October 2022 ENERGY FOCUS
ELECTRICITY FUTURE PRICING UPDATE
​
ELECTRICITY MARKET UPDATE
​
PDRS – A NEW CHARGE FOR NSW ELECTRICITY USERS
ELECTRICITY MARKET UPDATE
Wholesale electricity prices have jumped by 150 per cent over the past year due to higher international coal & gas prices, lower solar output associated with the La Nina summer (rain/cloud cover) and baseload outages across the national electricity market.
-
Black coal prices have dramatically increased as the war in Ukraine continues to disrupt global energy flows
-
Domestic supply of black coal has been impacted due to sustained rainfall & flooding in NSW and QLD
-
Gas powered generators have re-priced 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
-
Over the course of Q2 2022, coal-fired generation was plagued by outages and supply problems. Wind and solar generation were lower than expected while demand was high due to cold winter conditions.
-
Gas-powered generation, and some hydro, had to fill the gap, pushing up already elevated gas prices influenced by record international prices.
-
Fuel prices and fuel availability emerged as a major issue for coal and gas generators, while hydro power stations were managing water levels and environmental concerns.
-
Gas supply was tight with less offers into the southern markets to preserve storage for winter.
-
The need to cover high fuel costs, or to ration fuel or water levels, caused participants to offer their capacity at progressively higher prices.
-
Record prices triggered protective price caps, multiple market interventions, and a never-before-seen market suspension of the entire National Electricity Market.
-
High fuel costs are likely to continue as international coal and gas prices remain at historical highs.
-
By June, the marginal cost to generate was above $225/MWh. This highlights that generators that need to source spot coal now require very high prices to generate
-
Meanwhile, Newcastle Coal Futures recently hit an all-time-high, which implies the marginal cost of coal-fired electricity generation is set to increase further.
-
Generation closures, including the impending closure of the NSW Liddell power station in April 2023, and tight gas supply conditions, with a domestic gas supply shortfall projected for winter 2023, means that market conditions will remain challenging for some time. We expect high price volatility in the electricity market over the next 6-9 months.
​
​
PDRS – A New Charge for NSW Electricity Users
Effective 1 November
​
From 1 November 2022, the Peak Demand Reduction Scheme (PDRS) liability will come into effect in NSW. The aim of the scheme is to reduce the amount of electricity used at peak times, so avoiding investment in network infrastructure. As such, the scheme will be targeting electricity use between 2:30pm and 8:30pm Eastern Standard Time (AEST).
​
Similar to the NSW ESC Scheme and the federal MRET scheme, the PDRS places an obligation on all electricity retailers to procure and surrender certificates in line with annual compliance targets. Retailers will not know their compliance targets until more than 6 months after the compliance period ends. However, the penalty rate for shortfalls in certificate surrender is $2.35 per certificate, increasing annually by CPI. A certificate represents 0.1 kW of demand reduction for 1 hour. Businesses already exempt from the existing NSW Energy Savings Scheme will also be exempt from the PDRS.
​
For more detailed information on the PDRS, visit www.energy.nsw.gov.au or please don’t hesitate to contact us at info@tteg.com.au.
We are still awaiting advice from retailers how they will administer the scheme but the cost is expected to be minor versus the recent price hikes in the market.
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.