TTEG COMMENTARY
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As shown in the Wholesale Market Update and associated charts below, futures pricing has eased moderately, potentially as baseload generation comes on line.
It is however important to note that several baseload generators are due for maintenance soon and will be offline. This increases the chance of price hikes as there is less “spare” baseload capacity.
Energy contracting is all about managing your pricing risk. You can monitor the market to secure favourable long-term energy contracts. But when should you act?
As discussed in earlier issues, our strong recommendation is you have an Energy Procurement Plan that starts at least 18 months (preferably 2 years) out from your current contract end date.
The Plan should require monitoring the market, including the operational status of key power stations and other variables and to adjust your energy strategies accordingly.
In navigating the energy minefield, timing is critical because if you are nearing your contract end date and prices rise, this you will be stuck with these higher prices.
If you don’t have an Energy Procurement Plan, or are unsure how effective it is, or simply want some advice, then we can help.
WHOLESALE MARKET UPDATE
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Overview
September has witnessed a complex interplay in the energy market, with generation capacity gradually returning online, yet hampered by unforeseen outages and significant weather variability. Solar and wind generation have been notably subdued, leading to constraints and increased reliance on gas.
Generation Recovery and Outages
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Callide C4 (466 MW) has faced extensive delays but is now slowly ramping up to full capacity
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Tarong 3 (385 MW) tripped on the 20th of September but returned shortly after.
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Kogan Creek (385 MW) experienced an unplanned outage on the 19th of September and was back online the following day.
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Generators in Queensland have shown resilience with no major outages, although Callide C3 and Stanwell Unit 2 remain offline until the end of the September.
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In New South Wales, Eraring 3 (750 MW) is offline for planned maintenance, and Bayswater 2 (700 MW) has also been down since mid-September.
Wind and Solar Performance
Wind generation has seen a marked drop, with all solar farms in southwest NSW constrained to 0 MW on the 23rd of September to low demand and high generation from other sources. This has led to a decrease in overall renewable contributions across the NEM. Wind generation had previously suffered its worst performance in over seven years, but a forecasted moderate increase towards the end of the September offers some hope for recovery.
Gas Prices and Demand
Gas prices continue to escalate across states:
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NSW: Up 12.5% to $13.46/GJ
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QLD: Up 11.4% to $13.34/GJ
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SA: Up 13.6% to $13.56/GJ
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VIC: Up 13.2% to $13.13/GJ
This increase has been driven by heightened demand due to low renewable outputs and persistently high gas prices.
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Spot Prices and Market Dynamics
Spot prices have surged, particularly in regions with constrained generation. The market has experienced significant fluctuations, with negative prices observed in SA due to excess renewable generation being curtailed. AEMO’s recent decisions to manage interconnector constraints have further complicated market conditions, leading to load-shedding notices in various states.
Future Outlook
Looking ahead, while the short-term forecasts suggest ongoing constraints and volatility, there is optimism that the upcoming increase in wind generation and the gradual return of solar will stabilise the market. The recent ESOO (Electricity Statement of Opportunities) emphasises the importance of timely investments in renewable energy and infrastructure to mitigate reliability risks in the future.
Conclusion
September has been a challenging month for the NEM, with weather and operational dynamics impacting generation. While some recovery is expected, the reliance on gas and the continued volatility in both spot and futures markets signal a cautious outlook. The energy sector will need to navigate these complexities to ensure stability as it heads into the warmer months.
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ELECTRICITY FUTURE PRICING CHARTS
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The Coalition's proposal to build seven nuclear power plants in Australia aims to replace ageing coal-fired stations and contribute to the nation’s decarbonisation strategy. However, a recent IEEFA report highlights that this plan could lead to significant increases in household electricity bills, with typical families facing rises of nearly $1,000 annually.
While some argue that nuclear could level the playing field in the energy transition, key concerns remain: the feasibility of timely implementation, the cost compared to renewables, and the suitability of proposed locations.
The Australian Energy Market Operator (AEMO) predicts coal retirements will accelerate, likely leaving renewables to fill the gap before nuclear can contribute, as plants may not be operational until after 2037. Furthermore, the CSIRO indicates that renewables, even with necessary transmission and storage, are almost half the price of nuclear, making it unlikely that nuclear will compete economically.
