Plenty of generation capacity and mild weather keep spot prices subdued. We have seen a strong push down on the Cal 24 contracts off the back of plenty of available generation and mild weather. While this mild weather continues, the short-term contracts will continue to drift, but if we see predicted heat across the NEM in November, it is likely we will see a rally in the Cal 24 contracts and, to a lesser extent, the Cal 25’s.
Gas spot prices show some signs of life as prices find a resistance point and look to be heading back towards $12.00. The retail contract level remains stable. We have now seen a slight retracement in the spot gas levels as they look to head back to similar levels not seen since June 2023, despite ongoing issues in the Middle East being a looming threat to global markets.
Environmental certificates are showing signs of life in the LGCs, trading down nearly 10% before settling. ACCU’s longer-term forecast looks favourable and the STC Clearing House moving out of deficit is in sight.
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.
Supply Risks. As more information emerges, the more likely is is that Eraring will stay open beyond August 2025. It is already priced into in some capacity for 2025 and 2026 and it is expected that those contracts will drift lower as the market becomes more knowledgeable about the life extension. While this is a positive for the market, there is still critical requirements for the grid to be upgraded as well as the commissioning of more renewable generation to continue the transition.
Price and Demand Risks. Although it is yet to have a direct effect on the market, the continual presence of an El Niño summer is still at the forefront of markets mind. The generation performance and excess capacity is keeping contract prices under downward pressure. While we continue to see mild weather with no or minimal weather events and plenty of generation capacity, the forward contract markets will continue to soften. It will be tested if we get some hot days across multiple states. None of these have been experienced in the quarter yet as of publication. The two scenarios will put pressure on the physical supply and therefore prices if they eventuate.
Recommendation. As we continue to move towards Q1 2024, the window to contract gets tighter and tighter. Holding off as the curve falls helps to extract value from a falling curve, but it is important to remember that when the price rallies, it tends to move back up quickly and is hard to capture all that value. If you're thinking of locking in your businesses next contract, click here.
It is worth assessing the upside risk against the opportunity missed as there maybe more upside risk if the price moves and moves quickly compared to continuing to try and ride the curve to the bottom.
Latest data available from Utilibox
October energy prices were low across the period and is continuing to put pressure on the Cal 24 contracts. Prices were subdued during the month due to the ongoing mild weather and plenty of generation capacity. While we did see some volatility in the evening peak, it was offset by plenty of negative and low prices during the day. SA & QLD both experienced price spikes during the month, but both were short-lived and didn’t significantly impact the overall price. Both were caused by physical market issues; SA had a low wind day and an interconnector constraint.
Plenty of sunshine and good wind availability has continued to allow strong generation performance across the states for renewable energy. Minimal rainy days and plenty of wind was a key driver to significantly softer spot prices in the NEM. While there were some small spikes again, plenty of daytime solar provided a lot of negative and low daytime prices.
El Niño is yet to play out. While there is still a high level of risk around early 2024 and a hot January/ February, there is a real tussle in the market between the bulls and the bears. Currently, the bears are winning the battle as we continue to see downward pressure on the Cal 24 contract.
All figures in $/MWh. Latest data available from Utilibox
Latest data available from Utilibox
Gas spot prices reversed recent trends and head back to $12.00. Retail contracts still trading at a large premium over spot. Spot gas appears to have found a resistance point as is now tracking back up, with most of this increase in the second half of the month.
Issues in the Middle East are yet to cause any significant impact on the gas market. The current conflicts between Palestine and Israel still do pose a risk. As of right now, it is yet to be reflected in current Australian gas pricing retail contracts. Prices currently remain steady, and spot prices are ticking up slightly. However, there is still a supply availability shortfall forecasted for the upcoming winter in Victoria, and is still a risk to the market.
Contracting conditions are going to remain a challenge. Retail contracts remain stubbornly high and with spot gas now starting to trend up, it is unlikely that we will see any downward movement in the Cal 24 contracts.
Small Scale Technology Certificates (STCs) continue to trade in close to penalty ($40.00), this will remain the case while the STC Clearing House remains in deficit. It has fallen from 6.2 million certificates short in April, to 1.15 million certificates in October. The clearing house is forecasted to move out of deficit in early 2024. There has not been a large movement in prices, we are seeing short-dated forwards trading at a discount to the spot, early signs that the market may start trading outside of its current channel.
Large Generation Certificates (LGCs) traded below $50 for the first time since April 23. It traded down as low as $45.50 before retracing back to close the month at $49.00. We are still seeing backwardation in the curve (when the future commodity is trading lower than the spot), however the level of discounting is continuing to shrink as the Cal 24 contracts are almost at parity with the spot and the discount for Cal 25 LGCs is below $4.00. Both Cal 26 & Cal 27 LGCs are trading in the $30’s.
Victorian Energy Efficiency Certificates (VEECs) continue to plateau, with no real value change over the past couple of months again trading in the mid $80’s, closing out the month at $85.75.
Energy Saving Certificates (ESCs) traded down during the month, closing down $1.00 to finish at $26.00. The ESC market is currently not well traded and only small volumes are being reported. Similar to what we saw in VEECs, most trading is in spot or short-dated forwards, and we are not seeing any longer dated trades.
Australian Carbon Credit Units (ACCUs) continue to trade at the $30.00 level since the short-lived breach below $30. While the market outlook is that ACCU’s will stay at these levels in the near-term, there is an expectation that certificate prices will return to the $40 level in the 3-4 years and then sit closer to $80 a certificate the closer we get to 2035.
Latest data available from Utilibox