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Energy Market News

Monthly Edition: October 2023

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    Energy Market News October 2023

    Early heat has failed to impact prices, but summer is still a key risk to energy contracting and prices. This month presented a temporary lull in energy prices. The stability may be short lived as we head towards the hot and dry summer. The unseasonable heatwaves have already given us a sense of what’s to come.​

    Assess the pricing risks for your business. Don’t gamble with your business’ bottom line in a volatile energy market. Speak to one of our experts today to assess your options and make the best move for your business.

    Energy Market Summary

    Low spot volatility continues to help drive the forward curve lower, but summer still presents a real risk to the energy market and the physical grid. Picking the bottom of the curve is always a challenge. Understanding the bigger picture risks will help contracting during periods where good outcomes can be achieved. It might not be the very bottom of the curve, but results are good enough to make an impact to the bottom line.

    Gas spot prices fall on low demand, but this not be reflected in the forward retail contracts. There is an ongoing disconnect between the spot gas prices and forward dated contracts. The gas cap is not dampening forward gas prices as the government had expected it to.

    Environmental certificates have been dominated by ACCUs trading towards $30.00. LGCs are trading lower in the spot but showing support in the longer dated contracts.

    Energy Contract Price Index October 2023

     

    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.

    Electricity Contract Market - Uncovering the risks of a predicted hot and dry summer

    Supply Risks. Origin Energy (the owners' of Eraring power station), are believed to be in negotiation with the NSW state government. Nothing has been released yet, but the market is currently pricing in the expectation that Eraring will extend beyond the August 2025 date. There is potential that if the deal doesn’t go ahead, the expected price impact will disappear, and we could see significant price risk in late 2025 into 2026. The price impact that Lidell’s shutdown combined with a delay in the number of renewable energy projects coming online could be significant. 

    Price and Demand Risks. The looming summer is still presenting as a real risk to the market. In summer, we see more daylight hours and increased solar generation, but evening peak periods remain the risk period for most businesses. This can be reflected in the widening spread between peak, off-peak and shoulder pricing. This means a business’ load profile becomes more important when pricing forward contracts. It is important to understand the operations of a business and the impact on price when a business consumes its energy. Demand and price risk is more prevalent outside of the solar production hours, and this is reflected in retail and network pricing. 

    We have seen a softening in the forward contract periods. This might continue while we see a lack of price volatility on the early hot days in the short-term. There is still significant upside risk if we see prolonged heat.

    Recommendation. There is still a high risk of price increases as we head towards summer. With more heat waves on the horizon, you should consider the risks associated with the predicted volatile summer. Don’t gamble with your businesses bottom line in a volatile energy market.

    ASX Baseload Futures Prices

    ASX Futures NSW October 2023ASX Futures VIC October 2023ASX Futures QLD October 2023ASX Futures SA October 2023

    Latest data available from Utilibox

    September 2023 Futures Price Dynamics

    New South Wales

    NSW Prices dynamics Oct 2023
    All contracts rallied in the start of the month as ongoing concern around the upcoming El Nino summer continued to impact the market. Some hot days but a lack of volatility in the spot market helped the curve stabilise and the Cal 24 and Cal 25 contracts backpedaled in the back half of the month.

    Victoria

    The VIC contracts were stable across the period. They also showed signs of a rally, but this was short lived. Contracts all closed the month at lower levels. Cal 26 was the exception, closing slightly higher but on lower liquidity levels.

    Queensland

    QLD Prices dynamics Oct 2023
    QLD based contracts also showed an increase level of volatility, trading up in the earlier part of the month before softening in the last couple of weeks. All contracts closed the month at higher levels than were they opened but have started to show a downward trend.

    South Australia

    SA Prices dynamics Oct 2023
    A constant lack of liquidity in the SA market has again impacted market prices. There was no change in the Cal 26 contract price. Cal 24 showed strong increases before holding its price in the back end of the month. Cal 25 contracts ticked up across the month.

    Electricity Spot Prices.

    Low demand keeps spot prices in check. Ongoing mild weather and plenty of renewable generation has continued to subdue spot prices in the NEM and WA.

