Warm weather on the horizon puts upward pressure on forward contracts as we move in December. While November continued to fall across the forward contracts, early December has shown some potential insights of what summer 2023/24 might entail. The Australian mainland is starting to see more hot weather forecasted at higher temperatures but also for longer periods. Where we previously experience a hot day as a stand alone, we are now seeing 2 or 3 days plus of warmer weather being strung together. Contract prices that had been falling over the past 2 months have seen support and are all showing signs of life in early December.
More government intervention looks to shore up supply. More Government discussion with gas suppliers looks to add an additional 300 PJ to domestic supply up to 2030 helping to take some pressure on forecasted tightening of availability. Yet to play out in prices.
STCs clearing house returns to positive territory, prices start to shift down. STC prices finally traded away from penalty moving towards $39.00 per certificate. ACCUs are also making plenty of noise around supply levels.
Source: Utilibox Energy Contract Price Index, using contract prices from Energy Action's reverse auction platform. The index averages these contract prices, so provides insight to pricing trends rather than specific contract price levels.
Weather & price volatility starting to develop on the horizon. During November, the forward contract curves (Cal 24, 25 & 26) all continued to fall. We experienced milder weather and no price volatility to make an impact on prices, even when we had some baseload generation offline. The exception to this was the mid-month glitch. Contract prices rallied over a couple of days due to the Cal 24 contract “option expiry” date - the day in the market where any options traded for Cal 24 needed to be exercised. This caused a short rally in the prices before the overarching downward trend returned and contract prices continued to fall.
However, as we move into December, we are starting to see more forecasts of hotter weather and for more prolonged periods. The forward curves are all starting to retrace back to higher levels.
Supply Risks. In November, we observed several power station outages. While these incidents didn't significantly affect pricing at the time, they're worth noting as a potential risk. As we head into summer, the likelihood of additional unscheduled outages could increase, posing a capacity risk to the grid and potentially influencing prices. Notably, Callide C in Queensland, initially expected to resume operations in January 2024, has indicated a possible delay of a few weeks in its return to service. Although the final return date remains unchanged for now, the adjustment in interim timings introduces an added element of risk, particularly if these delays are prolonged.
Recommendation. For Cal 24 contracts, the recommendation is to finalise these as quickly as possible. We are weeks from the start of the period, and between more hot weather being forecasted and the current quarter prices are moving up, prices are likely to be impacted in Cal 24.
For Cal 25 and beyond, we have missed the sweet spot in the short-term to contract as prices are moving back up. It is worth considering either more structured style products like progressive purchasing where reaction for any drops in the market should be a quicker process than going back out to market as either a tender or an auction. Alternatively, the next buying window will be post summer 2024 when the impact of hot weather has started to subside.
Latest data available from Utilibox
November spot prices did not have dramatic price volatility. However, we did see and uplift in spot prices compared to October that is likely to continue through December. While we did experience more hot days in November, spot price outcomes were still subdued as the days were typically one offs and not extreme. Renewable generation abundance kept prices low during the day, and the efficient transfer of power across interconnectors enabled states with substantial hydro storage to maintain robust levels, preparing for the upcoming summer. Although recent unscheduled outages in generation didn't significantly impact spot prices, there's a potential for notable effects if such incidents coincide with upcoming hot days.
Still seeing plenty of sunshine and good wind availability across the NEM. Ongoing good weather has continued to keep renewable generation availability strong across the month, although we did see some rainy and stormy days, the overall impact was not significant.
All figures in $/MWh. Latest data available from Utilibox
Latest data available from Utilibox
Gas spot prices continued the upward trend through November, pushing close to $13.00 before retracing. Prices look to be moving up again off the back of the warmer northern weather and the need for gas-fired power stations to fill the shortfall gap.
Throughout November, the average spot price in all states remained stable. As we move into warmer weather in December, it's improbable that gas prices will consistently drop to single-digit figures.
Government has announced to shore up volumes, yet to see any impacts on price. In November, the Federal Government revealed that, under the Gas Code of Conduct Agreement, an extra 300 petajoules (PJs) of gas would be allocated for domestic use. Of this, 140 PJs are scheduled for availability up to 2027, with the remainder to be released post-2027. This measure aims to mitigate the anticipated physical gas shortages in the upcoming winters. The impact on prices has yet to be determined.
Contracting conditions are going to remain challenging. Retail contracts continue to remain stubbornly high, and we are now also seeing less flexibility in pricing models from some retailers as they avoid to take additional risk into their wholesale portfolios.
West Coast gas contracts have also continued to rise as availability issues and additional generation requirements kick in.
Small Scale Technology Certificates (STCs) showed intent this month as clearing house deficit has finally been resolved. The deficit at one point was greater than 6 million certificates, keeping pricing close to penalty as there wasn’t any incentive for sellers to move away from these levels. Since the clearing house moved into positive territory, we have seen a drop in prices. This price change has not been dramatic but is significant as it shows the market has the capacity to start trading at lower levels again as supply increases.
Large Generation Certificates (LGCs) continue to trade below $50 per certificate in the spot market, with some volatility observed as prices fluctuated between a low of $45.50 and a high of $47.50 during November. Additionally, a premium is now being applied to short-term forwards, making them more expensive than spot LGCs. The discount on longer-term forwards is also decreasing. Although the market remains backwardated for Cal 25 certificates and beyond, the gap is closing quickly.
Victorian Energy Efficiency Certificates (VEECs) are currently struggling to show any clear direction. They have bounced in the mid $80’s for a couple of months. The only impact we have seen recently was the scheme fee change coming into affect as of 1 November 2023,. This increased the transaction cost of a VEEC, helping to push up prices slightly, but not enough to cause a rally in pricing or a fall in value.
Energy Saving Certificates (ESCs) have again lost value across November. Ample availability of certificates and a lower requirement (percentage of load to be surrendered) has kept topside pressure on the ESC market. Volume traded is like the VEECs limited to either spot or very short-dated contracts with very limited longer-dated trades being written.
Australian Carbon Credit Units (ACCUs) while the price outcomes have been quite flat, the market itself has been quite active. The previous quarter saw some 7 million certificates issued; the previous 2 quarters yielded only 6.2 million certificates. Quarter 3 also saw 0.8 million certificates voluntarily cancelled (short of the record 0.9 million). The outlook for total certificates to be created in 2023 has been downgraded from 19 million to 18 million certificates.
Latest data available from Utilibox