This report brings together an overview of the National Energy Market along with some factors such as weather patterns which may have influenced both the generation of electricity and how it was used throughout the month and some indicators on potential trends and influences in future months.
Market News & Influences
In the News
Two of the big three gentailers (AGL and Origin Energy) reported big losses, and/or asset write-downs during the month. Heavy write-downs dragged AGL into a $2.29 billion net loss for the half year, while at Origin Energy underlying earnings for the first half more than halved to $224 million. Energy Australia also noted in its full year results that it was forecasting “challenging” market conditions this year after only escaping a decline in full-year profit thanks to gains in the value of hedging contracts.
Each company pointed to low demand this year due to Covid and a milder than expected summer impacting on short-term earnings, while future price outlooks were being forced lower by increased renewables, partly driven by government policies.
On a similar theme Kerry Schott, who heads up the Energy Security Board, was reported as saying that coal fired power stations are becoming unprofitable and that they may close before the end of their rated life as new renewables come online, spurred by customer demand, low costs and government incentive programs. Premature shutdowns can’t be ruled out and may occur reasonably quickly.
The world’s largest battery will be built in the NSW Hunter Valley. The battery, with a capacity of up to 1,200MW will be up to 8 times the size of the original “big battery” in South Australia. How many hours of storage for the battery, to be located at Kurri Kurri, is yet to be determined. The Hunter battery is the latest in a series of huge storage projects announced in the state, including a four-hour, 700MW battery planned by Origin Energy at its Eraring coal power site, a $500 million pumped hydro project proposed by Canada’s ATCO near Bathurst, and battery proposals in the works at AGL Energy, Maoneng and TransGrid, not to mention the Snowy 2.0 pumped hydro mega project.
In other battery news, the Clean Energy Finance Corporation (CEFC) has committed $160million in debt financing for the Victoria Big Battery Project. The 300MW / 450MWh project based near Geelong is expected to be up and running by next summer. The project is underpinned by an 11-year contract with the Victorian government which will pay to use most of its capacity to allow increased transmission over an interconnector with NSW.
The ACCC has stated that Australia will face a gas supply shortage by 2024 unless action is taken to bring forward new supply projects. While prices had fallen the supply outlook remained bleak. The majority of 2P reserves were located in coal-seam gas fields in Queensland which required increased north-south pipeline capacity, the development of additional onshore and offshore gas fields or the construction of one or more LNG import terminals. Plans for LNG import terminals by AGL Energy, Andrew Forrest’s Squadron Energy and others have been slowed by various factors, including planning approvals and negotiations on contracts with customers.
Finally, solar households may have to pay for surplus energy exported to the grid under reforms to stop the grid being destabilised. The AEMC is considering introducing a rule which may allow distribution networks to charge for exported power during solar peak hours when the generation isn’t needed and incurs a cost to be absorbed into the system.
As can be seen in the graphs above, demand decreased compared to January due to the lower number of days in the month, and the summer drawing to a close. With a continuation of the theme this summer, demand was lower than the same time last year due largely to the cooler weather and the increase in roof-top solar. For the whole of the summer period demand was down 5.8% across the NEM compared to the summer of 19/20. VIC and QLD were down more than 4% while NSW was almost 8% lower than the corresponding period last year. SA was a staggering 11% down on last summer. Tasmania had the smallest decline being only 1% down on last summer.
Weather – Review & Forecast
The national mean temperature for February was 0.22 °C cooler than average for Australia as a whole – however it was considerably cooler than January 2020 which was the 10th highest on record (almost 1°C above average).
The mean maximum temperature was below average for February at −0.44 °C. The mean minimum temperature was close to average for February at −0.02 °C.
Mean maximum temperatures for February were cooler than average for most of Western Australia, the inland north-west of the Northern Territory, much of inland South Australia, most of New South Wales away from the north and west, and central to eastern Victoria. The mean maximum temperature for February was warmer than average for most of the southern half of Queensland, stretching along the coast south from Mackay, in a narrowing band through the inland south then covering much of the Channel Country.
The mean minimum temperature for the month was above average for most of Queensland, the east and north of the Northern Territory, parts of the northern Kimberley and pockets of the northern coast of Western Australia. Mean minimum temperatures were below average for areas of western, interior, and south-eastern Western Australia, much of South Australia away from the west and the coast, adjacent parts of north-west Victoria and south-western New South Wales, and an area of eastern New South Wales inland of the ranges.
A few stations in Western Australia and South Australia had their coldest February day (lowest maximum temperature) on record during the first week of the month.
February rainfall was above average for Australia as a whole.
Rainfall for the month was above average for Western Australia except the Kimberley, the Top End of the Northern Territory, much of New South Wales except the southern half of the coast and in the west, north-eastern Victoria, and much of Tasmania.
Rainfall for the month was below average for parts of Queensland's east coast south of Townsville, much of western News South Wales and western Victoria, and parts of the Kimberley coast in Western Australia.
March to May (autumn) rainfall is likely to be wetter than average for large parts of eastern Australia.
Maximum temperatures for autumn are likely to be warmer than average for parts of northern Australia, western WA and the far south-east of Australia. Conversely, days are likely to be cooler than average for parts of NSW.
