Time to give electricity the flick?

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Ultimate Geek
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#2044779 27-Jun-2018 14:01

tdgeek:

Not quite. I dont recall retailers raising their prices for winter. The retailer prices are what they determine as the average of high and low throughout the year. If you chose a spot price retailer, you pay the real daily price. The difference is that you can manage the variance or allow the retailer to do that for you

I didn't say they'd raise them for winter, but what they will do is raise them overall when they next can to cover the prices being high with a healthy enough buffer to cover future high prices. What you end up doing as a customer is spread the cost and still pay the retailer extra for risk and profit. Yes you need nerves of steel to ride out the high spot prices, but in the long term you can only win as the retailers a never going to make a loss as they will recoup their costs in the long term.

kingjj

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#2044791 27-Jun-2018 14:30

muppet:

I just switched to Flick this week to see what it's like.

So far, it's been fun hehe.

Edit: I can't understand anyone complaining about price spikes. IT SAYS RIGHT THERE WHEN YOU SIGN UP IT MIGHT HAPPEN.

Live thru last winters nightmare pricing and see how hard it is to avoid the occasional moan about the prices. Just because one is warned doesn't mean they aren't suffering and need to vent sometimes.

Lostja

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Master Geek
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#2044821 27-Jun-2018 15:13

kingjj:
muppet:

I just switched to Flick this week to see what it's like.

So far, it's been fun hehe.

Edit: I can't understand anyone complaining about price spikes. IT SAYS RIGHT THERE WHEN YOU SIGN UP IT MIGHT HAPPEN.

Live thru last winters nightmare pricing and see how hard it is to avoid the occasional moan about the prices. Just because one is warned doesn't mean they aren't suffering and need to vent sometimes.

I lived though last winter's price fluctuation. When you sign up with Flick that may happen, they are quite clear about that. We had the moans last year, have them now and no doubt again in future years. If they are suffering, this model may not be for them, go to a different retailer.

Buster

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Ultimate Geek
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#2044902 27-Jun-2018 17:39

pogo:

What's up with Huntly?

Looks like there is 250MW at Huntly (coal or gas?), 200MW at Stratford (gas), and 125MW at Manapouri (hydro) all unavailable at the moment (Outages). When you see Diesel being used you know prices are going to be up there.

SBQ

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Master Geek
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#2044913 27-Jun-2018 18:05

tdgeek:

Not quite. I dont recall retailers raising their prices for winter. The retailer prices are what they determine as the average of high and low throughout the year. If you chose a spot price retailer, you pay the real daily price. The difference is that you can manage the variance or allow the retailer to do that for you

........

I didn't say they'd raise them for winter, but what they will do is raise them overall when they next can to cover the prices being high with a healthy enough buffer to cover future high prices. What you end up doing as a customer is spread the cost and still pay the retailer extra for risk and profit. Yes you need nerves of steel to ride out the high spot prices, but in the long term you can only win as the retailers a never going to make a loss as they will recoup their costs in the long term.

If you read back 3 or 4 pages, i've explained that Flick's business model is ONLY a middle man. They take a flat rate commission and leave all the open market risk to the consumer. I've been critical explaining how major retailers can sell for less by owning their own generation and transmission lines, and most importantly - they are able to HEDGE PRICE RISKS through options and futures contracts on the NZ commodities & exchange (in the same manner as how Airlines manage fuel prices through buying options and futures contracts). While they do intend to make a profit, I do believe long term they are in better position to offer lower prices to their customers because quite simply, they have control on the costs ie. generating their own electricity, lines costs, depreciation of assets, etc. while at the wholesale price, Flick customers have no choice but to pay THAT rate. A rate that is already excess to the cost of those that generate their own electricity. (because if the wholesale rate was less than their cost, then there would be no sense for investment into generating their own electricity as they would just simply buy it from the wholesale market).

robertsona:

This thread is going in circles again - essentially, there are two camps here: those of us who are happy to ride the highs and lows of the wholesale prices, confident that we're better off in the long run; and those who (quite understandably) are uncomfortable with the uncertainty and frights from the market. How about we just agree to disagree?!

