Australian Energy Market Wrap | 16 August 2021

Our Energy Market Wraps aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

If you have any questions or wish to speak to your energy expert on any of these matters, please contact us.

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Transcript:

G’day, welcome to my latest market wrap and week whatever of lockdown here in NSW. I’m using this recording to escape from the kids, so bear with me while I stare blankly at the screen for 5 minutes…ok so this isn’t going to work – instead, with the new financial year now in full swing and coming up to peak expiry season in December, I thought I’d give you my perspective on the 4 most talked-about procurement methods in the energy market and their pros and cons.

Quick disclaimer, Energy Action utilises all methods described but my intent is to be unbiased and give you high-level detail so you can then start a conversation internally, with us or your consultant.

I won’t go through the green auction process here as we have a video already dedicated to this.

Starting with the most obvious:

Tenders

This is the most common form of procurement and involves taking your portfolio to market via the various retailers and requesting pricing. Usually, this is run over 2 to 3 rounds to ensure competition.

Pros – you have greater control of special requests within the terms of the agreement, while also having the option to view as few or as many rounds as required.

Cons – It can sometimes be a long process due to the multiple rounds, which in a rising market could see offers go the wrong way post round 1.

Auctions

Reverse auctions are usually run within a predetermined time-frame with retailers bidding against each other on the black energy, environmental charges and service fees. The auction process usually takes 10 minutes but is extended depending on the level of bids dropped.

Pros – It’s the most transparent form of procurement as the participant watches the bids drop in real-time and delivers the most competitive pricing on any given day. Also worth mentioning that sign off periods for contracts are notoriously short so this also gives a definite time and date that offers will be presented, allowing entities to line up signatories.

Cons – Timing is everything – this method relies on timing the market well as if you go at the wrong time you don’t get multiple rounds. It's also worth thinking about what T&Cs you would normally look to change in a contract as auctions work well when there are minimal amendments.

Progressive Purchasing

This is a non-traditional method of managing energy price risk, which, instead of contract 100% of your load for a fixed duration, you can buy a percentage of forecast load during the term of the agreement.

Pros – with the right timing you can purchase bundles during lows in the market and avoid locking in during peaks. Being able to take advantage of market-price drops is the biggest incentive for taking on this method. You also have greater control as to how much of your load you fix and at what price.

Cons – This product is only suitable for entities that are flexible enough to lock in bundles and pricing within a short period of time and don’t require definitive pricing for budgeting purposes. This method also suits larger load clients say greater than 10gWh/year due to costs of consultants, which we recommend utilizing.

Progressive Power Purchase Agreements

There is no real standard form for these contracts as each Corporate PPA is negotiated from the ground up, however, the underlying principle is for a business to purchase electricity from a long term – 10+ year agreement directly from a generation project.

Pros – it’s seen as progressive and innovative where the customer purchases directly from a wind or solar project. This helps tackle a corporations sustainability plans, having a direct contribution to lower emissions. There is a level of price certainty with the ability to lock in firm prices for the longer term.

Cons – there are generally firming costs through the length of the contract. While price certainty is an advantage, this sometimes can be blown out by firming costs, which helps manage the mismatch between the project supply and your demand. They deviate away from your traditional retail contract and as such require lawyers at 10 paces to work through the terms. The term being 10+ years creates an issue for most “what happens when a new CFO enters in 5 years and questions the agreement signed?”

As with anything in this space, there is a whole lot more to factor in and engaging with a consultant is highly recommended. As I mentioned in my last video, make sure it’s someone you trust as you will often be working with them for years.

Please feel free to reach out to me via my LinkedIn page if you want to discuss further or have any ideas of what you would like me to cover in my next video. Otherwise, give Energy Action a call and we will be more than happy to help.

Australian Energy Market Wrap | 27 July 2021

Our Energy Market Wraps aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

If you have any questions or wish to speak to your energy expert on any of these matters, please contact us.

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Transcript:

Hello and welcome to another edition of Energy Action’s Market Wrap.

My name is Scott Easton and I head up the Trading and Pricing Team here at Energy Action.

Today I’d like to discuss recent electricity and gas pricing in the wholesale market and identify the factors that have led to a dramatic increase in prices.

I’ll also be discussing AGL’s recent announcement to demerge its business into two separately listed energy companies.

Finally, I’ll be providing an update on Energy Action’s Renewable Backed Electricity Supply Agreement and why this product is an ideal alternative to a traditional Power Purchase Agreement.

