The National Electricity Market
At last what felt like a slight reprieve in the NEM through July – no market suspensions, fewer market directions, and what appeared like a lot less time in the media spotlight. And wholesale prices, while still at historical highs, felt like they may have peaked and there may be some downward movement soon.
The following graph shows the published average monthly spot price since the middle of 2019. Both NSW and QLD prices eased in July – down to $371 (-7%) and $392 (-2%) respectively. The other States continued to have large price gains as the gap between the northern and southern States narrowed. SA increased 23% to $372, VIC 15% to $340, while TAS was up 13% at $323.
Drivers for the high prices in NSW and QLD include a continuation of high fuel costs (black coal and gas), which will be discussed later in the report, but exacerbated by coal constraints, and some transmission constraints and plant outages. In the Southern States, coal generation outages and high demand have meant that transmission constraints that would normally be binding between VIC and NSW are not binding as often, resulting in VIC (and TAS and SA) prices rising to close to NSW levels.
Another interesting phenomena is that these high prices were not in the main being caused by volatility – ie a few incidents of very high prices (> $300/MWh, the traditional cap level). They are being caused by long periods of pricing at or above $300/MWh.
As we move through the remainder of winter with less solar output and often less windy days, it will be a continued test on the electricity system to see how it responds, not only from a pricing perspective but also reliability of supply.
Electricity Generation Mix
Total grid-scale generation for July increased by 3.9% from June levels. This is about the same level of demand as June once the extra day in July and the public holiday in June are factored in. This increase would have largely been driven by the colder winter weather and reduced behind the meter, roof-top solar generation.
Coal generation increased with improved availability of plant enabling gas and hydro to back off from their high June levels. Utility scale solar had a significant increase in generation last month with longer days and clearer weather. Wind generation decreased with less wind through the month.
Gas Generation
As noted above Gas generation decreased in July – down 8% from June levels. This is the first month gas usage has dropped since February. As it has for most of this year, compared to July 2021 gas usage was up, 34% higher than 12 months ago. Gas generation decreased 39% in NSW and 5% in QLD. It increased 13% in SA and 2% in VIC. Gas generation was down 33% in TAS (low levels compared to other States).
Hydro Generation
After the large increases of recent months, hydro generation backed off slightly in July as increased coal availability provided some respite to the system. However hydro generation remained at close to the highest levels seen over the last 5 years as shown in the following chart.
Water storage levels in Hydro Tasmania’s lakes decreased in July – at a time when storage is typically increasing. Storage ended the month at 4,718 (33% full), a decrease of 125GWh over the month. This is now 21% lower than the same time last year and well below the lowest level seen at this time in the last 5 years as shown in the following chart.
Snowy Hydro’s storage levels dropped further during July with the high hydro generation during the month. Snowy finished the month 45% of full (2,381Gl) – down 4.1% over the month. Thanks to La Nina, levels remain at the highest they have been in the last 5 years as shown in the following chart.
Climate outlook overview (from BOM)
August to October rainfall is likely to be above median for most of Australia, but below median for western Tasmania and an area of south-western WA.
August to October maximum temperatures are likely to be above median across the tropics and parts of western and southern Australia, but below median for parts of the east and southern interior.
Minimum temperatures for August to October are likely to be above median nationwide.
The emerging negative Indian Ocean Dipole event, along with warmer than average waters around northern Australia, and a neutral to cool phase of the El Niño–Southern Oscillation, are likely to be influencing this outlook.
New Renewable Generation
Renewable generation (wind and solar, including roof-top solar) increased in July with increased solar generation more than offsetting a small reduction in wind. Total renewable generation was 4,191GWh – up 2% on June and up 8% on the same month a year ago. Wind generation was down 5% in July compared to June, and down 2% compared to July last year. Utility Scale Solar generation was up 26% from June levels, but up 44% over the last year as new solar capacity comes online. The following chart shows the monthly energy produced for each of these renewable types since 2017.
The Electricity Futures Market
After the huge increases in futures prices over earlier months, July generally saw a continuing of the flattening seen in June with some easing of prices as well.
CY23 NSW prices decreased to $192 – down 4% in the month while QLD prices fell 3% to $185. VIC increased early in the month to peak at $150 before falling to end at just 1% up, at $129. SA also increased – up 1% to $154.
