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Energy Market News

Monthly Edition: April 2024

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    Loy Yang A trips all 4 units - 13th February causing a significant market price event

    April Energy Market Wrap

    Energy Market News​

    Strong underlying electricity spot prices are driving future prices up.
    Gas is still an ongoing issue.

     

    Published:17 April 2024

    Our Key Message

    Longer-dated electricity energy contracts are on the move, all shifting up on renewed concern about winter gas shortages in 2025 and 2026 and stronger than expected current conditions.

    Gas contracts have more upside risk than downside opportunity as we move into winter. Global markets still having an impact on Australian gas pricing but at lower levels than previous winters.

    April Energy Market Wrap

    Market Summary

    A key AEMO announcement around forward gas supply and demand combined with strong Q2 spot prices has pushed the East Coast electricity contracts up strongly

    While early March had stable pricing across the contracts, late March saw a movement in pricing. This contract movement was initially driven by AEMO’s Gas Statement of Opportunity (GSOO) report being released, the underlying crux of the report was that it reinforced Cal 25 and Cal 26 winter periods and face potential supply shortages. This was already known from the 2023 GSOO, however the 2024 GSOO increased the level of tightness and showing an indication that there was more likely to be gas shortages on extreme peak days. This update put immediate pressure on the future contracts. While contract pricing did stabilise eventually, stronger than expected daily average pricing in Q2 reasserted pressure on the forward curves.

    Wind generation in Victoria has also showed signs of being low this quarter putting additional price pressure on the short-dated contracts.

    ACCC LNG (Liquefied natural gas) Netback Gas Pricing was released via the ACCC in early April. The tone of the report is still showing price risk in the upcoming northern winter periods but at lower levels than we have seen in recent periods. The report is currently forecasting Cal 25 pricing (wholesale equivalent) to be above $14/GJ. This is within tolerance as where the current forward gas retail contracts are trading. The northern winter risk (our summer period) is a risk to gas pricing, and this elevates the risk when combined with the forecasted tightening of supply in the next two (2025 and 2026) Australian winters.

    Utilibox Energy Contract Price Index

    Source as of 16th April: Utilibox Energy Contract Price Index -  using contract prices from Energy Action’s Reverse Auction platform. The index averages these contract prices - providing insight to pricing trends rather than specific contract price levels.

    Market Summary

    Factors driving upward shift in WA Retail Contracts

    1. The influence of weather and policy decisions on WA Electricity Retail contracts: Short-term we have a significant impact from the hot weather WA has been experiencing in late 2023 and the start of 2024. This hot weather kept demand levels strong and a high amount of volatility across the balancing market. WA Government’s decision to expedite it exit from coal-fired generation and tough coal contracting options for Synergy, impacted the bilateral agreements made to underpin the WA market. These factors have pushed the underlying retail contracts upwards, while we do see some flat spots where contract movement is sideways, the overall trend is still moving up.
    2. Escalating Gas Prices:Gas prices also have sky-rocketed compared to previous years which is also impacting the underlying cost of those bilateral agreements, whole gas prices have continued to rise, the wholesale gas price in WA has increased by approximately 40% since Q4 2022. 
    3. Challenges in long-term electricity liquidity and contract competitiveness: Longer-term liquidity is an issue as we are also seeing less competitiveness in the longer-term contracts, some retailers are not pricing longer-term contracts or are only offering start dates within a small window. This lack of liquidity is putting price pressure on the market because only a small amount in an already tight retail market can provide pricing. This can be attributed to a couple of factors but predominantly the limited access to longer-term bilateral agreements and therefore the lack of interest in taking additional risk onto the retailer’s portfolio. 
    :Gas Trading Forecast vs Actual for WA

    Source: Gas Trading Forecast vs Actual for WA

    Electricity Contract Market 

    NSW

    March was reasonably stable for NSW electricity contracts holding their levels steady. Cal 26 contracts did soften during the period. In late March, AEMO released the Gas Statement of Opportunities (GSOO) which outlines the state of the gas market looking forward. The underlying tone of the report was that Cal 25 and 26 winters were likely to be under more supply pressure compared to the 2023 GSOO outlook. This market update created a bit of a run on the Cal 25 and 26 contracts as gas pricing is still integral to the electricity pricing.

    Cal 25 futures contracts were affected more and started to conjoin at a similar price level to the Cal 26 futures contract. Cal 27 futures contracts have remained reasonably stable, and we have not seen much volume trade on these contracts yet.

    The underlying spot prices through the start of April have been stronger than the Q1 pricing, less price events but higher daily averages has held contract prices up, the other factor is we are now moving towards the colder months.

    ​​Recommendation: 

    • Cal 25 future contract is a buy, demonstrating an upward trend as winter approaches.

    • Risk price volatility remains during winter but may soften post-winter if a mild winter allows time for the curve to fall.