Turning now to electricity and gas markets, the charts show the dramatic increase across all states in the forward pricing for calendar year contracts during 2022, 2023 and 2024.

This is largely due to recent generator outages in QLD and Victoria which resulted in higher cost gas-fired generation meeting market demand. 2022 and 2023 contract prices have risen by over 20% in the last few weeks as prices jump by an average of $10/MWh.

We’re seeing prices rise rapidly on bad news but not revert to previous levels, given the majority of the causes (with the exception of Callide Unit 4) have been resolved. This is known as the ratchet effect, where prices rise but fail to revert. The current COVID lockdowns across NSW, VIC and South Australia were expected to decrease electricity demand but have not materialised due to higher heating demand. Electricity prices are now approaching a key resistance level, with the expectation that prices will break through an 18-month high.

In the gas market - wholesale prices have risen to unprecedented levels, peaking at $52/GJ at the Victorian Hub. The Victorian Gas Hub’s daily weighted average price by calendar quarter, along with our estimate of the Sept Quarter, which will rise significantly in response current quarter pricing

The key factors that have produced all-time record gas hub prices include the combined effect from:

1. Unexpectedly high export demand from Asian countries that ran down inventories during 2020 and are now replenishing storage levels. This resulted in domestic gas being diverted to export markets.

2. The increase in gas-fired generation to meet demand due to baseload generation outages, exacerbated by a flood at the Yallourn power station.

3. Unplanned maintenance event at the Longford gas production facility, which also resulted in storage levels at the Iona gas storage facility depleted.

4. Recent unseasonably cold weather has increased the demand for both gas and electric heating, with the majority of additional electric heating supported by gas-fired generation.

The combined effect of all four factors sent gas prices to unprecedented levels. However, Longford has since returned to full production, Yallourn is back online, the cold weather will pass and Asian gas demand will fall back to prior levels, we expect gas prices to stabilise by Q4 2021, subject to the ratchet effect.

These events have pushed up the forward contract price for 2022 and 2023 gas, now trading between $8.50 and $8.70/GJ.

Turning now to AGL’s recent announcement to demerge its business into two separate businesses, AGL and Accel, by Q4 of FY22. The key differentiator being Accel’s ownership of existing coal-fired generation assets, while AGL will focus on leveraging its customer base with the multi-product strategy. The separation appears to be around wholesale and retail operations although the asset structure is more aligned to coal and renewable generation.

It's unlikely that the demerger will have any impact on the energy markets although we have seen recent improvements in AGL’s competitiveness during our auction and RFP procurement events.

Environmental certificate markets: The forward curve has shifted up in response to greater demand from corporates, with many taking a future position to purchase Large Generation Certificates (LGCs) and Australian Carbon Credits to demonstrate their progress towards Net Zero.

LGC prices process remain in backwardation. Prices of 2024 LGCs ha doubled since March this year from $9.70/certificate to $22/certificate.

The spot price for ACCUs has increased from $16/certificate at the start of this year, to $22/certificate earlier this week.

Most corporate have established a Net Zero strategy and we’re now encouraging corporates to move now to establish an implementation strategy, with the expectation that price will continue higher.

We’re now conducting Renewable Backed RFPs for the supply of renewable energy in a simplified supply agreement. The benefits of this product include shorter contracting periods, reduced transaction costs and fast execution times. Our product offers customers a lower risk option to a traditional PPA and fully complies with Net Zero schemes such as the RE100 and Climate Active. The advantage of this product over other alternatives includes recognition of the generation source and the option for our customers to promote their environmental achievements via photo licensing.

Well, that concludes this week’s Energy Market Wrap. I’m Scott Easton for Energy Action and remember don’t pay too much for your energy.

Australian Energy Market Wrap | 19 July 2021

Our Energy Market Wraps aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

If you have any questions or wish to speak to your energy expert on any of these matters, please contact us.

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Transcript:

G’Day, my name’s Tim. I’m the Regional Manager for the Business Services Team here at Energy Action. This is the fourth video in my series on energy market insights. While in my previous videos I broke down a large market electricity bill and how you can combat some of the charges, today I thought I’d change tact slightly.

Unfortunately, today I’m coming to you from New South Wales which of course is in lockdown, which if extended could mean a shift in market pricing as we saw during the earlier stages of the lockdown in 2020. There’s a lot that happens within the market that businesses can’t control, yet has a dramatic impact on your bottom line.