Back to my my question from earlier today: I'd really like to learn what circumstances or mechanisms are causing the periods of extreme and sustained high prices? Obviously, demand is seasonally high. But, as has been pointed out, some generating sources haven't been near capacity, e.g. controlled hydro storage is well above average, but SI hydro was generating at 75% capacity this morning.

I'd like to learn more about what constraints are at play.

This is the very questioned i've asked last year. What controls determine the wholesale pricing because the simple supply vs demand argument falls short when lake levels this year are pretty good (vs very low last year), yet there's sustained high pricing. My only conclusion is the whole pricing system is rigged and the wholesale market price isn't really a true wholesale rate. We all know it's in the electricity suppliers interest to keep prices as high and as long as possible. At any moment when the prices go high, not EVERYONE in the electrical generation is playing in the market. That is, some won't bother supplying their electricity for resale on the wholesale market. So you may see some that are generating electricity with coal or diesel may not bother using up their generating capacity (it's their choice), why would you because any more you generate will add more supply and thus lowers the wholesale price. Likewise when the wholesale rate is low, these same coal or gas generators may sit aside because there's less profit to be made. and when we look at the charts for the lake levels etc. and compare it to past years... common sense woul assume winter prices would be lower this year than last year. We still have 2 - 3 more months for winter so time will tell if the wholesale rate is really really a sham.

tdgeek

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#2044929 27-Jun-2018 18:48

Teeps:

tdgeek:

Not quite. I dont recall retailers raising their prices for winter. The retailer prices are what they determine as the average of high and low throughout the year. If you chose a spot price retailer, you pay the real daily price. The difference is that you can manage the variance or allow the retailer to do that for you

I didn't say they'd raise them for winter, but what they will do is raise them overall when they next can to cover the prices being high with a healthy enough buffer to cover future high prices. What you end up doing as a customer is spread the cost and still pay the retailer extra for risk and profit. Yes you need nerves of steel to ride out the high spot prices, but in the long term you can only win as the retailers a never going to make a loss as they will recoup their costs in the long term.

The non spot retailers can lose. Take last year when droves of Flicks bailed, with the stated intention of going back to Flick when the high spot prices faded. What needs to happen is 12 month contracts for all, to allow both camps to have certainty in pricing.

tdgeek

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#2044930 27-Jun-2018 18:49

kingjj:

muppet:

I just switched to Flick this week to see what it's like.

So far, it's been fun hehe.

Edit: I can't understand anyone complaining about price spikes. IT SAYS RIGHT THERE WHEN YOU SIGN UP IT MIGHT HAPPEN.

Live thru last winters nightmare pricing and see how hard it is to avoid the occasional moan about the prices. Just because one is warned doesn't mean they aren't suffering and need to vent sometimes.

What suffering?

dantheperson

226 posts

Master Geek
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#2045058 27-Jun-2018 22:11

SBQ:

major retailers can sell for less by owning their own generation and transmission lines, and most importantly - they are able to HEDGE PRICE RISKS through options and futures contracts on the NZ commodities & exchange

But hedging doesn't lower costs, it's an extra cost, like insurance. It gives you certainty, but you can be sure that when average spot price trends rise, so will the cost of future options.

You can just as easily loose money on a hedge, if you either are locked into an agreement and have to take the power at a certain cost, when the spot is below that, or when you are paying for an option that you don't exercise because it's not in the money. Certainly airlines see this with the oil price bouncing around unpredictably.

amanzi

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#2045072 27-Jun-2018 22:49

I haven't been following this thread apart from the last few posts. If you're interested in learning more about pricing and other parts of NZ's electricity market, Transpower has a lot of great info on the website: https://www.transpower.co.nz/system-operator/about-system-operation-service/learning-centre

These YouTube videos (also from Transpower) will give an understanding of how complicated the pricing process can be: https://youtu.be/pezUSbI9OUY?list=PLXUccGn4ptEO5e0-MV37_vWPWerhB8yak

Aredwood

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#2045104 27-Jun-2018 23:26

tdgeek:
robertsona:

This thread is going in circles again - essentially, there are two camps here: those of us who are happy to ride the highs and lows of the wholesale prices, confident that we're better off in the long run; and those who (quite understandably) are uncomfortable with the uncertainty and frights from the market. How about we just agree to disagree?!

