August 2023 ENERGY FOCUS
WHOLESALE MARKET UPDATE
Over the past few weeks, the market in all NEM (National Electricity Market) states has experienced a noticeable downward shift. The primary reason for this decline is the occurrence of very low spot outcomes, which can be attributed to the substantial presence of wind and solar energy in the market. Historically, July to September is known to be the peak time for renewable energy output, and we have observed several all-time high wind generation records in recent weeks.
Furthermore, the temperature outlook for the remainder of winter indicates that it will be warmer than average. This coupled with the announcement of El Nino's arrival has had a general impact on the market, leading to a downgrade in price expectations for winter compared to last year. However, while we have experienced a downward shift in the market over the past few weeks, it is essential to consider the dynamic nature of energy markets. Traders and market participants are known to adjust their pricing strategies based on seasonal changes and demand patterns.
As we move closer to the summer period, there is a likelihood that pricing dynamics will shift, and traders will take into account the increased electricity demand associated with warmer weather. Additionally, in September, we are expecting coal generator shutdowns for scheduled maintenance. This change in demand patterns may lead to adjustments in pricing and could potentially influence a reversal of the current downturn.
As the energy landscape remains dynamic, it's important to stay informed and make well-informed decisions to navigate these market fluctuations effectively.
Summary of resent events:
On the 14th of July, the government decided to operate Eraring beyond 2025 due to delays in the construction of new generation capacity, such as Snowy Hydro’s 2.0 project and transmission lines. This news provided additional relief to the market, bringing the prices down in 2025 & 2026.
The Federal Government’s Mandatory Gas Code of Conduct (Gas Code) has now been enshrined in law.
A price cap, which is to be set at $12 per GJ and subject to a review commencing by 1 July 2025
A process for qualifying for exemptions from the price cap on the basis of making satisfactory ACCC and court enforceable supply commitments.
Allowing small producers of gas to be exempt from the price cap if they supply only the domestic market.
Australia reached a record 36.8% renewable generation for 2022/23 financial year with the lowest coal usage on record.
Renewable generation records were blown away in June – solar in the north and wind to the south (VIC and SA mostly)
There were 4 fossil fuel generator outages through the beginning of winter (Kogan Creek QLD, Yallourn 3 & 4 VIC, Loy Yang 2 VIC), with these forced outages in the NEM having seen a resurgence in gas generation.
AEMO reports planned outages at Yallourn and Bayswater were offset by ~4.5GW of renewable supply that wasn't available last winter – also, expected to offset somewhat the Liddell and Callide closures.
From July to September, the Bureau of Meteorology predicts above average temperatures across the board, above average rainfall in QLD and northern SA, lower than average rainfall for VIC, TAS and remainder of SA.
The QLD government have set in place 70% renewables target by 2032 in a landmark energy plan.
Wind generation is continued to set all-time highs for operational output.
ELECTRICITY FUTURE PRICING CHARTS
NSW postpones largest power station decision pending energy security review
The New South Wales (NSW) government will postpone any decision on the future of the Eraring power station until after receiving an "arms-length" health check survey on the state's energy security, with all options still under consideration.
Origin Energy, the owner of the plant, maintains its plan to shut down the coal-fired power station no earlier than August 2025, refuting reports of an early extension. Similarly, the Vales Point power station expects to operate until 2033, raising concerns about the state's emission reduction targets.
The former Coalition government had discussed the future of Eraring for approximately nine months before Origin's closure announcement in February 2022, but the new Labor government should reassess the potential cost of extending the power station beyond 2025.
AEMO reports extensive pipeline of renewable projects,
but progress delays persist
The head of the Australian Energy Market Operator (AEMO) acknowledges that the transition to renewable energy is not progressing quickly enough to meet the federal government's 2030 targets, despite a significant pipeline of renewable projects awaiting development.
AEMO CEO Daniel Westerman emphasises the need to connect and bring these projects to market urgently to ensure reliable power supply. However, challenges with the connection process and lack of infrastructure are causing delays and increasing costs.
AEMO aims to modernise its operational technology to manage the integration of high levels of renewables efficiently. The pace of investment remains critical, and timely resolution is essential for a successful energy transition.
AEMO forecasts improved winter 2023 for Australia’s energy system, risks remain
The Australian Energy Market Operator (AEMO) has provided an update on the east coast energy systems ahead of winter, reporting lower risks compared to the previous year.
While the weather outlook seems less severe, AEMO is still cautious about potential extreme events and generation vulnerability. Gas supplies and storage levels are estimated to be similar to last year, and additional dispatchable generation and new renewable capacity are available to offset retired or unavailable plants.
AEMO is implementing reforms to address gas supply risks and can engage with gas facility operators to maximize supply capacity during peak demand periods. The situation is being closely monitored to ensure energy security and mitigate potential supply issues.