Author - Dave Harvey , Risk Manager at Energy Action
Dave, with over 20 years of expertise in the Australian Energy market, has worked in wholesale trading, in-house energy, and strategic advisory roles. He specializes in portfolio management, employing physical assets and contracts for risk management. His background includes developing procurement strategies such as Progressive Purchasing energy, Power Purchase Agreements, and gas procurement, along with managing LGCs and ACCUs.
December's energy markets ended with subdued spot prices and softer futures, yet underlying structural pressures, including a projected southern gas shortfall for winter 2026 and rising reliance on short-term gas contracts, signal continued volatility ahead.
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Australian electricity market news, January 2026
Electricity Futures
NSW: Futures have softened significantly, with all contract years now trading in a narrow $106/MWh band. The slight premium for CAL 28 and CAL 29 reflects long-term uncertainty, particularly around Eraring's 2029 closure. The market remains exposed to volatility from ageing coal plants and weather spikes, with extended demand from the Tomago Aluminium Smelter adding structural pressure.
VIC: Prices have eased, with CAL 27 the low point at $74.56/MWh. The curve shows a sharp structural rise in outer years (CAL 29: $83.44/MWh), directly pricing in the long-term transition risk from Yallourn's closure, despite near-term stability from extended coal life.
QLD: The market remains backwardated but has softened sharply, with the premium between years narrowing. CAL 26 leads at $87.53/MWh, while CAL 28 is the lowest at $85.86/MWh. This reflects reduced near-term outage risk and growing confidence from delayed coal retirements (e.g., Callide B to 2031) and renewable investment, though firming project delays remain a risk.
SA: CAL 26 and CAL 27 converged near $90/MWh, reflecting easing near-term conditions. However, a clear premium emerges for CAL 28 ($91.57/MWh) and CAL 29 ($94.51/MWh), pricing in persistent structural risks from interconnector dependence and limited firming capacity, despite reduced immediate reliability concerns.
TAS: The market is mildly backwardated, with CAL 26 at $79.45/MWh trading above CAL 27 ($74.58/MWh). This reflects higher near-term sensitivity to hydro inflows and Basslink flows rather than structural stress. The stable CAL 27 price indicates confidence in the balanced, hydro-dominated supply outlook beyond the immediate horizon.
WA: Futures remain structurally elevated. CAL 26 averaged $120.27/MWh, up $8.50/MWh from November, driven by rising firming costs and coal exit timelines. CAL 27 trades at only a modest discount, reflecting continued uncertainty. Despite mild weather, the market is dominated by reliability pricing and sensitivity to gas-market dynamics, with limited evidence of sustained price relief.
Spot Market Trends
Spot prices in December were shaped by mild summer conditions, low holiday-period demand and strong renewable output. Interconnector flows played an important enabling role, allowing surplus generation from renewable-heavy regions to be exported to neighbouring states and reducing the risk of localised shortages. Daytime pricing remained soft as solar and wind output exceeded demand, while evening pricing continued to be set by gas-fired generation amid constrained coal flexibility. Overall, December reinforced a benign start to summer, with weather, renewable availability and effective interregional balancing limiting scarcity and keeping spot prices stable.
Market
prices on the East coast have stabilised within a $13/GJ range, supported by mild seasonal demand. However, the ACCC's December 2025 report highlights a deepening structural divide between Queensland and the southern states (VIC, NSW, SA, TAS, ACT). A core challenge is the projected 26 PJ supply gap for southern states in Q2 2026, driven by declining local production and rising demand for gas-powered generation. Meeting this shortfall depends on Queensland's surplus and sufficient withdrawals from storage, with the Iona facility requiring 12 PJ of injections before May 2026.
Environmental Markets
STC prices remained unchanged at $39.95 through December, with light trading volumes and stable supply conditions, reinforcing their low-volatility profile.
PRC prices eased slightly from $2.90 to $2.88 as year-end trading slowed, while forward pricing held near $2.90, reflecting a well-supplied market.
LGC prices softened further, with spot prices falling from $7.25 to $6.25 amid ongoing oversupply and subdued voluntary demand. Liquidity remains sufficient and downside risk appeared limited under current supply conditions.
VEEC prices trended lower but remained stable, with subdued year-end trading and limited forward participation. Market sentiment stayed cautious but supported by sufficient certificate availability.
ESC prices were stable through December, with limited volatility and trading activity driven by compliance timing.
ACCU prices remained range-bound, with both Standard and HIR units trading within narrow bands and volumes reflecting various, compliance-driven activity rather than change in fundamentals.
Source: Energy Action Analysis
Futures Market
The NSW forward curve for CAL 2026 to 2029 has continued to come down significantly from the tail end of November.