Over the last few months, there’s been a number of events within the market that have garnered national coverage as well as some which were tucked away in the middle pages of the Fin Review. All however are important in their own right and tell the story of how the Energy Market in Australia is a “Bad News Market”. We say this a lot within our teams and to clients when trying to provide advice on all important timing to market – which is when to source your next retail contract.

But what do we mean by “Bad News Market”? In its simplest form (and this can be said across a lot of different tradeable commodities) when the market moves down it does so at a slow rate, but the rate of increase is far more rapid whenever we have a negative event.

As an example, a couple of the most publicised events in the last couple of months, the explosion at the Callide C Power station in Queensland that cut power to large parts of the state with a continued delay to the unit being fixed. In fact, the expectation at the moment is that it won’t be up and running until December 2022.

In June the Yallourn Power Station and coal mine in Victoria were also damaged due to flooding, which powers more than a fifth of the state’s energy. This month we have seen a spike in gas prices to levels not seen since 2016 due to the winter cold snap in the South-eastern state, coinciding with generator outages in Queensland and Victoria.

So why am I telling you this? In short, to provide some advice around the timing to market.

It was only last week I was talking to a client about their electricity contract that expires at the end of this year. Based on all of the market advice we were suggesting they look to lock in now to avoid any further potential increases.

They had sighted that the market had shifted upwards over the last few months (they weren’t wrong, it had – check out this Energy Action Pricing Index from our website which shows this) and that they didn’t want to lock in, in a rising market.

 The challenge with this strategy is it doesn’t factor in what has happened in the market previously, any advice around the wholesale market trends or that it would take a bit of “bad news” for us to see a spike.

We are still seeing pricing levels not seen since 2016, so it’s highly likely you’ll see better rates against what you are contracted to, so locking in when you can guarantee a saving is the best strategy. The other option is to “hope” you see a decline – as the saying goes hope is for church.

This is why it’s important to take the expert’s advice when it comes to a go to market strategy. Timing is everything in this market. And if you’re undecided about which consultant to go with, the best thing to look at is what’s their current advice and how are they going to support me in the next 2-3 years.

Because often when you’re contracting now with a consultant, they’ll be seeing you through ‘til your next contract signoff. So you gotta be comfortable that they’re gonna give you the advice in terms of when to go to market. Too often we hear that clients lock in contracts with a consultant and then they don’t hear from them for the next 2-3 years so they only lock in their next when they have to, when their contract’s due to expire.

It’s important that you pick somebody that you trust, and you pick a consultant that will see you through every step of the way. Thanks again for your time and I look forward to sharing more insights in a couple of week’s time.

Australian Energy Market Wrap | 15 June 2021

Our Energy Market Wraps aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

If you have any questions or wish to speak to your energy expert on any of these matters, please contact us.

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Transcript:

Where were you on Monday, March 22, 2021? Just to remind you, that was World Water Day. Speaking of water, it was a day that was flooding throughout New South Wales in Australia and we had seen the horrific images of a home being swept away through floodwaters of a new honeymoon couple. That's pretty tough news.

Internationally, we had Donald Trump announcing the launch of a new social media platform. That was Monday, March 22, 2021.

But why is it that important? My name is John Huggart I'm the CEO of Energy Action and welcome to the Energy Market Wrap.

This week, here we are, it is June 11 2021, but March 22 2021 was the day to lock in your retail electricity energy contract. How do I know that? It's easy. You look back in the review mirror.

You can check it out on our website energyaction.com.au and if you scroll down a bit you'll see what we call the EAPI, the Energy Action Price Index. It tells you the average price has entered into for large market contracts on our platform over the last 15 years. What you'll see is a graph that demonstrates the low point of pricing was about March 22 2021.

My point to this though is that customers have been the beneficiary of lower prevailing wholesale and now retail prices for the past 18 months since for people coming off now of a contract from about two or three years ago, they're seeing savings on their energy of about 40% and even if you're coming off a contract from the last year or two, it's at least 25% -  28% savings.

During these past few months we've had customers naturally ask “well we've just seen this big saving i imagine it's going to go down further, maybe I should wait?  Maybe we should go back to market again? Maybe we should ask the retailers one more time?”

