November 2022
ELECTRICITY MARKET UPDATE & FUTURE PRICING
VICTORIA
-
Wholesale electricity prices have experienced extremely high levels of volatility over the past 6 months across all mainland states in the National Electricity Market, including Victoria
-
The risk of future price volatility in VIC remains high as the state chases an ambitious target requiring 50% of all electricity generation to come from renewable sources by 2030
-
The rapid exit of coal-fired baseload power generation across Australia is moving much faster than the development of any viable plans to replace that capacity. In eight years, not only will the market need to install 3 times the amount of renewable generation that was built over the past 20 years, but the grid will also need to be upgraded to connect the new solar & wind farms and flexible storage solutions will be required to ensure those intermittent generation sources are reliable in all weather conditions. Currently, everything points to a very rocky transition with sustained market volatility and high electricity prices for consumers
-
In 2021, Energy Australia brought forward the closure date of its Yallourn Power station (supplying 22% of Victoria's electricity) by four years from 2032 to 2028.
-
More recently in October this year, AGL announced they will bring forward the closure date of its brown coal fired power station Loy Yang A to 2035—a decade earlier than planned. Loy Yang A supplies approximately 30% of Victoria’s power
-
The Australian Energy Market Operator estimates that 60 per cent of the east-coast coal fleet will exit the electricity grid by 2030, while all of Victoria’s coal-burning power stations are likely to close by 2032
-
Alinta Energy’s Loy Yang B, which represents approximately 20% of Victoria’s power, is officially due to close in 2047. However, given the momentum with which coal-fired generating units are announcing early retirement across Australia, there is a good chance this date will be pulled forward. Alinta’s CEO Jeff Dimery has already signalled this.
-
As evidenced following the closure of Victoria’s Hazelwood power station in 2017, wholesale electricity prices experience high levels of volatility when substantial volumes of baseload generation are removed from the market
-
Generation closures and tight gas supply conditions, with a domestic gas supply shortfall projected for winter 2023, means that market conditions in VIC will remain challenging for some time
-
With no coherent national energy policy in place, an increasing likelihood of further plant closures, reduced plant output and a rising number of unit outages due to deferred maintenance, there is a very good chance we will see high price volatility in Victoria over the next several years
​
Electricity future pricing for VIC:
NEW SOUTH WALES
-
Wholesale electricity prices have experienced extremely high levels of volatility over the past 6 months across all mainland states in the National Electricity Market, including New South Wales
-
New South Wales continues to see a widening gap between demand & supply during the early evening hours as renewable generation ramps down and the market’s reliance on expensive gas & coal fired baseload power increases
-
Black coal prices have dramatically increased as the war in Ukraine continues to disrupt global energy flows
-
Domestic supply of black coal in NSW has also been impacted due to sustained rainfall & flooding
-
Strong international demand for Liquefied Natural Gas (LNG) has resulted in higher gas prices and increasing exports out of QLD—shrinking domestic supply across the east coast
-
Gas powered electricity generators have begun to re-price their spot market offers, as have the black coal sector to be more aligned with the opportunity cost of selling LNG or thermal coal in global markets
-
The rapid exit of coal-fired baseload power generation across Australia is moving much faster than the development of any viable plans to replace that capacity. In eight years, not only will the market need to install 3 times the amount of renewable generation that was built over the past 20 years, but the grid will also need to be upgraded to connect the new solar & wind farms and flexible storage solutions will be required to ensure those intermittent generation sources are reliable in all weather conditions. Currently, everything points to a very rocky transition with sustained market volatility and high electricity prices for consumers
-
On 17 February this year, Origin Energy notified the Australian Energy Market Operator (AEMO) of its intention to close the 2.88 GW Eraring plant (Australia’s largest power station) seven years early in 2025
-
On 1 April this year, AGL began its two-stage decommissioning of Liddell Power Station (more than 10% of NSW power supply). Liddell’s unit 3 (500 MW) is now offline and the remaining three units (1,500 MW in total) are scheduled to close in April 2023
-
As evidenced following the closure of Victoria’s Hazelwood power station in 2017, wholesale electricity prices experience high levels of volatility when substantial volumes of baseload generation are removed from the market
-
