The Electricity Authority said on Thursday that hydro lake levels sat 45% below average after a uncommonly dry winter.
The price of wholesale power on the spot market was more than $900 on Wednesday, the authority said.
Otago businesses were already feeling the impact, and high costs would likely soon be passed down to consumers. New Zealand residents could soon expect a dramatic increase in their monthly power bills.
Otago Lumber spokesman Dale Kelly said over the past few months the company had a sharp increase in energy costs.
“In the last three months electricity has skyrocketed — we checked the power and around 6am to 9am is our power usage peak.”
Kilns, heaters and other electricity-heavy users were being shut down during the peak times to save on costs.
“Usually [spot price] would sit at about $600-$800, but now it’s up to $1700. It’s not sustainable for us to run at that peak,” he said.
“We’re definitely watching the situation closely. It’s definitely been affecting our monthly power bill.
“I think our last power was $30k-$40k more expensive than the previous month.”
Silver Fern Farms had also been stung, with its electricity costs increasing 100% since 2022.
Unlike many businesses, Alliance Group was not facing the same sting with rising costs.
Alliance Group general manager of processing and safety Wayne Shaw said the company was not not impacted as it had long-term supply contracts.
The group bought its energy in advance at a fixed rate before the increases in cost, saving it from the increase in price many other businesses now face.
University of Otago energy researcher Jen Purdie said this year was coming close to the driest winter New Zealand had ever experienced.
She said droughts such as this one had happened in the past and had a similar effect, and would happen again.
“However, the weather is fluctuating more, so we are expecting to get more extremes in the future.”
Dr Purdie said in the past when New Zealand experienced similar weather events, the country had turned to coal and gas.
However, the New Zealand energy system was on track to getting close to being 100% renewable by 2030, so coal or gas were not options it could confidently fall back on.
“The easy answer is we’re going to get more volatility in our hydro and because we’re heading towards [a] 100% renewable electricity system, so when the wind stops blowing and the sun stops shining and the hydro lakes are dry, then we do need something to firm up that intermittency.”
Usually, with spring and summer on the way, pack snow begins to melt from the mountains and flow into the lakes, however there was not much snow sitting on the mountains this year.
“It hasn’t rained and therefore we haven’t built up the snow pack like we usually would.
“Dry periods don’t tend to last more than a few months, but never say never. We’ve had year-long dry periods before.”
The Electricity Authority (EA) has come under severe criticism over soaring wholesale power prices.
Associate Energy Minister Shane Jones slammed the authority on Thursday as being useless in regulating the generator-retailers, which are accused of profiteering.
Energy Minister Simeon Brown also called for the Electricity Authority to publicly report power data to ensure there was no price-gouging.
Wholesale power prices have doubled in the past three weeks, in part because of the low hydro lake levels.
EA chief executive Sarah Gillies told RNZ yesterday there was “no silver bullet” for what was ultimately a supply issue.
“The EA is not comfortable with the current high wholesale prices and we are already using our powers to drill into why prices are so volatile and so high. We’re not comfortable with just accepting industry explanations.”
Mr Brown said yesterday people needed assurances the country’s power generator-retailers were not engaging in price gouging, but would not be drawn on whether there was profiteering in the sector. — Additional reporting RNZ