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Australian Energy Market Report | 7 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:

Hi there, and welcome to this week’s edition of the Energy Action Market Wrap, where we let you know what’s happened in the energy markets in the past week. My name is Andy Young and I’m the General Manager of Business Services here at Energy Action.

Well, last week our Head of Trading and Pricing, Scott Easton, touched on the explosion and fire that occurred on the 25th of May to Unit 4 at the Callide C Power Station owned by CS Energy in Queensland.

This week I’d like to talk a little more about the impacts this event has had on spot prices, wholesale contract prices and retail contract prices for large market customers.

Spot prices represent the price of electricity in the physical market that the generators receive for their output in each state. These prices are currently published every half hour and have been averaged for each month in this table.

These prices have been broadly trending higher in each region since January. However, this outage has driven prices sharply higher in Queensland and to a lesser extent in its neighbouring state New South Wales while prices for Victoria, Tasmania & South Australia were largely unaffected.

You can see that prices for May in Queensland were averaging at just over $47/MWh up until the 24th of the month when the outage occurred but then rose to over $62/MWh for the month after that representing a 32% price increase.

Similarly, in New South Wales where the price average increased by 13% after the outage. Meanwhile in Victoria & Tasmania, price average increased by only 3%, and by only 1% in South Australia. While the other units at the power station were initially expected to return to service in the first week of June, CS Energy have now announced they will now be returned later in the month.

The longer than expected reduction in supply has resulted in spot prices remaining firm in the first 3 days of June in Queensland and New South Wales at $444/MWh and $268/MWh respectively. The damaged unit is not expected to be available for the next 12 months, though this should not have a continued significant impact on spot prices.

While it’s hard to understand why a short-term supply disruption would impact wholesale contract prices for the next 3 years, market sentiment has indeed driven prices higher in Queensland and New South Wales for 2022 and 2023 contracts. It’s worth noting however that the contract prices for all NEM states had already been increasing since February as seen by the trendlines in these charts and that the latest event in Queensland only adds support to that already established trend.

We noted in our latest Market Wrap published this week that the events of the past fortnight serve as a reminder that price spikes from generator or transmission outages can occur at any point in the price cycle. As a result. the market price for electricity can be highly volatile and this risk needs to be actively managed regardless of how low they may fall.

The impact to retail contract prices for large market customers can be seen in the Energy Action Price Index or EAPI. This chart can be seen on our new website which we launched just this week. This new chart now includes contract pricing for Western Australian large market customers.

The EAPI for the NEM states goes back to September 2006, and back to April 2019 for Western Australia. It is a valuable tool to see historic price trends for contracts. But let’s take a closer look at the price action we’ve seen since January 2020. The downtrend for the NEM states has turned in March 2021 with retail contract prices now trending upwards reflecting wholesale price movements.

While prices have risen over the past few weeks, and appear more likely to continue this trend, we still consider electricity rates as being unsustainably low and encourage large market customers thinking about their future energy costs to consider contracting out to 2024 or 2025 now.

Well, that’s it for this week. Check out our new website at energyaction.com.au where you can see a fresh new look and lots of great content about the energy market to help you take control of your energy needs and assist you on your path towards Net Zero. I’m Andy Young, stay safe and cheers for now.


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