CY24 NSW remains the highest priced State, but was unchanged at $134. QLD and SA both fell to $106.5 (-3%) and $112.5 (-8%) respectively. VIC bucked the trend – up 5% at $86. CY25 had NSW again flat at $127. SA and VIC both trended up, ending the month at $102 (+22%) and $79 (+6%) respectively. QLD again went against the trend - down 1% at $84.
Contracts for the 2023 Calendar Year (CY23)
Contracts for the 2024 Calendar Year (CY24)
Contracts for the 2025 Calendar Year (CY25)
The Gas Market
Global energy prices remained high during July as on-going lack of gas storage / supply in Europe has continued to result in elevated wholesale prices for gas and electricity. On top of that the war in the Ukraine and the potential for Russia to use critical gas supplies to Europe to apply economic pressure on Ukraine’s allies has added to the uncertainty and therefore further added to energy prices.
LNG netback prices increased sharply in July ending the month at $48.91/GJ – up 75% from last month. Expected prices for the rest of 2022 and 2023 have also increased. 2022 netback prices are now expected to average $43.01/GJ (a 5% increase on last month) while 2023 netback prices also increased 34% to $49.30/GJ – well above historical levels.
In July domestic gas prices were back in the headlines as distortions became apparent in the gas market due to price controls remaining in place in VIC but not in other States. This presented an opportunity for cross border gaming and ultimately led to Iona’s storage being drawn down more quickly than expected, which in itself resulted in a security risk and AEMO stepped in to force some Victorian based gas fired generators to stop producing electricity. Prices remained very high through-out the month, close to the capped levels. The following graph shows the 30 day rolling average price at Wallumbilla gas supply hub – ending the month at $40.1/GJ, up a further 8% from June levels, close to netback prices and well above any historical domestic level.
This surge in gas prices was caused in large part by a big increase in gas being required for electricity generation, as coal fired power stations were off-line or constrained. This coming at the same time as domestic gas use for heating was picking up as winter weather hit the south-east of Australia. Any domestic shortfall was made up with gas that would have otherwise been exported at high international prices.
As noted earlier given the lack of sufficient gas supply during July as well as the behaviour of some participants, gas storage again took a hit. The main storage facility at Iona decreased, ending the month at 10 PJ – a 28% decrease – at the low end of the normal operating range seen for this time of year for the past 5 years.
The Coal Market
The global energy crisis has been as much about coal as it has gas. The war in the Ukraine has driven energy prices, including coal, up. Prices hovered around the $US400/T all of the month, closing at $US408/T – up 6%.
These prices remain well above anything seen in the last 10 years as shown in the following graph.
We have been saying for some time in these reports that high coal prices are part of the driver for higher spot and futures electricity prices, however in the last few months a number of issues have really emphasised the impact of these high international prices. Some coal fired generators have had problems with their supply of coal not being able to meet contracted volumes. Some of this has been caused by flooding at various coal mines. These generators have been forced to either buy significant volumes of coal at spot prices – which we know to be very high, or to reduce the availability of their generation, both of which put price and reliability pressure on the wholesale electricity market.
Environmental Certificates
The following graph shows environmental certificate spot prices over the last 2 years.
ACCU prices eased through July ending 20% down at $28. VEEC pricing also continued it’s see-sawing of recent months dropping 5% to $68. Most other certificate prices were relatively flat over the month apart from ESCs which increased by another 5% to $32.75.
Future dated LGC certificate prices dropped in most years apart from CAL 22 and CAL 26 which had small increases over the month. CAL 23 and CAL 24 both decreased by about $2, and CAL 25 by $1.3 as shown in the following graph.
About this Report
This energy market summary report provides information on wholesale price trends for all regions within the National Electricity Market (NEM) and environmental scheme certificates.
Please note that all electricity prices are presented as a $ per MWh price and all certificate prices as a $ per certificate price.
All NEM spot prices are published by the Australian Energy Market Operator (AEMO). Futures contract prices are sourced from ASX.
Further information can be found at the locations noted below.
- NEM Spot market – AEMO publishes a range of detailed information which can be found here: https://aemo.com.au/Electricity/National-Electricity-Market-NEM/Data-dashboard
- Weather and Climate data – The Bureau of Meteorology publishes a range of weather related information which can be found here: http://www.bom.gov.au/climate/
Disclaimer
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