The proposed locations for nuclear plants, often situated near retiring coal facilities, may not effectively integrate into a rapidly changing energy landscape dominated by cheaper renewable options. Ultimately, the Coalition's nuclear strategy raises significant questions about its cost-effectiveness and viability in Australia's energy future.
Understanding Electricity Pricing in Retirement Villages
​Residents in retirement villages connected to embedded electricity networks should be aware of the pricing regulations outlined in the Australian Energy Regulator’s Retail Exempt Selling Guideline (July 2022). According to these guidelines, exempt sellers cannot charge residents tariffs higher than the standing offer price from the local area retailer for similar energy quantities. This effectively applies the Default Market Offer (DMO) rates.
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For those in NSW residential parks, maximum electricity prices have specific requirements. A Supreme Court of NSW decision in September 2018 established that park operators cannot charge residents more for electricity usage than what they are charged by their energy retailer. Operators have flexibility in how they calculate these charges, provided they adhere to this rule.
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Starting 25 September 2024, new regulations will dictate that daily supply and usage charges cannot exceed the median market offer rates set by the Independent Pricing and Regulatory Tribunal (IPART). These rates will be determined annually and published by the Commissioner for Fair Trading.
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IPART’s initial determination for median retail market offers will take effect on 25 September 2024, with the following charges set for each distribution district in NSW:
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Ausgrid: Supply Charge - 94.91 cents/day; Usage Charge - 34.72 cents/kWh
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Endeavour Energy: Supply Charge - 87.92 cents/day; Usage Charge - 36.52 cents/kWh
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Essential Energy: Supply Charge - 143.00 cents/day; Usage Charge - 41.65 cents/kWh
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For further inquiries regarding electricity pricing in NSW residential parks, contact us below.
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WA to Allow Onshore Gas Exports Until 2031 Under Revised State Policy
The Western Australian government has opened up onshore gas reserves for export, allowing some of the nation’s wealthiest industrialists to sell gas overseas for the first time. New regulations will cap exports, requiring that at least 80% of gas production be reserved for the domestic market until 2030.
Previously, onshore gas exports were banned, except for the Waitsia project. While industry players have welcomed the changes, concerns remain that tighter export limits may frustrate major gas stakeholders. Experts warn that increased exports could lead to higher domestic prices, although the government argues that the additional supply will help keep prices down.
WA Greens MP Brad Pettitt criticised the government for not facilitating a transition to renewable energy, noting that wind and solar are cheaper than new gas but that there are no large-scale renewable projects under construction in WA. He contended that if the transition were managed effectively, the need for gas would decline, and exports shouldn't be encouraged.
The government plans to ensure compliance with domestic gas reservation obligations and is considering legislative measures for greater transparency in the gas market.
Borumba Pumped Hydro Energy Storage Project
The Queensland government has awarded three major contracts totalling $190 million for the Borumba Pumped Hydro Project, which aims to bolster the state’s clean energy transition.
As one of Australia's largest projects, it will feature engineering and design work led by the Water2Wire Joint Venture, responsible for constructing seven dams, including six new ones for an upper reservoir and a replacement dam wall for the existing Borumba Dam.
The AFRY-Aurecon Joint Venture will handle the essential front-end engineering design, while Decmil has secured a $111 million contract to build temporary worker accommodations on site for up to 672 workers.
This initiative is expected to create over 2,300 construction jobs and enhance Queensland’s renewable energy capacity, with construction slated to begin in 2025.
Australia’s Renewable Energy Surge: Progress and Challenges Ahead
Australia’s renewable energy transition has accelerated rapidly in 2024, with more wind, solar, and battery projects underway than ever before, surpassing last year's record of 6.47 gigawatts with three months still to go. New data from Rystad Energy shows that 4 gigawatts of projects have begun commissioning, topping the previous annual high of 3.7 gigawatts.
Despite this progress, the pace is insufficient to meet the Albanese government’s goal of increasing the renewable energy share from 40% to 82% by 2030, as the necessary rollout of generation, storage, and transmission infrastructure lags behind. With many coal-fired plants set to retire in the coming decade, the Australian Energy Market Operator warns of potential risks for supply stability.
While 2023 was challenging for wind farm investments, optimism is rising for 2024, with 1.5 gigawatts of capacity already secured for construction. Currently, Australia has 6.49 gigawatts of utility-scale renewable projects in development.
