TTEG COMMENTARY
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Market prices have been rising in all states, peaking in the last two weeks. These conditions suggest that energy prices may continue to increase in the near term, making it advantageous to consider locking in rates now to mitigate potential further cost increases.
This observation underscores the importance of staying vigilant and proactive in monitoring market trends to capitalise on favourable conditions while mitigating potential risks. Additionally, it's essential to conduct thorough research and analysis before making any decisions to ensure long-term success in navigating the energy market landscape.
TTEG holds a strong track record and expertise in the field. We leverage our extensive industry connections to secure competitive prices in the market, ensuring transparency by avoiding hidden charges from retailers. Contact us below for assistance.
ELECTRICITY FUTURE PRICING CHARTS
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WHOLESALE MARKET UPDATE
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Recent upticks in energy futures across all states have primarily been driven by a significant drop in grid-scale wind and solar generation. Typically, coal and gas peaking generators (GPG) have been the main drivers in reducing pricing outcomes, however it is becoming more apparent that the national system is now reliant on renewable generation to reduce spot price volatility and ensure favourable consumer energy pricing. While wind is still in its relative infancy, rooftop solar is now the 4th largest source of energy in the national grid.
In addition to the reduction in renewable output, baseload availability has been poor with 3 major unit outages in VIC, Callide units C3 and C4 still not fully operational in QLD, a major transmission failure in TAS and interconnector constraints between SA and VC.
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Victoria
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Steady declines in wind generation.
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Increases in exports as well as hydro generation from Tasmania (see next page). • Gas Peaking Generators having to switch on to fill the void in the absence of renewables.
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3 coal units have gone down over the past week – Yallourn Unit 3, Loy Yang A and B. These have coincided with a wind ‘drought’ leading to substantial spot price volatility. Pricing is expected to ease as these units come back online and more wind production is forecast.
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South Australia
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Reductions in wind output, increases in hydro and gas generation.
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Currently there is a network outage on the 220MW Murraylink DC Interconnector between SA and VIC, effective since 27/3/24 and likely to be in place until at least 20/4/24.
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Tasmania
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Notable declines in wind generation.
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On Friday April 12th, an unexpected failure occurred on a major 220kV transmission line in the north of the state, resulting in the loss of 550MW of industrial load. While service was restored that afternoon, this caused Tasmania’s network frequency to skyrocket and resulted in the ramp-up of hydro generation in the absence of wind output.
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National
In the absence of the availability of renewable generation, baseload coal and gas are required to step in and fill the void. While this isn’t anything necessarily new, it is important to consider the overall $/MWh of each fuel type:
As can be seen above, there have been significant increases in the monthly cost of each fuel as of 1/1/2024 which can be attributable to:
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Prolonged heatwave conditions in QLD and NSW from January to February leading to spikes in the costs of battery, coal and gas generation.
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The ongoing reduction in baseload generator availability in QLD and more recently in VIC.
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Interconnector constraints between SA-VIC and QLD-NSW.
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The recent reductions in grid-scale wind and solar output leading to volatility in spot price outcomes and the relaiance on alternative fuel sources.
While the national market is constructed in a manner that allows the market operator to switch on various fuel sources when and where required - whether it be through Demand Response (DR) mechanisms, Frequency Controlled Ancillary Services (FCAS) or Gas-Peaking Generators (GPG) – the $/MWh costs of each fuel source form a critical part of the overall pricing outcomes available to consumers.
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GAS MARKET UPDATE
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The 2023-24 Australian Summer was the 3rd warmest on record, marked by widespread and persistent heat.
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Average east coast spot prices increased by 6.9% to $11.59GJ compared to the previous quarter, but 3.9% below the previous corresponding period in 2023.
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Residential and commercial gas demand, as well as demand from Gas Powered Generators, were at their lowest first quarter level in a decade.
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LNG export flows remained strong, however international spot prices continued to decline to $13.82/GJ, down from $16.38/GJ for the previous quarter. This marks one of the lowest prices recorded in the past 2 years and reflects a combination of high storage inventory levels and reduced overseas demand.
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The ACCC reports that the east coast gas market is expected to have a 6PJ surplus in Q324, even if the LNG producers export all their uncontracted gas:
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VIC, SA, NSW and TAS: additional 24PJ to meet demand.