Prices are trading within a relatively narrow band across all four years, reflecting a market balancing near term supply risks with expectations of future capacity additions.
CAL 26: Average price fell from $115.58/MWh to $106.65/MWh
CAL 27: Average prices eased from $114.07/MWh to $105.65/MWh, suggesting medium term stability
CAL 28: Average prices fell from $113.59/MWh to $105.78/MWh. Prices continue holding a $1-2/MWh premium over CAL 27 and CAL 26, reinforcing the view that long term structural uncertainties are being offset by anticipated new generation and transmission projects.
CAL 29: CAL 29 is currently trading with a slight premium against CAL 26 due to inbuilt supply uncertainty with the April 2029 planned closure of Eraring.
The combination of ageing thermal reliability issues and timing risks around new investment continues to leave the market exposed to volatility from unexpected outages and weather driven demand. This is particularly tangible with the hotter conditions experienced mid December to early January. Despite plenty of solar generation, a brief heatwave on 19 December saw temperatures reach 42.2 degrees as both and hydro ramped up to ensure supply met demand, highlighting the sensitivity of the supply and demand balance during hotter periods.
On the demand side, the extension of the Tomago Aluminium Smelter in NSW Hunter Valley untill beyond it’s current 2028 energy contract expiry has placed some pressure on longer term contracts as it accounts for approximately 12% of NSW’s annual electricity demand.
Supply Outlook
AEMO’s biennial Integrated System Planning announcement modelled that coal power will likely continue in the NEM until 2049 (revised from the original 2038 projection). Allowing state owned coal power plants to run until the end of their technical lives as opposed to closing them by 2035 could mean that generators may become increasingly more unreliable as they age. This is also coupled with the downgrade of adding only 6,000km of new transmission infrastructure by 2050 (compared to the projected 10,000km in their original 2024 forecast).
Renewable energy impact and evening peak reliance across the states.
Interconnectors Enable System-Wide Balancing and Price Stability
Interconnector flows played an important enabling role in stabilising spot price outcomes across the NEM during December. Mild weather and low demand created periods of surplus generation particularly in renewable-heavy states which allowed excess supply to be exported to neighbouring regions and reducing the risk of local shortages. While interconnectors did not drive subdued prices, their ability to facilitate interregional energy sharing helped suppress volatility and manage local shortages, contributing to a more stable price outcome across the market.
Renewable generation availability strengthened these flows, with strong solar and wind output frequently exceeding local demand during daytime peak periods. Coal capacity was generally available but operational flexibility was constrained at times, as ongoing maintenance and ramping limitations reduced responsiveness rather than outright supply. Gas-fired generation continued to set marginal prices during evening peak periods; however, lower-than-usual usage and stable fuel costs limited upward price pressure. The combination of surplus generation, sufficient thermal capacity, and effective interconnector operations enabled the market to balance supply and demand across regions and maintain subdued price outcomes.
Benign Summer Conditions Keep Spot Prices Subdued
Electricity spot prices across the NEM remained subdued through December, driven by mild weather, low demand over the holiday period and strong renewable availability. Average temperatures were generally manageable across most regions, keeping volatility contained and avoiding material stress despite ongoing coal maintenance. While most regions experienced soft pricing, NSW traded relatively firmer but remained below historical summer stress levels. Volatility was limited for most of the month, with only isolated pricing events. A brief daytime price spike in New South Wales during mid-December occurred as temperatures approached 42 degrees, requiring higher-cost generation including black coal, hydro and gas to meet peak demand. This event was localised and short-lived and did not materially influence regional or NEM-wide average prices, reinforcing the broader theme of subdued market conditions through the month.
Overall, December reinforced a benign start to summer, with spot price outcomes driven primarily by weather, strong renewable output, interregional imports and reduced seasonal demand, all of which limited the risk of scarcity. While coal maintenance continued and gas-fired generation set higher marginal prices during tighter periods, these effects were offset by surplus supply and effective interconnector support, keeping spot prices subdued.
Policy, Load and Structural Developments
The extension of the Tomago Aluminium load returned approximately 12% of NSW annual electricity demand that had previously been assumed to exit the system. This development tightened the medium-term supply–demand balance and increased the need for replacement generation, in the context of competing growth from data centres and broader electrification.
Guidance from AEMO has reframed system reliability assumptions, with modelling indicating that coal generation remains material in some scenarios for up to 10-12 years. Coal was increasingly referenced as a central anchor for system adequacy, despite ongoing policy ambitions and continued renewable investment. While extended coal operation may moderate near-term scarcity pricing outcomes, it reinforces longer-term transition uncertainty and highlights the growing reliance on ageing thermal generation assets.