I think the demonstration that the low point of the market was March 22 2021, is the fact that stands behind the advice that we've maintained for a period of time here at Energy Action. That is, the wholesale markets have been unsustainably low and that's led to buying opportunities for contracting and locking in your load right now on really good long-term rates.

If you check out that Energy Action Price Index, you'll see these are the lowest prevailing rates for about seven years now. Could you do better next week with a deal? Could you do better in a month's time with a deal?  Yes, you could..

I think that's probably what's attracted some people to wait, however that wait has come at a price. What we've seen now is that the market has met its level of resistance. I'll share with you now some of the graphs which are demonstrating that resistance, and the shock on the market over the past couple of months, seeing that market rebound and reset at new higher levels at the very beginning of the year.

We had the CEO of Origin Energy make quite a profound statement he says these unsustainably low wholesale prices will lead to withdrawal of supply on either a planned or an unplanned basis.

Of course, that's what's happened most recently with an unplanned outage in Queensland with the Calliade Power Station event and withdrawal from supply and that's been a recent shock to the market.

The new shock to the market is demand. It's a really cold day here in sydney. Cold means low digits and that is leading to higher demand outlooks for this winter and that's what's driving this wholesale market, so there's been a bit of a reset.

It's still a great time to lock in your retail contract and that's because these are still at a relative point. Very good value from a long-term comparison point. Many of our customers are locking in these savings and investing in their efforts with renewable energy, so please consider your investment in solar, in green auctions to add value to your portfolio as you move towards net zero.

Let's take a moment to have a look at some of the individual markets and where we're seeing that price resistance and how we've seen the market shape over the last few months now.

Let's have a look at the wholesale market in Victoria. I'm just looking at off-peak and since about that magic March time those off-peak prices have doubled in Victoria. The flat price has been impacted as well, but just think of that a doubling of prices of electricity.

Contracts in Victoria over the past 3 months if we look, as well at Queensland off-peak, sorry the flat price a bundle of peak and peak and a flat price for your load has increased by more than 50%, obviously impacted more dramatically recently with the Callide Power Station outage.  Even the trend had been set from that low point in March.

Similarly, if we look to New South Wales, we're seeing the growth in that the increases in those flat prices since March of about 20% - 25%.

We're seeing peak prices in South Australia tripled in cost in the last three months. Now, this is the state famous for its capability in generating renewable resources into the grid but we've seen even during this period a restatement of the market.

The market has met its point of resistance and it's now resettling up. So, what does that mean?

Should you lock in now? Or should you defer and wait and see if the market goes back low again?

Well, our advice generally right now is to lock in these low prevailing rates and lock in rates which are still far lower than they've been for the past several years many of our customers are reinvesting those savings into activities on green.

The investment in renewable energy through our Green Auction platform, Green Power, investment in solar and for more specific or expert advice for consideration of your portfolio please reach out to your account manager.

Our experts here at energy action are here to help make energy simpler cleaner and lower cost.

Thanks for your attention this week, have a good week ahead.


Australian Energy Market Report | 7 June 2021

Our Energy Market Reports aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

If you have any questions or wish to speak to your energy expert on any of these matters, please contact us.

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Transcript:

Hi there, and welcome to this week’s edition of the Energy Action Market Wrap, where we let you know what’s happened in the energy markets in the past week. My name is Andy Young and I’m the General Manager of Business Services here at Energy Action.

Well, last week our Head of Trading and Pricing, Scott Easton, touched on the explosion and fire that occurred on the 25th of May to Unit 4 at the Callide C Power Station owned by CS Energy in Queensland.

This week I’d like to talk a little more about the impacts this event has had on spot prices, wholesale contract prices and retail contract prices for large market customers.

Spot prices represent the price of electricity in the physical market that the generators receive for their output in each state. These prices are currently published every half hour and have been averaged for each month in this table.

These prices have been broadly trending higher in each region since January. However, this outage has driven prices sharply higher in Queensland and to a lesser extent in its neighbouring state New South Wales while prices for Victoria, Tasmania & South Australia were largely unaffected.

You can see that prices for May in Queensland were averaging at just over $47/MWh up until the 24th of the month when the outage occurred but then rose to over $62/MWh for the month after that representing a 32% price increase.

Similarly, in New South Wales where the price average increased by 13% after the outage. Meanwhile in Victoria & Tasmania, price average increased by only 3%, and by only 1% in South Australia. While the other units at the power station were initially expected to return to service in the first week of June, CS Energy have now announced they will now be returned later in the month.