Minimum temperatures for autumn are likely to be warmer than average for most of Australia, except for parts of the south and west.
The current La Niña is forecast to end during autumn. La Niña typically increases the likelihood of above average rainfall across eastern Australia during early autumn.
Electricity Generation Mix
Total generation for February decreased by 9% from January levels largely due to the reduction in number of days in the month
Renewables (not including roof-top solar) again accounted for more than 20% of total generation. Hydro, coal and solar increased their share while wind and gas declined.
Gas generation eased again in February dropping 15% on January. Gas generation continues to be considerably lower than in the corresponding period of 2021 by around 54%. Generation decreased significantly in NSW (96%) and TAS (85%) – both on small volumes, but dropped in all States.
Water Energy storage levels in Hydro Tasmania’s system decreased slightly through February but remained well above the 5 year average. Energy in storage at month end was 5,504GWh or 38.1% of full storage.
Hydro Tasmania has been utilising stored energy, generating at times of high wholesale prices and storing energy when prices are low. Summer is typically a time of greater price volatility so hydro operators would have been looking to benefit from that volatility that didn’t occur as much this summer due to the milder than usual weather. They would also have been aware of the forecast higher than average rainfall this La Nina summer that would have impacted their view on appropriate levels of storage to maintain.
Snowy Hydro’s storage levels dropped for the 4th month running finishing the month at 8% below the 5 year average. However this level was still 24% above where they were 12 months ago.
New Renewable Generation
Renewable generation (wind and solar) dropped in February due to less days in the month and reduced wind generation. The following chart shows the monthly energy produced for each of these renewable types since 2017.
Total generation from these 3 sources was 3,670 GWh in February – 13.7% less than January but more than 32% above 12 months ago.
Volume weighted prices for solar dropped again in all States. Prices are down nearly 50% in NSW compared to 12 months ago while in SA and VIC the reduction is even more dramatic (95% and 70% respectively).
With significantly more new renewables committed, as shown in the following table from AEMO (unchanged from last months report), we expect this to put increasing downward pressure on prices and to increase spot price volatility.
The National Electricity Market
Spot prices decreased slightly in all States in February apart from QLD where prices increased slightly. Average daily prices were mainly less than $50 apart from a few incidents in TAS and QLD where prices spiked. For the first time in many months the average peak price was higher than the average spot price in all States.
The following graph shows the daily Average Spot Price across the last 6 months, with the current month highlighted for clarity.
The Gas Market
Prices dropped again during January. The Wallumbilla Gas Hub price averaged $6.0/GJ – an 11% decrease from January.
LNG netback prices returned to some sense of normality during February as the northern hemisphere winter came to an end and supply constraints eased. Prices ended the month at $8.56/GJ - less than half their January high. The futures market shows expectations are now that average prices for 2021 are close to $8/GJ (compared to $9/GJ last month) and less than $7/GJ in 2022.
The Contracts Market
CY21 contracts continued to drop sharply during February due to the low spot prices in that month. Summer has been the season with the highest spot prices and the greatest volatility over the last few years, so getting through the summer without high prices has dramatically de-risked the rest of the calendar year.
The low February prices also fed through into CY22 & CY23 significant falls in all States. The greater risk assigned to NSW is clearly seen in both years with prices about $15/MWh higher than all other States.
We have just started to publish CY24 and we await to see how the trends develop. All pricing for CY24 is questionable at the moment with low volumes and liquidity this far out.
Contracts for the 2021 Calendar Year (CY21)
Contracts for the 2022 Calendar Year (CY22)
Contracts for the 2023 Calendar Year (CY23)
Contracts for the 2024 Calendar Year (CY24)
Emissions Trading Schemes
The LGC market fell during February with decreases in all years. Trades for 2025 certificates occurred for the first time.
Spot markets opened the month at $38, increased to $38.5 but then fell late in the month to close at $33.10 on a volume of 638,000 certificates traded.
Calendar 2021 also fell, finishing at $33.75 down $0.50 on the prior month with 525,000 traded. Calendar 2022 dealt 435,000 certificates and closed $1.25 lower at $25.50 while Calendar 2023 closed at $17.85, down $1.65 on a volume of 580,000 turnover. 2024 certificates closed at $9.00, down $0.85 on 260,000 traded. Calendar 2025 had its first trades at $8.00 but fell later in the month to close at $6.30 on 90,000 traded.
VEEC activity remained very strong with 688,300 new certificates registered. Prices continued to increase over the month reaching $50.00 at one stage. However an announcement by the Essential Services Commission (ESC) late in the month reversed the trend and prices finished the month at $45.50 which was a decrease of $3.40 over the month.
ESC creations totalled 353,550 for the month. Trading was in a very tight band with prices rising from the opening of $29.50, reaching $31.50 before falling to close the month near where it started it at $29.55 – a decrease of $0.05. 416,000 ESCs were traded in the month.
STC creations totalled 3,995,000 for the month. However there was very little movement in price despite the high volumes and the price actually ended up higher at month end. STC’s closed the month at $38.70, a rise of $0.45 on 1,615,000 STCs traded.
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). NEM 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/
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