    • Cal 26 and 27 contracts are now close to Cal 25 value due to the Cal 25 price jumped significantly. This creates the longer – dated contacts to appear overvalued but will have time to fall beyond current winter.

    QLD

    Cal 25 to 26 contracts spent most of March drifting sideways and not showing any real breakout (movement) in either direction (before and after the contract periods). Similarly, to the NSW contracts during Cal 25 to 26, they did rise off the back of the GSOO (Gas statement of Opportunities) announcement, the Cal 27 contract tended to hold its value. The start of April and the stronger underlying spot prices had a significant impact on the forward contracts, with all three contracts trading up and continuing to trade up.

    While Callide C Power Station is due for full return in mid 2024, this appears to not have impacted the market sentiment as there is still plenty of buying interest.

    While all contracts have jumped, the Cal 26 and 27 contracts are still backwardated and are offering some significant discounts.

    Recommendation: 

    • Cal 25 contracts are now a buy due to an upwards trend on the curve as winter approaches.
    • Risk price volatility remains during winter but will potentially soften post-winter especially if expectations of a mild winter, will create time available for the curve to fall.
    • Cal 26 and 27 contracts are still under watch, will create an opportunity to gather value from backwardation (longer-dated contracts priced lower than Cal 25 contract).

    VIC 

    The impact of the AEMO GSOO (Gas Statement of Opportunities) report had a direct impact of the future contracts in VIC. Tighter than initially expected demand and/or supply in the 2025 & 2026 winters, has put pressure on the VIC contracts. VIC is more affected by gas issues due to both its stronger domestic reliance on gas and the colder weather it experiences during winter. A stronger than expected spot in April and lower than expected wind generation has added pressure to the forward contracts and they have continued to push up.

    The Cal 26 & 27 contracts are still backwardated, but both are also pushing up inline with the Cal 25.

    Recommendation:

    • Cal 25 contracts are now a buy due to an upwards trend on the curve as winter approaches.
    • Risk price volatility remains during winter but will potentially soften post-winter especially if expectations of a mild winter, will create time available for the curve to fall.
    • Cal 26 and 27 contracts are still under watch, will create an opportunity to gather backwardated value (longer-dated contracts priced lower than Cal 25 contract)

    SA

    The SA electricity contract volumes were trending up across March but moving up on only minimal traded volumes. The GSOO (Gas Statement of Opportunities) announcement had less of an impact on the other states due to the lack of liquidity in that market rather than the outcome of a direct impact.

    The Cal 25 contracts did trade up in early April because of stronger spot pricing and minimal price volatility was caused by low wind output in Victoria. This created a requirement to use more higher cost fuels to make up the shortfall.

    Cal 26 and Cal 27 haven’t moved on the ASX but the expectation is that those contracts are up in value along with the other states.

    ​​Recommendation:

    • Cal 25 contracts are now a buy due to an upwards trend on the curve as winter approaches.
    • Risk price volatility remains during winter but will potentially soften post-winter especially if expectations of a mild winter, will create time available for the curve to fall.
    • Cal 26 and 27 contracts are still under watch, will create an opportunity to gather backwardated value (longer-dated contracts priced lower than Cal 25 contract)

     

    ASX Baseload Futures Prices

    NSW ASX Baseload Futures Prices
QLD ASX Baseload Futures Prices
VIC ASX Baseload Futures Prices

    Latest data available from Utilibox

    SA ASX Baseload Futures Prices

    Electricity Spot Prices.

    Mild weather across the month decreased the level of volatility but daily average prices stronger in April

    March electricity prices were lower compared to February. February prices were driven up by volatility from the Loy Yang A trip. March prices on the other hand have had less price volatility but the underlying prices have been stronger which has flowed into the start of April.

    These strong underlying pricing in the spot has added pressure onto some of the forward contracts especially as we move towards winter.

    March pricing was affected by some weather events, while we did have some late heat come through in the early March, this heat was not strong enough to cause significant or prolonged price events. Wet weather had an impact of pricing in March due to large rain days putting price pressure on as solar generation was low on those days.

    Western Australia pricing was consistent as the weather was still warm and we experienced some volatility in the evening peak of the balancing market keeping averages up at similar levels to February. April pricing has softened on the back of some milder weather.

