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Energy Action

Energy Market Wrap

Monthly Edition: September 2023

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    There’s no penalty for being prepared when it comes to your energy contracts. We’re in the calm before the predicted hot and dry summer storm.

    Understand the risks before entering a contract. You'll be better equipped to make decisions and revisit your businesses energy strategy if you have a comprehensive grasp of the value that energy price swings have.

    Energy Market Summary

    A lack of current spot volatility and ongoing warmer weather has kept forward contracts at lower levels. Forecasted warmer weather and potential infrastructure issues are still a risk. There is an opportunity to beat the heat and lock in forward contract prices before summer is in full swing.

    Spring-like weather with plenty of sunshine has kept price volatility on the energy market away in August for most of the NEM states. However, interconnector issues caused some volatility in South Australia.

    Gas spot prices stabilised. The gap between retail contracts and spot has started to narrow. Whilst supply issues are still a real risk, in particularly for the upcoming Cal 24, a stable spot price has helped to improve retail offers to clients.

    Environmental certificate markets maintain the status quo of last month, regulatory change still the main driver of price at the moment.

    Energy Contract Prices September 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. As AGL announced the extension of Loy Yang A, optimism remains high on the extension of coal-fired generating remaining online beyond their scheduled closing dates. AEMO released its Electricity Statement of Opportunities (ESOO). The ESOO is AEMO’s state of the market report. The document outlined the infrastructure risk as we transition to renewables, ensuring the grid remains stable.

    Price and Demand Risks. Contracting in this energy market still presents key risks to your business. Moving into summer, the increased sunshine and warm weather will see more solar generation. The increase in solar will reduce evening peak price risk, this also tends to soften future contracts. As previously mentioned, the increased chances of a hot and dry summer will put pressure back on the energy market. This will be felt particularly the Cal 24 contract, but also to a lesser extent the Cal 25 & Cal 26 contracts. A warm late spring could put pressure back on the Q1 contracts. This means the falls we have seen over the past month or so could be quickly removed. A hot summer, combined with potential gas supply issues continuing into winter 2024 could result in a Cal 24 contract trading up strongly.

    Recommendation. As we move into summer, consider the upside risk compared to missed opportunity. While there is indication that the future contracts may have some more value to drop while we move into summer, there is still very real risk of prices running away if we get a hot or an early couple of days of heat.

    ASX Baseload Futures Prices

    NSW ASX Baseload Futures Prices Sept 23VIC ASX Baseload Futures Prices Sept 23QLD ASX Baseload Futures Prices Sept 23SA ASX Baseload Futures Prices Sept 23

    Latest data available from Utilibox

    August 2023 Futures Price Dynamics

    New South Wales

    NSW Futures Prices Dynamics Sept 23
    All contracts fell during August. A lack of volatility in the spot pricing added to the downward pressure on the forward contracts. There were large drops in the contract values across the month before a late rally pulled them back.

    Victoria

    VIC futures Prices Dynamics Sept 23
    Prices rallied in late August after some significant falls earlier in the month.

    Queensland

    QLD futures Prices Dynamics Sept 23
    A lack of volatility and lower daytime prices continues to push future contract prices down, large falls during the month were offset by a short-lived late month rally.

    South Australia

    SA futures Prices Dynamics Sept 23
    A lack of liquidity in the future contracts kept trading to a minimum, Cal 24 & Cal 26 softened slightly while Cal 25 ticked up. Recent spot price events in late August did not impact the future curve.

    Electricity Spot Prices.

    Spring is here - warmer weather and more sunshine
    continue to dampen spot prices

    August energy prices were driven by mild spring-like weather and plenty of sunshine. Whilst we did some higher spot averages in August compared to July, we have seen a clear change from winter levels as solar production ramps up as we get more daylight hours. As the weather warms up, we will see a fall in evening volatility. South Australia bucks the trend, South Australia spot prices increased dramatically compared to previous months. This is due to interconnector issues causing price volatility. A price event in August pulled up the spot average.

    Better weather leads to stabilising prices. This kept spot prices in check in August. Spring weather affects spot in couple of ways:

    1. We see more daylight hours and the weather is warming up. This means more solar production during the day and less requirements for household heating.
    2. South Australia & Victoria still have cold days, they are less frequent, and we see higher minimum temperatures, meaning less need for heating. New South Wales & Queensland tend to be clearer with less cloud cover and therefore solar output increases.

    Ongoing discussion is that we are more likely to have a strong El Nino summer this year. The hot and dry weather will impact the summer months spot price as demand skyrockets.

    Monthly Average Spot Price

    Market Average Spot Prices Sept 23Market Average Spot Prices Table Sept 23

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

    East Coast Gas Market. Gas Spot Prices remain steady. Retail contracts reflect this stability in their rates.

    Monthly Average and Annual Average Gas Spot Prices September 2023

    Latest data available from Utilibox

    Energy Spot Prices remained stable in August. While still disconnected from retail contracts, the gap is closing. Gas spot prices have settled slightly higher in August compared to July. However, the overall sentiment is that prices are remaining stable across the two months. This is now being reflected in retail pricing for Calendar Year contracts in 2024.

    • South Australia’s average spot price was $11.45/GJ, settling slightly higher to July’s $11.33/GJ.
    • Queensland had a price of $10.90 /GJ, up from $10.76 /GJ in July.
    • New South Wales and Victoria also saw prices tick up slightly, with $11.03 /GJ and $10.65 /GJ, from $10.68 /GJ and $10.39 /GJ respectively. In Victoria, indicative price levels are now sitting below $20/GJ, but we did still see some contracting offers above $20/ GJ.

    Unfavorable supply forecast. We have seen a softening in retail contracts and the stabilisation of the East Coast spot gas market. However, there is still supply constraints flagged for future years. Supply constraints will continue to keep future year gas prices high and unlikely to revert to pre 2022 levels.

    Tough contracting conditions continue. Retail contract conditions remain hard, macro level supply issues still dominate the energy market. We may see some small softening, but current retail pricing levels are unlikely to drop soon.

    Environmental Certificate Markets.
    Trends, Pressures, and Regulatory Shifts

    Small Scale Technology Certificates (STCs) remain unchanged with no indication of near future changes. While volumes will increase around compliance dates, the price is unlikely to move until the number of certificates in deficit to the clearing house changes.

    Large Generation Certificates (LGCs) have continued to trade in the band between $50-60. However, we are seeing these prices slowly drift downwards. Spot LGCs softened during August, trading at $54.50.There has been no structural change in the market. LGC demand is still based on RET (Renewable Energy Target) compliance requirements and the ongoing voluntary surrender by corporates as part of their ESG strategies.

    Victorian Energy Efficiency Certificates (VEECs) continue an upward journey. They have traded upwards since May 2022. The legislation changes commented in last months report continues to curtail supply of certificates putting ongoing pressure on prices.

    Energy Saving Certificates (ESCs) softened during August as the regulatory change around fuel sources and methodologies has continued to increase the supply.

    Australian Carbon Credit Units (ACCUs) while in previous months we saw a downward trend, there was a brief rally in July to mid-August impacted by changes in the liquidity of the credits. This rally was short-lived, and we have since seen in late August a retracement to levels more akin to the start of July 2023.

     

    Latest Spot Trade

    Latest spot trade environmentals Sept 2023

    Latest data available from Utilibox

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