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Energy Insights

Australian Energy Market Report | 1 June 2021

Our Energy Market Reports aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

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Transcript:

Hello and welcome to another edition of Energy Action's Market Wrap. My name's Scott Easton and I head up the Trading and Pricing team here at Energy Action.

Today, I'd like to discuss the implications of the Federal Government's plan to construct a $600 million gas-fired power station to address the withdrawal of the Liddell coal-fired Power Station and provide some insights around how this project is likely to operate and the implications for future electricity prices.

I'll also be discussing the Queensland supply disruption earlier this week, which saw 3100MW of capacity disappear from the electricity grid and cause price spikes of $15,000/MWh. I'll also be providing a usual price update on forward electricity contracts and environmental certificates.

Finally, I'll be providing an update on Energy Action's latest innovation, with the commencement of our Renewable-backed Electricity Supply Agreement (RESA).

Turning now to the Federal government's announced a gas-fired electricity project proposed for the Hunter Valley. Although the project has been described as a baseload plan, in our view its quick-start capability is ideal for “firming” the intermittency associated with renewable projects.  If this project goes ahead and is successful in attracting new renewable energy projects, this will place greater downward pressure on future electricity prices beyond 2024.

Regardless of whether it attracts more renewable projects the plant will limit price spikes from supply disruptions and provide greater supply reliability. We estimate the marginal cost for this type of facility to be in the order of $80-$90/MWh which won't lend itself to base load operation. The announcement has had virtually no impact on the electricity contract price and does not affect our view that customers should be seeking to secure supply under a fixed price agreement out to 2024/2025.

Turning now to the Queensland supply disruption, and a reminder that these events occurred periodically even at the low point of the price cycle. The disruption was caused by a fire at the Callide Power Station, which impacted the transmission system and caused over 3100MW of capacity to trip, including the supply from Gladstone, Stanwell and Mackay.

This disruption directly impacts prices in the wholesale market and the costs incurred by customers with spot passthrough. It also increased contract prices for 2022, and to a lesser extent in 2023 for Queensland and New South Wales calendar year electricity contracts.

While it's logically hard to understand how a short-term supply interruption can affect prices in two years time, we're now starting to see contract prices settle back.

As we can see from this chart, electricity contract prices remain an uptrend since March 2021 and recently broke through a 10-month resistance level for 2022 contracts. Multiple indicators now suggest this uptrend will continue. 2023 contract prices in Queensland also broke through a 10-month resistance level. However, New South Wales prices remain below this indicator, suggesting a greater likelihood that they will continue higher over the next few weeks. South Australia and Victoria’s contract prices were mostly unaffected by the Queensland supply disruption but remain in an uptrend since February this year.

Turning now to the certificate market. The cost associated with corporates implementing Renewable Energy Target compliance and voluntary renewable energy strategies. LGC’s traded higher this week to $35/certificate.

STC’s remain relatively stable, just below the retail price cap at $38.60/certificate. VEEC’s continued to trend lower at $63.30 after recent highs associated with restricted supply.

ESC’s continue a slow rising trend to $30.90/certificate. The LGC forward curve continues to show significant price backwardation with the cost of 2025 LGC’s now at $7.20/certificate.

Finally, I'd like to provide an update on Energy Action's latest innovative product, the Renewable-backed Supply Agreement. We now offer customers 100% renewable electricity incorporated into a standard electricity contract.

The benefits of this product include shorter contract periods, reduced transaction costs and fast execution times to implementation. If you'd like to know how a Renewable Energy Electricity Supply Agreement can deliver your corporate Net Zero strategy, contact us at Energy Action.

Well, that concludes this week's Australian Energy Market Report. I'm Scott Easton for Energy Action and remember don't pay too much for your energy.


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