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QLD: 30PJ surplus.
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The Iona underground storage facility in VIC held 22.5PJ of reserve gas as of 15/1/2024 – its highest January volume ever recorded.
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International LNG prices have trended down so far this year, and forward LNG netback prices show an overall decrease in the medium term. If this continues, the expectation is for more competitive pricing for domestic gas users.
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AEMO’s 2024 Gas Statement of Opportunities highlights the following for the East Coast Gas Market:
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From 2025: gas supply shortfalls under extreme demand conditions (cold and wet weather coupled with increased C&I industrial consumption).
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From 2026: gas supply shortfalls on a seasonal basis, particularly winter months.
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From 2028: gas supply shortfalls on an annual basis as large coal generation exits the market.
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There remains an ongoing reliance on gas transported south from Queensland, as well as the high storage levels at VIC’s Iona storage facility from Q324.
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Businesses must brace for costly energy transition
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Australian businesses are being cautioned to brace for increased power bills as the nation progresses towards achieving net-zero emissions by 2050. At an event hosted by the Victorian Chamber of Commerce and Industry in Melbourne, industry and energy leaders emphasised the importance of policy continuity in navigating this transition.
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Paul Guerra, CEO of the Victorian chamber, urged businesses not to remain silent as energy costs escalate during the shift to renewables. He emphasised the need to challenge misleading rhetoric and prioritise reliable and affordable energy.
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Amid ongoing debates surrounding the inclusion of nuclear energy in Australia's energy transition, Guerra stressed the need for pragmatic discussions rather than ideological debates. He highlighted the critical role of gas as a transition energy source, noting the softening stance of the state government towards its utilisation.
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Richard Bolt, a key figure in Net Zero Australia, emphasised the importance of considering pragmatic solutions to achieve emissions targets. He praised mature policy-making, citing examples of bipartisan support for long-term infrastructure planning in states like New South Wales.
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Elyse Gatt from Banksia Strategic Partners acknowledged the potential cost implications of transitioning to renewable energy but emphasised the long-term benefits. She stressed the need for greater public awareness and acceptance of the transition.
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As Australia tackles the challenges of transitioning to a low-carbon economy, collaboration between government, businesses, and communities will be essential to ensure a smooth and sustainable transition while maintaining energy affordability and reliability.
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Warnings of gas shortages
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Australia's southeastern states are set to experience a significant gas supply shortfall within four years, with production from historic fields in Bass Strait declining faster than demand.
A report from the Australian Energy Market Operator (AEMO) warns of a major gap in supplies by 2028 due to the closure of Victoria's largest gas plant. The report also predicts potential shortages as early as next year during extreme weather, particularly in winter. While some support these forecasts, others argue that the market operator may be overestimating demand, suggesting that redirecting existing production to local markets could be a solution.
AEMO emphasizes the importance of gas in Australia's energy transition, especially as coal-fired power stations retire. However, concerns about falling gas production, particularly from Bass Strait, raise alarms about supply security.
The looming closure of ExxonMobil's gas plant in Longford in 2028 further exacerbates the situation, potentially necessitating gas imports despite Australia's status as a major exporter.
Critics suggest that AEMO consistently overestimates gas demand and argue for a faster transition away from gas, highlighting the declining use of gas in households and small businesses. Despite differing views, the need to address the impending gas supply shortfall is urgent to ensure energy security in the region.
Power bill relief in matter of months
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After years of soaring power bills, millions of Australians are in for a welcome break with electricity prices set to drop by up to 7 per cent. The Australian Energy Regulator (AER) and Victoria's Essential Services Commission (ESC) have released draft default market offers for the 2024-25 financial year, outlining the maximum charges energy retailers can impose on their customers.
Residents in Sydney, Newcastle, and the Hunter will see a decrease of 3 to 3.4 per cent, while those in Western Sydney, the Illawarra, and South Coast could experience drops ranging from 1.9 to 7.1 per cent. However, not all regions will benefit, with some facing minor increases. Victoria stands to see the largest decrease of 6.4 per cent.
Small business customers will also see reductions in their bills. Energy Minister Chris Bowen welcomed the news but acknowledged ongoing cost-of-living pressures. The final decisions will be made after consultation and feedback from stakeholders in May.
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