November 2011

General

With the economy remaining weak and restricting demand, prices should be restrained for most of the forecasting period (to May 2013). There is little difference between predicted spot and contract prices except over the winter 2012 period.

2012

Generally low spot and contract prices, however low inflows into South Island lakes in January to March could have a delayed effect on spot prices, which could rise in winter in both the South Island and the north of the North Island (although not to historically high levels). Restricted transmission suggests a different picture for the south of the North Island with spot prices increasing earlier, but dropping over winter.

2013

Generally low spot and contract prices through to May, the end of our forecast period. Contract prices could increase in April and May, as these do not take into account the anticipated higher than average inflows predicted at this time

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LONG RANGE RAINFALL FORECASTS

Long range rainfall forecasts for several seasons ahead for Tauranga, Turangi, New Plymouth, Hokitika , Queenstown, and Milford Sound prepared by John Maunder ( last updated on November 24, 2011) are available at:

https://sites.google.com/site/johnmaunder/longrangerainfallforecastsfornewzealand

PowerFutures Group

The PowerFutures Group is a Group of three consultants who have developed a system for forecasting the weekly spot and contract price of electricity in New Zealand 1-24 months ahead.

The PowerFutures Group was originally proposed by the late David Cook a well known consultant in the electricity industry who died in November 2001. The three remaining consultants in the group have further developed the concepts which David Cook had proposed when setting up the group.

The group comprises Dr John Maunder, in Tauranga who has extensive experience in the meteorological and climatological business in New Zealand, Canada, Australia, Ireland, the United States, and the World Meteorological Organization( climate@ihug.co.nz); Dr Jonathan Lermit, a consultant of Wellington, who has considerable experience in the electricity industry and in particular in the supply and demand aspect of the industry( jonathan.lermit@paradise.net.nz, ; and Dr Blair Fitzharris, Emeritus Professor of the University of Otago, who developed a "snow model" for calculating the amount of water stored as snow in the mountains of the hydro-catchment areas, and has very wide international experience in various aspects of climate science (bbf@geography.otago.ac.nz).

The Group makes predictions of the water available for hydro-electricity production in NZ, based mainly on the forecast state of the atmosphere over NZ and the surrounding oceans using a variety of techniques - including using forecasts of the Southern Oscillation Index (El Nino/La Nina), sea surface temperatures, sunspot numbers, and linking such forecasts to rainfall forecasts, and the forecast state of the snow volume in the mountains which will be available for melting into the hydro lakes. These hydro water predictions, together with other supply and demand data including forecasts of the temperature, are in turn used to forecast both the contract and spot price of electricity on a weekly basis 1-24 months ahead.

The main intention of our predictions is to provide an estimate of the difference in price that can be attributed to the forecast of inflows and temperatures actually eventuating (the spot price), compared with the generation industry not having any detailed knowledge of the future inflow sequences and temperatures (other than the historical data and some short-term climate and hydrology forecasts), and having to make contractual arrangements in the absence of any medium to long-term predictions of hydro inflows (the contract price).

Our model provides two sets of prices, an anticipated spot price and a contract price which uses no hydro prediction (other than the historical data). Because the difference between the two prices is in the assumed knowledge about hydro conditions and temperatures, differences between the prices can be significant when hydro conditions and temperatures are expected to be significantly different from the average historical data.

The contract prices thus derived are from the average price arising from (ideally) all possible inflow sequences, assuming that the generators do not know the final outcome. In contrast, the spot prices assume that the predicted inflows and temperatures actually occur.

Because generators have to be risk averse, they have to charge a risk premium in contracting to supply (and will endeavour to not over contract so as to avoid having to buy on the spot market). The magnitude of this premium is not covered in our model, but users will presumably have an idea of its magnitude, and can compare the contract price which our model provides; with the contract price offered by generators.

The model thus concentrates on estimating the hydrological effects, and to a lesser extent temperature factors; it does however, also handle other significant parameters of the New Zealand electricity system: notably,the hydro/thermal mix; time-of-use demand and prices; major transmission constraints; hydro uncertainty; and the market behaviour of generators and consumers.

The prices which our model forecasts are average weekly values, and are averaged out over New Zealand. However, internally the model calculates the time-of-use prices, and it is possible to provide a time-of-use breakdown according to specific requirements.

Similarly, geographical differences can be modeled, although, because of the nature of the model, this is likely to be less accurate. These arise both from transmission losses, and from transmission constraints. Currently, we split the load into the South Island, and the North Island into two halves (to approximate the transmission constraint across the centre of the island).

Any model of this nature has limitations, and users need to be aware of these. For example, there are significant factors, such as plant breakdown which cannot be modeled. Additionally, some of the information, such as fuel costs, have to be estimated in the absence of publicly available data. Also generators are modeled as pure profit maximizers (subject to their contractual obligations, which again have to be estimated), whereas real market behaviour may well be different from thi'UA-26008507-1's.

For further information contact Dr John Maunder at: climate@ihug.co.nz