    Monthly Average Spot Price

    Monthly Average Spot Price
Monthly Average Spot Price data

    All figures in $/MWh as of  10th April. Latest data available from Utilibox

    Gas Markets Breakdown

    Gas Market DataACCC LNG Netback Gas Pricing

    Source: ACCC LNG Netback Gas Pricing - As of April 2nd

    • Spot Gas Prices: Spot gas prices have stayed in the trading range of $10.50 - $13.00 and has not yet started to push up as we move towards the colder months. There were a couple of days when spot gas was trading at the higher end due to a demand related issues, but supply has been strong, and we haven’t seen any price jumps.
    • Trading Activity and Futures Prices: Starting to see more consistent pricing in the $15’s for Cal 25, these lower prices have been client specific, and outcomes are determined by load shape and volume requirements, but this is a good outcome for the market.
    • International Gas Demand: Japan is looking to reduce its reliance on Russian gas and is currently focusing on Australian & US projects. JERA (Japan’s largest power generator) signed a deal to buy 15% of Woodside’s Scarborough Project.
    • Domestic Gas Demand: AEMO released the GSOO (Gas Statement of Opportunity) for 2024, it has refreshed the notion of short gas peak days in Winter 2025 and Winter 2026. While this is not new information, AEMO has upgraded the risk, indicating a larger than expected shortfall during the 2025 and 2026 winter peak days. Combined with depleting stocks from the southern gas fields, this has increased the risk to gas supply and therefore winter prices. This is not being directly reflected in the gas prices we have seen in Retail contracts yet.
    • ACCC LNG Netback Gas Pricing: The ACCC market report is still showing a potential price increase over the next two summers (northern winter) but at lower levels compared to previous years. It is currently forecasting Cal 2025 pricing to be above $14/per GJ, which appears to be in reasonable alignment with where the retail contracts (including margins) are trading.

    Environmental Certificate Markets.
    Trends, Pressures, and Regulatory Shifts

    Small Scale Technology Certificates (STCs)

    The STC market was reasonably benign during March, certificates traded throughout the period and did move up. They started the month at $39.65 before trading across the period to close $39.90 just below the penalty rate ($40.00). The clearing house is still in surplus, so the market is not under any urgent buying pressure however for levels to still be sitting in the high $39’s there is still a strong undertone of buying requirements.

    Latest Spot Trade

    Small Scale Technology Certificates (STCs)

    Latest data available from Utilibox

    Large Generation Certificates (LGCs) forward markets 

    Active trading throughout the month putting upward pressure on the  spot price with some significant volumes going through, this was both in the spot contracts as well as the longer dated contracts. Spot traded up to close out the month back above $47.00. The contract is predicted to have a further upward trading left in it. Certificate requirements are being driven at this point by voluntary requirements as we have moved away from the compliance period.

    LGC

    Victorian Energy Efficiency Certificates (VEECs) 

    Certificate pricing was stable across March, holding steady at around the $94.00 level. This is still well above historical price averages. An issue with the current market is that minimal volume is being traded in the longer-term forward and keeps pressure on the spot market. March did see some option trades go through, but the month overall was quiet.

    Creation volumes have also been reasonably consistent sitting between 60k & 80k per week. Lower weeks were the shorter weeks over Easter but overall, the market has been consistent.

    Energy Saving Certificates (ESCs) 

    No real change to ESC’s as they have continued to trade below $22.00 and not showing any clear indication of movement back above $22.00.

    Creation volumes were solid throughout the period, culminating in a maximum creation week above 475k. We did see a slight drop off over the Easter long weekend, but overall volumes are still strong. This strong volume of creation will keep downward pressure on price as the market is flooded with current certificates. As with VEECs, ESC typically only trade in the spot and the very short-dated forwards meaning this strong creation level should temper spot pricing.

    Australian Carbon Credit Units (ACCUs) 

    While we are still seeing some significant volumes of ACCU’s trading it is typically in large clips of certificates and not a constant flurry of individual trades. While generic ACCU trades seem to have quietened, the Human Induced Reductions (HIR) have trade in some reasonable volume, and we did see 200k of Call options trade during the month.

    The ACCU certificate trades can have a wide range of pricing depending on the methodology of creation as not all methodologies are priced the same. Certain methodologies which have potential additionality of benefits can request a premium. While there are markets for method specific ACCU’s currently they are sparsely traded. Most of the volume is from generic or HIR ACCU certificates.

    Appendix – New South Wales Baseload ASX Futures

    New South Wales Baseload ASX Futures

    Latest data available from Utilibox as of 10th April

    Appendix – Victoria Baseload ASX Futures

    Victoria Baseload ASX Futures

    Latest data available from Utilibox as of 10th April

    Appendix – Queensland Baseload ASX Futures

    Queensland Baseload ASX Futures

    Latest data available from Utilibox as of 10th April

    Appendix – South Australia Baseload ASX Futures

    South Australia Baseload ASX Futures

    Latest data available from Utilibox as of 10th April

    Appendix – Baseload ASX Futures

    Calendar Year 2024

    Baseload ASX Futures  - 2k24

    Latest data available from Utilibox as of 10th April

    Appendix – Baseload ASX Futures

    Calendar Year 2025

    Baseload ASX Futures - 2k25

    Latest data available from Utilibox as of 10th April

    Appendix – Baseload ASX Futures

    Calendar Year 2026

    Baseload ASX Futures  - 2k26

    Latest data available from Utilibox as of 10th April

    Appendix – Baseload ASX Futures

    Calendar Year 2027

    Baseload ASX Futures - 2k27

    Latest data available from Utilibox as of 10th April

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