The two camps are:

1. those of us who are happy to ride the highs and lows of the wholesale prices, confident that we're better off in the long run

2. those who are happy with low spot prices, but complain when the high spot prices hit. This lot needs to migrate to 1.

@tdgeek You have missed out some categories. They are:

3. Those who can self hedge. Such as having things like gas heating, woodburner for heating, a battery bank, diesel generator etc. They can use grid power when the price is cheap. And use their alternative energy source when power is expensive.

4. Those with non standard usage patterns. Such as having a woodburner with a wetback for their hot water. No winter power usage for heating and hot water. But they do need power for summer hot water usage. Those who use a lot of power on summer aircon. Shift workers who have schedules that mean their peak usage times are completely different to normal peak usage times. A holiday home that is only used during the warmer months etc.

5. Those who can export power. For example, the previous winter, there was quite a few sunny days that also had really high wholesale prices. If you had grid connect solar, you would have been paid heaps for your exported power.

6. Those who have a very peak to average usage ratio. Such as a house with gas hot water, gas heating, gas cooking. Even during peak times, they would only be using power for things like lights and computers. So the average price over the whole year is more important to them. As spikes during peak times would have less of an effect on them.

And all of the above categories would also be the customers who would bring in the biggest profits for the fixed price power companies.

SBQ

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Master Geek
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#2045117 28-Jun-2018 00:46

dantheperson:

SBQ:

major retailers can sell for less by owning their own generation and transmission lines, and most importantly - they are able to HEDGE PRICE RISKS through options and futures contracts on the NZ commodities & exchange

But hedging doesn't lower costs, it's an extra cost, like insurance. It gives you certainty, but you can be sure that when average spot price trends rise, so will the cost of future options.

You can just as easily loose money on a hedge, if you either are locked into an agreement and have to take the power at a certain cost, when the spot is below that, or when you are paying for an option that you don't exercise because it's not in the money. Certainly airlines see this with the oil price bouncing around unpredictably.

I should clarify, there is a difference between those that speculate vs those that actually want to hedge risk. A person that speculates in the options or derivative market has no interest in the commodity at all but rather, is only after the profit. This is not the role of a company looking to hedge risk, where their key reason is to prevent the company from going bankrupt if a future event (ie such as the price of electricity) goes sky high.

You're incorrect that the costs of the contract rises when the price of the underlying commodity rises. They're irrelevant. What changes the cost of the options contract (or the premium) is made of 2 components (the intrinsic value and the time value) I know this is getting technical but in a 'call' option, the intrinsic value (from the view of the company wanting to hedge) is the price range they are comfortable operating at. That is as long as the price of electricity remains lower than the agreed strike price, they will simply let the option contract expire. The time value component is basically the time period of the option contract. Generally, the longer the time frame, the more expensive the contract costs because it means more risk. ie it's easier to anticipate prices and water levels right in winter time as snow levels are known etc. vs trying to calculate the lake levels 1 year away with no idea how much snow there will be for the next winter season. Basically, the higher the risk = the higher the cost premium of the options contract.

Do these tools lower the cost to their customers? IMO DEFINITELY! If we can assume all the electricity retailers didn't hedge, you will see most will try to estimate prices way too high by taking a more risk adverse calculation (as they want to rely in a higher margin or high degree of safety). Any of those that don't price it high enough would put them out of business if future events were unfavorable. As for futures contracts, these would be less useful for electricity retailers unless they know specifically the amount of electricity they want to supply at a future date ; as we know the demand varies greatly depending on the weather. The only derivative that is most useful for electricity retailers is a call option.