    September energy prices reflected the system lower demand and the ongoing availability of renewable energy. Spot price averages across the board were lower in September compared to August. While there were some colder weather periods and a couple of unseasonably hot days, the overall impact was minimal. All states had a drop in spot average of 25% or above. SA recorded a huge decrease in volatility and the ongoing subdued daytime prices.

    Increased renewable generation has maintained stable pricing. Plenty of solar and wind generation during September combined with milder weather has continued to keep spot prices stable. As we move further away from winter solstice, solar generation increases with more hours of daylight. Wind generation has also remained constant across the past couple of months.

    Previous discussion has been around the likelihood of an El Nino summer. Most models are aligning that this will be the case and is likely to impact future contracts. In the short-term, we have seen some unseasonably hot days early, but these have been one off events and the not been reflected in any sustained spot volatility.

    Monthly Average Spot Price

    Monthly Average Spot Prices Oct 2023Monthly Spot Prices Chart

    All figures in $/MWh. Latest data available from Utilibox

    East Coast Gas Market. Gas spot prices continue to fall on warmer weather and low demand.

    Spot Market for Gas Oct 2023

    Latest data available from Utilibox

    Gas spot prices fell in September across all states, but the contract market did not reflect these drops. While spot gas traded well below $10 for the month across all states, this was not reflected in another drop in contract prices. Gas prices did remain stable in the high teens to low twenties (subject to volume and shape). The government regulated cap did affect some pricing most of the contracted gas is not subject to that cap and is holding prices up.

    • South Australia’s average spot price fell dramatically in September to $9.68 down from $11.43 in August.
    • Queensland also fell from $10.91 in August to $9.35.
    • New South Wales and Victoria both dropped, NSW decreased from $11.02 down to $9.22 in September. VIC had the largest drop as a warming conditions reduced demand for heating, it shifted from $10.65 in August to $8.64 in September.

    Supply conditions remain unfavourable. While we did see some softening in the retail contracts over previous months, this has started to plateau. We haven’t seen any dramatic drop in retail contract prices. The market is continuing to flag supply constraints for the upcoming winter. It is likely to be less severe as initially expected as the warmer spring has allowed more gas to be sent north to the QLD LNG export terminals. This should allow more gas to flow south next winter.

    Contracting conditions are going to remain a challenge. While we have seen a month of significant falls in the spot gas price, Cal 24 contracting remains tough. Ongoing supply issues in the winter are holding up prices as is the structure of the regulated gas cap.

    Environmental Certificate Markets.
    Trends, Pressures, and Regulatory Shifts

    Small Scale Technology Certificates (STCs) finally saw some movement, trading down to $39.75. While this wasn’t a large movement, it was a second down trade, having traded earlier in the month at $39.80. We are still unlikely to see any significant movement while the clearing house remains in such a large deficit. At last comment, the Clean Energy Regulator did not believe this deficit would be cleared until 2024.

    Large Generation Certificates (LGCs) are trading down in the spot moving closer to breaking the $50 level. What we are also seeing is the level of backwardation (when the future commodity is trading lower than the spot) is shrinking. Though it is still there and still a discount to spot, the forward contracts for Cal 25 & Cal 26 are currently trading up. Putting pressure on the size of the longer dated discount.

    Victorian Energy Efficiency Certificates (VEECs) have plateaued over the past month, trading slightly down compared to last month, but the fall has been small. We do not see many forward trades and most of the trading is either spot or very short-dated forwards. Unlike the LGC & STC markets, VEECs don’t have the sophistication of market to support longer dated trades in volume.

     

    Energy Saving Certificates (ESCs) have also plateaued this month as the market goes into a holding pattern because the regulator changed the surrender dates for this year due to the portal upgrade. Certificate surrender is now due in November this year (traditionally April), so there might some short-term activity in the lead up to the new compliance date.

    Australian Carbon Credit Units (ACCUs) are close to breaking the $30 resistance point, trading at levels of $30.35 and then $30.00. There have been short periods over the past 12 months where ACCs traded below $30, however, these were short-lived. If the price of ACCUs breaks this level, there is potential to see the curve fall further.

     

    Latest Spot Trade

    Cert trading October 2023

    Latest data available from Utilibox

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