MAY 2022 ENERGY FOCUS
ELECTRICITY MARKET UPDATE & FUTURE PRICING
EAST COAST ENERGY MARKET IN CRISIS?
NEW
ELECTRICITY
CHARGE
NEW ELECTRICITY CHARGE
UNACCOUNTED FOR ENERGY (UFE)
The Australian Energy Market Operator’s (AEMO) has passed a final rule change regarding the new global settlement framework, which will officially begin on 1st May 2022 for eastern states of Australia. This will impact how the cost of the UFE is distributed amongst market stakeholders.
Historically, the cost of UFE was bundled into settlement costs and was wholly borne by the local retailer. UFE will now be a reportable cost, which will be apportioned to each retailer in a distribution network. Then, is divided equally between market participants (customers) within their respective network.
Additional costs
This pass-through is typically allowed under retail contracts as a ‘change of law’.
The estimated c/kWh impost on customers has not been advised in any communications from AEMO or retailers. We expect that this charge will not be material, however, it will appear as an additional cost on your bill.
Invoicing
It is expected the new UFE charge will be shown as a separate charge component under the ‘Regulatory Charges’ section of your electricity invoices. As the UFE will be set by distribution area, the c/kWh will vary between regions.
More information
We will pass on extra information when it becomes available. More information regarding Global Settlements is available at the AEMC website or AEMO’s factsheet.
EAST COAST ENERGY MARKET IN CRISIS?
The east coast energy markets are currently in crisis. Globally, natural gas (LNG) and coal pricing has skyrocketed, in part due to the ongoing conflict in Ukraine, disrupting global energy flows.
On the home front, the supply of coal and solar generation in NSW and QLD is still being impacted by the sustained rainfall and flooding from the La Niña weather patterns. As a result, coal-fired power generators in Australia are operating at a much lower capacity.
Another factor causing electricity prices to dramatically increase is the continued shutting down of generators for both planned and unplanned maintenance, causing a substantial drop in baseload power. In the final week of March, Eraring and Vales Point coal-fired power plants provided last minute notices of planned maintenance for the month of April. Although the plants were shut down at different periods, the National Energy Market (NEM) observed significant decreases in available generation for the month. The short notice of downgraded generator availability for the entirety of April has forced energy prices to ramp up significantly in the months of April and May. As a result, the NEM has required LNG fuelled peaking plants to fill the shortfall in supply, placing further pressure on the already high prices of gas and spot electricity prices.
Therefore, the future electricity wholesale market has been heavily impacted by rising wholesale fuel prices in addition to aforementioned supply constraints. Equally, rapidly rising electricity contract prices have the potential to strain the market position of Australia’s generators as they need to cover their positions, limiting their ability to offer new generation contracts, which can further elevate prices.
GAS PRICE UPDATE
ACCC: gas prices and fears of supply shortfall rise
The Australian Competition & Consumer Commision’s (ACCC) latest gas report has revealed that domestic gas contract prices for commercial/industrial users in 2022 increased from $6-8/GJ in late 2020 to around $7-9.50 by mid-2021. The ACCC Gas Inquiry Interim report forecasts that supply shortfall is on the horizon, reporting that across the east coast gas market supply should meet demand in 2022, but there is the risk of a shortfall from 2026. The report also shows that LNG producers are forecasting to take more gas out of the market in 2022 than they expect to supply in. However, they forecast to produce an additional 122 PJ of gas that could be supplied into the domestic east coast gas market, rather than international LNG spot markets.
Soaring gas price pushes manufacturer to brink
A fourfold increase in gas prices has inflicted huge losses on a Riverina-based manufacturer in NSW and may force the company to temporarily close its doors within months if there is no relief. Wholesale gas prices in Victoria have tripled or quadrupled from typical levels to more than $30 a gigajoule, while prices in Sydney are north of $26/GJ even before colder winter weather drives up demand to peak levels. The spike in prices comes as more gas is used for electricity generation because of multiple outages in coal-fired power stations across the National Electricity Market, which have caused wholesale power prices to surge.
New Australian gas projects facing ‘uncertain future'
Despite the war in Ukraine exacerbating a global energy crunch and brightening the outlook for exporters of liquefied natural gas (LNG), new modelling from resources consultancy Wood Mackenzie has raised questions about the longer-term viability of new and recently sanctioned gas projects across Australia. The modelling found investment returns were lower across all projects under both scenarios of “progressive” and “accelerated” renewable energy uptake, even though some projects remained cash-flow positive. “Some projects may struggle to maintain positive cash flow after 2030 and face a higher risk of becoming stranded assets,” it said.
