Stress tests remain unchanged

The existing stress test scenario for energy shortage will continue to apply from October to December 2024. There is no change from the previous quarter. The base case and calculation methodology will also remain unchanged.

Based on current forward price curves, the stress test level for energy shortage is in line with the market’s pricing expectations for the October to December 2024 quarter.

However, we acknowledge wholesale electricity prices have risen sharply in recent weeks due to low hydro storage coupled with a gas shortage, and these very high prices are placing significant pressure on those who purchase electricity from the spot market. We are using all of our powers to drill into all of the reasons behind these high prices, and will continue to carefully monitor the market. If need be, we will revisit the stress test scenario and make any necessary adjustments.

The Authority notes stress tests should be part of each participant’s range of risk management processes.

We encourage participants to ensure they are aware of and acknowledge their risk management position, and the stress tests assist in this process.

We note participants can use the stress test methodology to run additional stress tests (not reported to the stress test registrar) to reflect the individual risk environment each business is operating in.

We are continuously monitoring wholesale prices and will review stress test levels again ahead of the next quarter (Q1, 2025).

The stress test regime requires certain participants in the wholesale electricity market to apply a set of standard stress tests to their market position. Disclosing participants need to report the results to their Board and the NZX (as the independent registrar appointed by the Electricity Authority). The stress test results are published on the EMI website.

This is a reminder for disclosing participants to ensure their Board considers and accepts the participant’s risk position.

For any questions, please contact info@ea.govt.nz.