The National Electricity Market
After the spot market increases of the last few months, something had to give and it was the actual market itself that ended up being suspended. Before that though we had the build-up – continued extreme pricing resulting in the Cumulative Price Threshold (CPT) being breached in all States, which forced (based on industry rules) AEMO to reduce the market cap from $15,100/MWh to $300/MWh. This in turn meant that many generators no longer wanted to operate as their fuel costs were not being covered, and they would only run if they were directed by AEMO, which enabled them to be compensated. And, finally, AEMO determined that they could no longer operate the system in this way and suspended the market on the 15th June. The suspension was lifted over a week later.
Because of the capped prices and suspended market, and the methods used to determine pricing during that time, published wholesale prices for June are not a true reflection of the turmoil that the market went through. The following graph shows the published average monthly spot price since the middle of 2019. The large recent increases are clear to see.
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 into the colder winter months 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 June increased by 5.2% from May levels. The normalised increase would have been even greater given that June is a shorter month than May and had a public holiday. This increase would have largely been driven by the colder winter weather and reduced behind the meter, roof-top solar generation.
Utility scale solar had another significant drop in generation last month with shorter days and more overcast weather. Wind had a large increase with windier conditions through the month and new wind farms being commissioned. Gas and Liquid Fuels had large increases as issues with Coal unavailability continued to require their use.
Gas Generation
As noted above Gas generation increased again in June – up 23% from May levels. As it has for most of this year, compared to June 2021 gas usage was up, 9% higher than 12 months ago. Gas generation increased 45% in NSW, 1% in QLD, 22% in VIC and 36% in SA. Gas generation was down 27% in TAS (low levels compared to other States).
Hydro Generation
After the large increase last month, hydro generation remained close to that level again in June as generators tried to maximise the benefits of high prices. Generation was 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 increased in June after several months of decline. Storage ended the month at 4,843 (33.5% full), an increase of 232GWh over the month. This is now 8% lower than the same time last year and slightly 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 June with the high hydro generation during the month. Snowy finished the month 47% of full (2,484Gl) – down 2.7% 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)
July to September rainfall is likely to be above median for northern, central and eastern Australia, but below median for western Tasmania and scattered parts of western WA.
July to September maximum temperatures are likely to be above median for northern, south-western and far south-eastern parts of Australia, but below median for parts of central and eastern Australia.
Minimum temperatures for July to September are likely to be warmer than median for almost all of Australia.
The likely development of a negative Indian Ocean Dipole, neutral El Niño–Southern Oscillation during winter, and warmer than average waters around northern Australia are likely to be influencing this outlook.
New Renewable Generation
Renewable generation (wind and solar, including roof-top solar) increased in June with more favourable wind conditions and new wind generation being commissioned. Total renewable generation was 4,084GWh – up 16% on May and up 30% on the same month a year ago. Wind generation was up 32% in June compared to May, and up 30% compared to June last year. Utility Scale Solar generation was down 10% from May levels, but up 32% over the last year. 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 prices over the last few months, June saw a flattening off of futures prices in all years. Part of this was probably due to reduced transparency, with the spot market being either capped or suspended for much of the month, and reduced liquidity as trades dried up during the month.
CY23 NSW prices increased to $200 – up 6% in the month. SA also increased – up 6% to $152 while VIC was up 7% at $127. QLD prices were flat at $192.
CY24 NSW remains the highest priced State at $134 – up 5%. SA was also up at $122 (+5%) while VIC was flat at $82. QLD price bucked the trend dropping 9% to $109. CY25 contracts also had mainly increases. NSW increased significantly to $127 – up 22%. SA and VIC both trended up, ending the month at $84 (+5%) and $75 (+1%) respectively. QLD again went against the trend - down 8% at $85.
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 June 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 sanctions on critical gas supplies from Russia has added to the uncertainty and therefore further added to energy prices.
LNG netback prices were mainly flat in June ending the month at $27.91/GJ. However expected prices for the rest of 2022 and 2023 have increased sharply. 2022 netback prices are now expected to average $40.90/GJ (a 17% increase on last month) while 2023 netback prices also increased 26% to $36.80/GJ – well above historical levels.
In June domestic gas prices didn’t make the headlines in the same way they did in May as attention switched to the issues in the electricity market. However 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 $37/GJ, up a further 18% from May levels and well above netback prices or any historical 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 would be expected given the lack of sufficient gas supply during June, gas storage again took a hit. The main storage facility at Iona decreased ending the month at 14 PJ – a 25% decrease – at the low end of the normal operating range seen for this time of year for the past 5 years with the highest gas demand winter months still ahead of us.
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 $US385/T – down 4%.
These prices are still 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.
VEEC pricing has been on a roller coaster ride over the last couple of months with the Essential Services Commission (ESC) talking about limiting the numbers of refrigerated cabinet installations they would allow to generate certificates into the future. Prices ended June at $70.5 – up 8% on May. Most other certificate prices were largely flat over the month apart from ESCs which increased 6% to $31.1.
Future dated LGC certificate prices increased in all years during June. CAL 22 increased $2.4, CAL 23 $3.37, CAL 24 $4.17 and CAL 25 $3.55. CAL 26 also increased but by less - $0.88 over the month 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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