Spot Gas Prices
Gas prices have gradually declined throughout January 2025 as weather-driven demand eased. In late December, QLD LNG producers forecasted a 2025 surplus of 69–110PJ for domestic users, which was expected to keep downward pressure on prices. However, the AEMO GSOO (Gas Statement of Opportunities) Report highlights ongoing supply constraints for peak winter demand days in VIC, which remain a concern for 2025. Seasonal demand spikes, driven by cold snaps and intermittent renewable generation, continue to impact short-term gas prices.
Contract Prices
Cal 2026 contracts are currently tracking at similar levels to Cal 2025 rates. Domestic supply expansions including Arrow Energy’s Surat Basin and Port Kembla’s import terminal (both expected in 2026), could influence Cal 2026 pricing. However, upcoming winter demand challenges and the potential for prolonged cold periods may offset any price reductions from increased supply.
Overall
Considering potential winter supply issues, locking in Cal 2026 contracts before Winter 2025 could provide budget certainty and mitigate price risks.
LNG – A Global Commodity
Global LNG project delays such as Golden Pass in the US and Costa Azul in Mexico, will restrict global supply until 2027, emphasising the upward price risk beyond 2027. Changes in US government policy will create long-term uncertainty for LNG exports. While these global factors expose Australia to price volatility, it also protects them from external shocks through storage and production investments. Queensland's potential 2025 gas surplus (69 – 110PJ), could offer short-term price relief, but winter spot prices spikes are likely, due to peak demand gaps. Despite volatility caused by LNG global delays and seasonal demand, Australia's storage and production expansion aim to stabilise long-terms supply and mitigate short term risks.
Storage Facilities & Production
Ultimately, these facilities focus on enhancing domestic resilience by balancing supply and demand through infrastructure and local supply chains.
Small Scale Technology Certificates (STCs)
Market Update
The STC price has remained steady, fluctuating between $39.85 and $39.90. While this range indicates stability in the market, it also reflects limited price movement despite an increase in trading volume compared to previous months.
Although higher volumes suggest growing market interest, activity remains muted, with no significant shifts in pricing. This could indicate that market participants are holding positions, awaiting clearer signals or external factors—such as supply adjustments, policy changes, or demand shifts—that could drive more substantial price movement in the near term.
Large Generation Certificates (LGCs)
Overall Trends:
The LGC market has seen significant fluctuations over the past month. Early price increases, driven by strong buy-side demand, were followed by a broad decline across most contracts, indicating a shift in market sentiment.
These trends highlight the market’s dynamic nature, with pricing adjustments reflecting shifts in demand, supply outlooks, and broader economic factors.
Victorian Energy Efficiency Certificates (VEECs)
Overall trends:
The VEEC market remains stable at higher price levels, with low trading volumes and minimal downward pressure. Prices are holding around $112, with little activity in longer-term contracts.
Specific market movements:
Forward Contracts (Jul-25 to Dec-25)
Conclusion
The VEEC market remains stable due to low liquidity, with spot prices showing only minor fluctuations. Forward contracts remain stagnant, and prices are likely to stay above $112 unless market conditions shift.
Energy Saving Certificates (ESCs)
Overall trends:
ESC prices remained stable around $14.50 in January 2025, with low trading volumes keeping the market steady. Spot prices briefly rallied to $14.60 mid-month before dipping to $14.30 by 28 January.
Activity in forward contracts was limited, with sporadic trades in Apr-25, May-25 and Jun-25 deliveries. Longer-term contracts remain illiquid and more volatile than the spot market, leading to a disconnect between short-term and long-term pricing.
Conclusion
The ESC market continues to face low liquidity, with spot prices showing minor fluctuations. Thin trading in forward contracts has resulted in inconsistent pricing and minimal transparency. This ongoing trend underscores the challenges in fostering a more active and balanced ESC market.
Australian Carbon Credit Units (ACCUs)
Overall trends:
Trading volumes have slowed, and prices are declining across all ACCU types.
Price Movements by ACCU Type:
Conclusion
The ACCU market is losing momentum, with trading volumes subdued compared to previous months. Prices for Generic and HIR ACCUs are converging around $34.00–$34.50, while method-specific ACCUs continue to show volatility, indicating waning market interest in these certificates.
Latest data available from Utilibox as of 30th January
Latest data available from Utilibox as of 30th January
Latest data available from Utilibox as of 30th December
Latest data available from Utilibox as of 30th December
Latest data available from Utilibox as of 29th January
Latest data available from Utilibox as of 29th January
Latest data available from Utilibox as of 29th January