Aredwood

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#2045120 28-Jun-2018 01:22

Number 6 is meant to read: Those who have a very low peak to average usage ratio. Bloody autoincorrect.

tdgeek

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#2045125 28-Jun-2018 06:55

SBQ:

dantheperson:

SBQ:

major retailers can sell for less by owning their own generation and transmission lines, and most importantly - they are able to HEDGE PRICE RISKS through options and futures contracts on the NZ commodities & exchange

But hedging doesn't lower costs, it's an extra cost, like insurance. It gives you certainty, but you can be sure that when average spot price trends rise, so will the cost of future options.

You can just as easily loose money on a hedge, if you either are locked into an agreement and have to take the power at a certain cost, when the spot is below that, or when you are paying for an option that you don't exercise because it's not in the money. Certainly airlines see this with the oil price bouncing around unpredictably.

I should clarify, there is a difference between those that speculate vs those that actually want to hedge risk. A person that speculates in the options or derivative market has no interest in the commodity at all but rather, is only after the profit. This is not the role of a company looking to hedge risk, where their key reason is to prevent the company from going bankrupt if a future event (ie such as the price of electricity) goes sky high.

You're incorrect that the costs of the contract rises when the price of the underlying commodity rises. They're irrelevant. What changes the cost of the options contract (or the premium) is made of 2 components (the intrinsic value and the time value) I know this is getting technical but in a 'call' option, the intrinsic value (from the view of the company wanting to hedge) is the price range they are comfortable operating at. That is as long as the price of electricity remains lower than the agreed strike price, they will simply let the option contract expire. The time value component is basically the time period of the option contract. Generally, the longer the time frame, the more expensive the contract costs because it means more risk. ie it's easier to anticipate prices and water levels right in winter time as snow levels are known etc. vs trying to calculate the lake levels 1 year away with no idea how much snow there will be for the next winter season. Basically, the higher the risk = the higher the cost premium of the options contract.

Do these tools lower the cost to their customers? IMO DEFINITELY! If we can assume all the electricity retailers didn't hedge, you will see most will try to estimate prices way too high by taking a more risk adverse calculation (as they want to rely in a higher margin or high degree of safety). Any of those that don't price it high enough would put them out of business if future events were unfavorable. As for futures contracts, these would be less useful for electricity retailers unless they know specifically the amount of electricity they want to supply at a future date ; as we know the demand varies greatly depending on the weather. The only derivative that is most useful for electricity retailers is a call option.

Do power companies hedge or is this just discussing hedging? They have a long history of pricing and seasonal factors. They can self hedge, estimate the season, add a bit more on for uncertainty. But they cant just inflate prices, as they become less competitive. They may accrue the premium so that goes to the balance sheet, and can be used to offset price spikes. If they were gaining, they can hold prices longer and remain competitive.

pogo

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Master Geek
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#2045126 28-Jun-2018 07:05

You're incorrect that the costs of the contract rises when the price of the underlying commodity rises. They're irrelevant. What changes the cost of the options contract (or the premium) is made of 2 components (the intrinsic value and the time value) I know this is getting technical but in a 'call' option, the intrinsic value (from the view of the company wanting to hedge) is the price range they are comfortable operating at. That is as long as the price of electricity remains lower than the agreed strike price, they will simply let the option contract expire. The time value component is basically the time period of the option contract. Generally, the longer the time frame, the more expensive the contract costs because it means more risk. ie it's easier to anticipate prices and water levels right in winter time as snow levels are known etc. vs trying to calculate the lake levels 1 year away with no idea how much snow there will be for the next winter season. Basically, the higher the risk = the higher the cost premium of the options contract.

You forgot the volatility?...

pogo

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Master Geek
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#2045135 28-Jun-2018 07:41

Looks like there is 250MW at Huntly (coal or gas?), 200MW at Stratford (gas), and 125MW at Manapouri (hydro) all unavailable at the moment (Outages). When you see Diesel being used you know prices are going to be up there

@Buster Where did you get this information?

I'm getting quite frustrated at Flick's silence and the apparent lack of news. I've just put in a complaint that they should attempt to explain the high spot prices. I mean, we're not even in a cold snap, really. What if it decides to snow?.. We'd be screwed.

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