On the 1st October, Resources Minister Madeline King met with gas industry leaders to evaluate triggering the domestic gas reservation policy. Unsurprisingly, the gas industry assured supply would be sufficient to meet demand, without the need for a reservation policy.
Both electricity and gas markets moved higher in response, reaching new highs and continuing the strong uptrend, also driven by higher coal and gas futures.
In contrast, electricity spot prices decreased on the back of last month’s reductions (refer Pg.6). The decline in spot and increase in contract pricing indicates future supply conditions are likely to worsen.
We remain pessimistic about futures conditions and continue to encourage corporates to consider contracting now for 2024 and 2025 supply agreements.
We recommend corporates act quickly (especially in SA) to secure 2024 and 2025 fixed-price contracts before prices increase further.
While the government remains silent concerning Energy Policy settings, the current policy settings do not address baseload electricity availability, required for a managed transition to increased renewables.
There are two ‘schools of thought’ when considering energy contracting:
Selecting between the above alternatives requires a thorough understanding of your organisation’s risk preferences.
We are convinced of the very real possibility that many organisations will struggle to survive long-term energy costs, if they remain at current levels.
We are also aware of many organisations considering 10-year PPA’s offering attractive prices relative to current market levels, without sufficient consideration of long-term feasibility.
As discussed in our introduction, the likelihood of Government intervention in the Australian Energy Market, or any adjustment to the policy settings that influence energy costs, remains remote.
In the short term, energy pricing is dependant on the Government providing the settings to address the underlyingcauses of current market pricing (baseload generation and gas reservation).
We continue to look to an accelerated introduction of a capacity mechanism, incentives to maintain baseload generation (in the short term) and the development of transitional fuels such as gas, as second-best policy measures to reduce current market pricing.
With many advanced economies faced with recession, the global outlook is for rising interest rates, hyper inflation and reduced government spending.
Wholesale electricity spot prices continued their decline from last month with SA leading the reduction. Spot prices in SA decreased by 40% compared to the prior month. Most states are now trading around $100/MWh, except for TAS.
During the month, there was a lower requirement for gas-fired generation to meet operational demand because of milder weather and more favourable conditions for renewable generation.
The following chart shows the proportion of electrical generation, by fuel type, during the month of September 2022.
Approximately 4.7% of electricity generation was sourced from gas-fired facilities, down from an average of 8% during the quarter.
Increases in baseload generation offset the decline in higher-cost gas-fired electricity and accounted for 58% of supply during the month.
Renewable sources increased compared to the previous month, to 37% of total supply.
Source: Open NEM
The Government’s decision to avoid invoking the gas trigger mechanism has supported existing price levels.
Wholesale domestic gas prices have fallen since their highs in July, partly due to a supply outage on the APLNG in late August. This resulted in greater supply available to the domestic market (proof a reservation policy would place downward pressure on prices).
Average prices remain historically high:
Retailers with gas are offering fixed-price contracts at:
European demand remains the key influence on domestic gas pricing now that government intervention is less likely. The severity of Europe’s winter will also have a significant short-term price impact on domestic gas pricing.
Latest certificate prices are:
Source: Demand Manager
LGC prices represent the cost of renewable electricity. Each certificate represents 1MWh of renewable electricity (or approx. 1 tonne of CO2e).
LGC prices continue to increase in response to corporate demand for voluntary decarbonisation and buying demand for RET compliance.
The Federal government released an updated paper for the Safeguard Mechanism indicating that large emitters may be required to achieve an annual emissions reduction of 6%, up from 3.5%, which drove prices higher.
ACCU represent the cost of offsetting the carbon associated with energy use (such as gas and liquid fuels).
Prices rose slightly for 2022 certificates after recent downward pressure on prices.
ACCU prices also moved higher due to the Government’s Safeguard Mechanism review paper.