Generation closures and tight gas supply conditions, with a domestic gas supply shortfall projected for winter 2023, means that market conditions in NSW will remain challenging for some time
-
With no coherent national energy policy in place, an increasing likelihood of further plant closures, reduced plant output and a rising number of unit outages due to deferred maintenance, there is a very good chance we will see high price volatility in NSW over the next several years
Electricity future pricing for NSW:
-
Wholesale electricity prices have experienced extremely high levels of volatility over the past 6 months across all mainland states in the National Electricity Market, including Queensland
-
Queensland continues to see a widening gap between demand & supply during the early evening hours as renewable generation ramps down and the market’s reliance on expensive gas & coal fired baseload power increases
-
Black coal prices have dramatically increased as the war in Ukraine continues to disrupt global energy flows
-
Domestic supply of black coal in QLD has also been impacted due to sustained rainfall & flooding
-
Strong international demand for Liquefied Natural Gas (LNG) has resulted in higher gas prices and increasing exports out of QLD—shrinking domestic supply across the east coast
-
Gas powered electricity generators have begun to re-price their spot market offers, as have the black coal sector to be more aligned with the opportunity cost of selling LNG or thermal coal in global markets
-
The rapid exit of coal-fired baseload power generation across Australia is moving much faster than the development of any viable plans to replace that capacity. In eight years, not only will the market need to install 3 times the amount of renewable generation that was built over
-
The past 20 years, but the grid will also need to be upgraded to connect the new solar & wind farms and flexible storage solutions will be required to ensure those intermittent generation sources are reliable in all weather conditions. Currently, everything points to a very rocky transition with sustained market volatility and high electricity prices for consumers
-
In late September 2022, Annastacia Palaszczuk announced that Queensland will end its reliance on coal-fired power generation by 2035 – up to a decade earlier than planned – as part of its new energy plan to have 80 per cent renewable energy by 2035. Queensland’s fleet of government-owned coal-fired power stations were previously due to run into the 2040s
-
Modelling under the “Hydrogen Superpower Scenario” within the Australian Energy Market Operator’s 2022 Integrated Systems Plan shows that Queensland’s Callide B Coal Power station would close by 2025, along with Kogan Creek and Tarong, while Stanwell and Gladstone Power stations would close completely by 2028, Callide C power station by 2029 and the privately owned Millmerran power station by 2030. These closure dates are between 3 and 22 years earlier than their official forecast closure dates
-
As evidenced following the closure of Victoria’s Hazelwood power station in 2017, wholesale electricity prices experience high levels of volatility when substantial volumes of baseload generation are removed from the market
-
With no coherent national energy policy in place, an increasing likelihood of further plant closures, reduced plant output and a rising number of unit outages due to deferred maintenance, there is a very good chance we will see high price volatility in QLD over the next several years
​​
Electricity future pricing for QLD:
QUEENSLAND
-
Wholesale electricity prices have experienced extremely high levels of volatility over the past 6 months across all mainland states in the National Electricity Market, including South Australia
-
South Australia relies on electricity generation from renewables (60%) and natural gas (40%)
-
Gas-fired generation is the primary back-up when renewable generation is not meeting demand. When gas prices are high (as they are today), this flows into electricity prices
-
Strong international demand for Liquefied Natural Gas (LNG) following the invasion of Ukraine has resulted in higher gas prices and increasing exports out of QLD—shrinking domestic supply across the east coast
-
Gas powered electricity generators have begun to re-price their spot market offers to be more aligned with the opportunity cost of selling LNG in global markets
-
The rapid exit of coal-fired baseload power generation across Australia is moving much faster than the development of any viable plans to replace that capacity. In eight years, not only will the market need to install 3 times the amount of renewable generation that was built over the past 20 years, but the grid will also need to be upgraded to connect the new solar & wind farms and flexible storage solutions will be required to ensure those intermittent generation sources are reliable in all weather conditions. Currently, everything points to a very rocky transition with sustained market volatility and high electricity prices for consumers
-
Since SA decommissioned its last coal-fired power station in 2016, the state has relied primarily on renewable generation and electricity imports from Victoria to meet demand
-
