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Energy Action

Energy Market Wrap

Monthly Edition Released: 27 September 2021

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    Electricity Contract Market

    The wholesale electricity market continues to track sideways with the exception of VIC and SA. VIC wholesale prices have dropped by almost $9/MWh over the past fortnight, while SA prices have dropped by $5/MWh. NSW calendar-year contracts for 2022 are currently trading at a flat price of $65/MWh and QLD at $59/MWh.

    Pricing for all states remains relatively constant out to 2024. In the past we’ve seen significant price backwardation, where prices were lower in future years. This is no longer the case (with the exception of QLD) where forward prices continue to show greater upward price pressure.

    We consider the current wholesale contract price has stabalised around the long-run marginal cost of generation. Our analysis shows retail electricity contracting activity remains subdued. September and October are traditionally a busy time for calendar year contract renewals, however most larger corporates have already secured retail supply agreements out to 2024.

    We expect contracting volumes to remain subdued and limit any significant price increases. The majority of contract renewals are coming from smaller corporate customers who missed the market lows set between March and June. While there is less concern for a continuation in the rapid increase in electricity pricing, we continue to encourage corporates to seek fixed price retail agreements out to 2024.

    The following charts show ‘flat’ contract-year electricity pricing by State. All states, other than QLD, have seen forward prices converge. That is, the price for electricity is at similar levels for 2022, 2023 and 2024. We expect QLD pricing will also converge over the next few weeks, with 2022 contract prices more likely to move lower toward 2023 price levels.

    Electricity Spot Market

    September’s month-to-date spot prices continue to show decreases across all states compared to August’s average monthly price. SA has the largest decrease of 62% with a larger proportion of supply originating from Tasmanian dispatch via Victoria. The low price for Tasmanian generation is associated with high water storage levels supporting increased generation dispatch into Victoria.

    Gas Market

    Retail gas supply prices have begun to decline from the highs we saw during June and July this year. We’ve seen greater price competition from gas retailers with prices now being offered at below $8/GJ for 2022 retail contracts and around $8/GJ for 2023 supply agreements.

    We expect retail gas prices will continue to stabilise and continue to encourage customers seeking 2022 or 2023 contracts to commence procurement immediately with a view to securing contracts in early November. The gas market is notorious for punishing forced buyers, don’t leave procurement to late!

    Environmental Certificate Market

    • LGC spot prices have risen to $38.00/certificate with more corporates announcing voluntary renewable strategies during their recent reporting announcements.
    • VEEC’s continue an extraordinary increase, currently trading slightly lower at $78.00/certificate
    • ESC prices remain relatively stable, currently trading at $38.60/certificate
    • STC’s remain just below the retail price cap, trading at $38.90/certificate
    • ACCU’s (Australian Carbon Credits) continue an upward trend, trading higher at $26.00/certificate in response to increasing corporate demand.

    The LGC forward curve continues to show modest price backwardation with the cost of 2024 LGCs currently trading at $28.50/certificate. While 2025 LGC’s traded at $25.35/certificate last week.

    We expect corporate demand will continue to increase LGC prices. Last week also saw 2026 LGC’s trading at $17.50/certificate on low volume. ACCU’s (Australian Carbon Credit Units) have also increased significantly and are currently trading at $24.50/certificate. These certificates are seen as a lower cost alternative to renewables in order to offset carbon for corporates seeking to decarbonise. It’s important to note that ACCU’s can’t be used for corporates adopting a renewables strategy.

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

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