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The National Electricity Market
When we thought things couldn’t get any worse, they did! May saw a continuation of the acceleration of spot price rises that was observed last month. NSW average prices were up a further 71% to $320 and QLD prices were up 58% to $347 in May. Southern States were also not impervious to the scale of increases seen in NSW and QLD, with VIC increasing 65% to $234, SA up 105% to $312 and TAS up 54% to $217. The following graph shows the 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 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 test on the electricity system to see how it responds, not only from a pricing perspective but also security of supply.
Electricity Generation Mix
Total grid-scale generation for May increased by 12.5% from April levels. The normalised change was a 9% increase after factoring in the increased number of days in the month – noting there were also three public holidays in the previous month.
Utility scale solar had another significant drop in generation last month with shorter days and more overcast weather. Gas, Hydro and Liquid Fuels all had large increases as high spot prices and issues with Coal unavailability continued to encourage their use.
Gas Generation
As noted above Gas generation increased again in May – up 39% from April levels. As it has in the last 4 months, compared to May 2021 gas usage was up, 53% higher than 12 months ago. Gas generation increased 105% in NSW, 59% in QLD and 29% in SA. Gas generation was down 4% in VIC and 85% in TAS (low levels compared to other States).
Hydro Generation
There was a big increase in Hydro generation in May as generators tried to maximise the benefits of high prices. Generation was up 66% on last month and was well above the highest levels seen over the last 5 years as shown in the following chart.
Water storage levels in Hydro Tasmania’s levelled off in May after several months of decline. Storage ended the month at 4,611 (31.9% full), an increase of 33GWh over the month. This is now 11% 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 through May with the increased hydro generation during the month. Snowy finished the month 48% of full (2,552Gl) – down 7.5% 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)
Winter (June to August) rainfall is very likely to be above median for much of Australia, but below median for south-western Australia, and western Tasmania.
June to August maximum temperatures are likely to be above median for northern, south-western, and far south-eastern parts of Australia, but below median generally elsewhere.
Minimum temperatures for June to August are very likely to be warmer than median across almost all of Australia.
The chance of a negative Indian Ocean Dipole, the continuing La Niña, warmer than average waters around northern Australia, and other localised drivers are likely to be influencing this outlook.
New Renewable Generation
Renewable generation (wind and solar, including roof-top solar) was lower again in May with less favourable solar conditions. Total renewable generation was 3,444GWh – down 8% on April but up 3% on the same month a year ago. Wind generation was up 10% in May compared to April, and up 5% compared to May last year. Utility Scale Solar generation was down 15% from April levels, but up 6% over the last year. The following chart shows the monthly energy produced for each of these renewable types since 2017.
The Electricity Futures Market
The sharp increase in spot prices and a market perception that these conditions may remain for some time led to significant increases in futures prices in all years but particularly for CY 2023.
CY23 NSW prices increased to $189 – up 47% in the month. QLD prices mirrored NSW increasing to $192 – up 59%. SA also increased – up 69% to $144 while VIC was up 55% at $119.
CY24 also showed significant increases in all States. NSW remains the highest priced State at $128 – up 24%. The gap has closed though with other States. QLD is at $121 – up 42%, while SA was also up at $116 (+51%). VIC was up, ending the month at $82 – an increase of 35%. CY25 contracts also had mainly increases. QLD and VIC both trended up, ending the month at $92 (+23%) and $74 (+22%) respectively. SA also increased by 34% to end at $80. NSW bucked the trend - down 1% at $103.5.
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 May 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 fell in May to $27.96/GJ – a 27% decrease on last month. Prices for 2022 are expected to average $34.83/GJ (a 4% increase on last month) while 2023 netback prices also increased 4% to $29.22/GJ – still well above historical levels.
Domestic gas prices were the big news story for May with various commentators descriptions of the gas market being a train-wreck, through to gas price rises being “apocalyptic”! Prices increased significantly throughout the month with the 30 day rolling average price at Wallumbilla ending at $31.3/GJ – up from $16.7/GJ at the end of April, an 88% increase. This is the more than double the previous highest level observed over the last 8 years and is now more than the LNG netback price. The level would have been even higher if the AEMO had not acted to cap prices at $40 in 3 States – QLD, NSW and VIC during the month. Subsequently the shadow price for gas that would have applied if the cap were not in place spiked further to an unheard-of $800 a gigajoule.
This surge in gas prices came after the failure of gas retailer Weston Energy resulted in hundreds of customers being transferred to other retailers and put on tariffs based on spot prices. However this in itself was preceded by rising prices caused by a big increase in gas being required for gas 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 some unseasonably cold weather hit the south-east of Australia.
As would be expected given the lack of sufficient gas supply during May, gas storage took a hit. The main storage facility at Iona decreased ending the month at 19 PJ – a 17% 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. After starting the month at around $US320/T, prices increased through May to close at over $US400/T – up more than 25%.This is back to similar levels that we saw a few months ago at the start of the war.
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 these high coal prices are part of the driver for higher spot and futures electricity prices, however in the last couple of months a number of issues have really emphasised the impact of these high international prices. Some coal fired generators have had problems with their contracted 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 security of supply pressure on the wholesale electricity market.
Environmental Certificates
The following graph shows environmental certificate spot prices over the last 2 years.
VEEC pricing continued to drop during May but not by as much as previous months. They decreased by 8% to end the month at $52 back to levels last seen over a year ago. Australian Carbon Credit Unit (ACCU) prices rebounded somewhat on the federal election result, increasing 26% overnight reflecting expectations that the new Government will implement policies that will push up the value of ACCUs. Most other certificate prices were largely flat over the month apart from ESCs which decreased by a further 15% to $29.25.
Future dated LGC certificate prices were largely static through May as well, with most prices ranging from $0.5 lower to $1.5 higher than a month earlier. CAL 26 was the exception having a $4 increase on April as shown in the following graph.
About this Report
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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