When renewable generation is low and imports from Victoria are insufficient during periods of peak demand, expensive liquid fuel (gas/diesel) peaking generation is dispatched
-
This has resulted in significant spot price volatility that has flowed into retail energy rates
-
It is evident that real-time market volatility is having more and more of an upward impact on forward contract prices for years 2023 and beyond as we move further into 2022
​​
Electricity future pricing for SA:
SOUTH AUSTRALIA
-
The rapid exit of coal-fired baseload power generation across Australia is moving much faster than the development of any viable plans to replace that capacity. In eight years, not only will the market need to install 3 times the amount of renewable generation that was built over the past 20 years, but the grid will also need to be upgraded to connect the new solar & wind farms and flexible storage solutions will be required to ensure those intermittent generation sources are reliable in all weather conditions. Currently, everything points to a very rocky transition with sustained market volatility and high electricity prices for consumers
-
Western Australia will see a significant portion of its coal-fired generation exit the market starting with the staged closure of all but 2 units at Synergy’s coal-fired Muja Power Station between late 2022 and 2024. Collie Power station is also tipped to close within the next 3 years
-
Muja and Collie Power Stations together account for nearly 20 per cent of generation capacity in WA
-
Currently, renewable generation in WA makes up approximately one third of capacity in WA. Renewable energy generation in WA is projected to rise to almost 80 per cent within 20 years
-
With an increasing reliance on intermittent wind and solar generation taking hold in WA, it is likely the electricity market will experience significant levels of price volatility as reliable baseload coal-fired generation becomes less available
-
Over the past year, wholesale electricity prices in WA have gradually increased and are tipped to increase further over the coming months and years
-
With no coherent national energy policy in place, an increasing likelihood of further plant closures, reduced plant output and a rising number of unit outages due to deferred maintenance, there is a very good chance we will see high price volatility over the next 2-4 years
WESTERN AUSTRALIA
TASMANIA
-
Although wholesale electricity prices in Tasmania have experienced high levels of volatility over the past 6 months, price spikes in the state have been less severe than in other regions across the National Electricity Market
-
Lower relative price volatility in the state is largely driven by fairly healthy water storage levels (currently at 39.8%), an increasing supply of electricity from renewable sources and continued penetration of roof-top solar
-
Electricity supply is transferred between Tasmania and Victoria via a subsea cable (interconnector) known as Basslink
-
A second subsea cable, Marinus Link, is yet to be established but seeks to triple the capacity of power transfer between Victoria and Tasmania
-
The construction timeline for the Marinus Link project is uncertain, as the viability of the project depends on fundamental changes to energy and climate policies at the federal level
-
However, in a recent report the Australian Energy Market Operator (AEMO) stated that progressing Marinus Link and supporting transmission [should] be in service as early as possible [in order] to optimise benefits for consumers
GAS MARKET UPDATE
​
-
Wholesale gas (spot) prices on the east coast have quadrupled from typical levels to more than $30/GJ over the past several months. Prices are currently trading north of $20/GJ in most regions
-
Fixed C&I retail gas prices have also risen to levels not seen since late 2016 at between $24-$28/GJ
-
Strong international demand for LNG has resulted in higher gas prices and increasing exports out of QLD—shrinking domestic supply
-
Some large gas-dependent manufacturers are considering shutting down operations and many are blaming LNG exporters for supply shortages
-
The updated Federal Heads of Agreement with LNG exporters that was signed last year is designed to ensure secure and competitively priced gas supply for the east-coast domestic market
-
Recently extended to 2030, this policy has the potential to limit the export of “uncontracted” gas in the system. However, it offers no price cap. Specifically, it states:
-
Offer uncontracted gas to the domestic market before exporting spot cargoes
-
Regard the ACCC’s LNG netback price when offering gas domestically
-
An LNG netback price is a measure of an export parity price that a gas supplier can expect to receive for exporting its gas. LNG netback prices based on Asian LNG spot prices currently play an important role in influencing gas prices in the east coast gas market.
-
-
With the northern hemisphere winter approaching and concerns around both European and Asian gas supplies, we expect the LNG netback price to remain high over the foreseeable future
-
Also with low domestic gas storage levels and a persistently high gas demand for power generation, we expect high price volatility in the natural gas market over the next 6-9 months.