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Energy Action

Energy Market Wrap

Monthly Edition Released: 1 March 2022

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    Electricity Contract Market

    Electricity prices reacted to Origin’s announcement to early-retire their 2,800MW Eraring generator in NSW. The charts clearly show how unexpected changes in supply impacts prices. It also shows how profiteering can be disguised as climate action. We saw this concept catch-on with a buy-out proposal for AGL – a ‘how to’ on cashing-in and appearing to be a friend to the environment. We only need to look at Germany to see what the unintended consequences can be.

    While we are firm advocates for renewable energy and assist our customers to transition to Net Zero, a balanced approach to baseload and renewables will have far better outcomes for consumers, industry and the environment when implemented under a planned transition.

    We continue to see the inflationary impacts on energy prices from Russia’s invasion of Ukraine. We expect the impact on electricity and particularly gas, will continue throughout 2022.

    European gas markets are paying up to $30/GJ and causing the diversion of domestic gas to the extent of Australia’s export capacity.

    We are advising our customers to act quickly to avoid higher gas prices and expect east coast gas prices to exceed $14/GJ during 2022.

    While electricity is less exposed to global gas demand, the impact from gas-fired generation, plant maintenance activities in QLD and increasing renewables capacity are likely to continue placing upward pressure on electricity prices

    With many customers choosing to defer electricity procurement from last year, these customers are now significantly worse off.

    As recommended in last month’s Market Wrap, we continue to recommend customers enter contracts immediately to avoid further price increases, particularly for gas renewals.

    The outlook is now significantly worse for 2025 electricity contract prices, which are trading above 2024 price levels.

    Prices for NSW 2025 calendar year contracts increased by almost $20/MWh in recent trade and are currently priced at $90/MWh (27% increase).

    QLD prices are currently trading above $72/MWh, an increase of $18/MWh or 32% since late January.

    We continue to see QLD trade at over inflated prices and suggest corporates look to Progressive Purchasing for 2023 to avoid a single point of renewal. While progressive purchasing products do not exist for gas, we suggest it may not be the right time to consider entering into a wholesale gas strategy and contract immediately to avoid further cost increases.

    We are currently expediting gas and electricity renewals within 2 weeks to assist our customers avoid further price increases.

    If you havn’t already contracted for 2023, 2024 or 2025, we recommend you act now. In mid 2021 we described the market as “snooze and you loose”. We believe the same term is applicable to current market conditions.

    State Electricity Market Prices

    NSW & QLD

    This section takes a closer look at NSW and QLD electricity contracts by comparing the costs of purchasing calendar year electricity in 2023, 2024 and 2025. The most notable change is 2025 contract pricing (orange line) shown in these charts.

    Most customers are aware they can purchase electricity for future periods, at any time. This means if you acted on our advice to contract for 2025, you’ve avoided the recent price jump.

    An alternative strategy is to install solar. If you’re sick of paying high electricity prices, solar is now a cheaper option (and there is time to have it installed and operating before 2024).

    This option feeds into a corporate Net Zero strategy and is a lower cost alternative to GreenPower due to the treatment of RET compliance costs under a Climate Active approach.

    If you’ve been considering solar, the current price for 2024 and 2025 electricity contracting means the payback on a solar project just decreased by approx. 12 months for installations over 100kW, compared to current market prices in NSW.

    VIC & SA

    The outlook is more favourable for VIC and to a lesser extent, SA, where forward contract prices remain around $50/MWh. 2025 SA prices jumped from discount to premium in the past few weeks while VIC remains at a discount. We believe VIC prices represent good value in the current market environment and recommend Victorian customers extend their electricity supply agreements out to 2025, immediately.

    While SA is currently higher priced than Victoria, we encourage customers to consider the opportunity to extend their electricity supply agreements to 2025.

    Quarterly Contract Prices

    The follow quarterly price charts are to assist Progressive Purchasing customers, who purchase electricity by calendar quarter, rather than locking into fixed contract pricing. These customers ‘hedge’ the price they pay for electricity, often up to three years in advance.

    This means they have more ability to hedge against price movements and take advantage of lower prices where they occur into the future. Our general advice to customers is to hold their current position with a view to increase hedge levels during 2023.

    The charts also indicate now is an opportune time to commence a hedging strategy in VIC while prices remain relatively flat.

    Electricity Spot Market

    Monthly Average Price Trend

    Electricity spot prices rose in all states except SA. QLD spot prices remain above $100/MWh and are trending towards $200/MWh.

    We continue to recommend avoiding any exposure to QLD spot prices. February saw a 40% increase in the monthly average, in response to maintenance outages at Swanbank.

    We continue to see mixed results from the spot electricity market with a general upwards direction across all state markets during the past 6 months.

    Generation by Fuel Type

    As mentioned in the introduction, spot prices are indirectly affected by recent upward pressure on gas price via the amount of gas-fired generation required to be dispatched to satisfy electricity demand.

    The following chart shows the proportion of electrical generation, by fuel type, during February 2022. During February approximately 5% of electricity generation was sourced from gas-fired facilities, consistent with last month’s figure.

    If this is representative of future demand for gas- fired generation, we expect the global issues causing higher domestic gas prices will have a limited impact on the overall price of electricity in the short term.

    Renewables contributed approximately 35% of generation during the month and coal accounted for approximately 60%.

    Gas Market

    The impact from Russia’s invasion has limited the supply of Russian gas to Europe. Germany is feeling the greatest impact from this, having retired its coal fired generation, it is now primarily dependent on neighboring countries to power its manufacturing.

    This is causing gas prices to rise significantly with European prices exceeding $30/GJ. This is extremely attractive to LNG exporters such as Australia.

    We expect Australian gas to be diverted to export market to the maximum extent of our export facilities and to place significant upward pressure on domestic gas prices throughout 2022.

    We consider gas prices are likely to trend in a range from $12/GJ to $18/GJ over the remainder of 2022 and recommend customers act immediately to secure their gas supply arrangements.

    The chart show spot gas prices jumped from an average of $8.76/GJ during January to $10.01/GJ during February (14.3% increase). We estimate a retail margin of approx. $2/GJ will increase current contract prices from $11.50/GJ towards $18/GJ for 2023 gas.

    Environmental Certificate Market

    • LGC spot prices continue to rise on the back of corporate demand for voluntary net zero strategies, currently trading at $45.05/certificate. The CER recently released the RET compliance percentage which increased from 18.54% to 18.64%. This modest increase is unlikely to have any significant impact on LGC prices. We expect increasing supply from additional renewable projects (particularly grid scale solar) will limit the rate of increase during 2022.
    • ACCU’s (Australian Carbon Credit Units) continue their rapid increase from $18/certificate in March 2021 to their current price of $48/certificate. We expect the demand for ACCUs to continue to increase in response to corporate demand to offset Scope 1 carbon emissions.
    • VEEC spot prices remain high from limited supply, settling at $79.80/certificate in recent trade.
    • ESC prices remain reasonably stable at $37.40/certificate under the NSW government’s energy efficiency scheme.
    • STC’s continue to trade just below the retail price cap of $40/certificate, at $39.55/certificate.

    LGC Futures Market

    The LGC forward curve continues to show price backwardation with the cost of 2025 LGCs currently trading at just under $33.50/certificate.

    We expect corporate demand will continue to increase LGC prices and expect the level of backwardation over the forward curve to disappear over time.

    The message for certificate purchasing is to act sooner rather than later. We encourage corporates with a 2025 Net Zero strategy to strongly consider making a forward purchase of LGCs to hedge against further price increases (for scope 2 emission strategies).

    Ready for change? Contact us.



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