The longer than expected reduction in supply has resulted in spot prices remaining firm in the first 3 days of June in Queensland and New South Wales at $444/MWh and $268/MWh respectively. The damaged unit is not expected to be available for the next 12 months, though this should not have a continued significant impact on spot prices.

While it’s hard to understand why a short-term supply disruption would impact wholesale contract prices for the next 3 years, market sentiment has indeed driven prices higher in Queensland and New South Wales for 2022 and 2023 contracts. It’s worth noting however that the contract prices for all NEM states had already been increasing since February as seen by the trendlines in these charts and that the latest event in Queensland only adds support to that already established trend.

We noted in our latest Market Wrap published this week that the events of the past fortnight serve as a reminder that price spikes from generator or transmission outages can occur at any point in the price cycle. As a result. the market price for electricity can be highly volatile and this risk needs to be actively managed regardless of how low they may fall.

The impact to retail contract prices for large market customers can be seen in the Energy Action Price Index or EAPI. This chart can be seen on our new website which we launched just this week. This new chart now includes contract pricing for Western Australian large market customers.

The EAPI for the NEM states goes back to September 2006, and back to April 2019 for Western Australia. It is a valuable tool to see historic price trends for contracts. But let’s take a closer look at the price action we’ve seen since January 2020. The downtrend for the NEM states has turned in March 2021 with retail contract prices now trending upwards reflecting wholesale price movements.

While prices have risen over the past few weeks, and appear more likely to continue this trend, we still consider electricity rates as being unsustainably low and encourage large market customers thinking about their future energy costs to consider contracting out to 2024 or 2025 now.

Well, that’s it for this week. Check out our new website at energyaction.com.au where you can see a fresh new look and lots of great content about the energy market to help you take control of your energy needs and assist you on your path towards Net Zero. I’m Andy Young, stay safe and cheers for now.


Australian Energy Market Report | 1 June 2021

Our Energy Market Reports aim to educate and equip you with the knowledge to navigate the complex challenges of the Australian Energy Market. Our team of experts decode complex market data to deliver cutting edge insights on the commercial energy market in a short consumable video. These insights help you make informed decisions about how to buy and use energy.

If you have any questions or wish to speak to your energy expert on any of these matters, please contact us.

Subscribe to our Energy Market Wrap

Transcript:

Hello and welcome to another edition of Energy Action's Market Wrap. My name's Scott Easton and I head up the Trading and Pricing team here at Energy Action.

Today, I'd like to discuss the implications of the Federal Government's plan to construct a $600 million gas-fired power station to address the withdrawal of the Liddell coal-fired Power Station and provide some insights around how this project is likely to operate and the implications for future electricity prices.

I'll also be discussing the Queensland supply disruption earlier this week, which saw 3100MW of capacity disappear from the electricity grid and cause price spikes of $15,000/MWh. I'll also be providing a usual price update on forward electricity contracts and environmental certificates.

Finally, I'll be providing an update on Energy Action's latest innovation, with the commencement of our Renewable-backed Electricity Supply Agreement (RESA)

Turning now to the Federal government's announced a gas-fired electricity project proposed for the Hunter Valley. Although the project has been described as a baseload plan, in our view its quick-start capability is ideal for “firming” the intermittency associated with renewable projects.  If this project goes ahead and is successful in attracting new renewable energy projects, this will place greater downward pressure on future electricity prices beyond 2024.

Regardless of whether it attracts more renewable projects the plant will limit price spikes from supply disruptions and provide greater supply reliability. We estimate the marginal cost for this type of facility to be in the order of $80-$90/MWh which won't lend itself to base load operation. The announcement has had virtually no impact on the electricity contract price and does not affect our view that customers should be seeking to secure supply under a fixed price agreement out to 2024/2025.

Turning now to the Queensland supply disruption, and a reminder that these events occurred periodically even at the low point of the price cycle. The disruption was caused by a fire at the Callide Power Station, which impacted the transmission system and caused over 3100MW of capacity to trip, including the supply from Gladstone, Stanwell and Mackay.

This disruption directly impacts prices in the wholesale market and the costs incurred by customers with spot passthrough. It also increased contract prices for 2022, and to a lesser extent in 2023 for Queensland and New South Wales calendar year electricity contracts.

While it's logically hard to understand how a short-term supply interruption can affect prices in two years time, we're now starting to see contract prices settle back.

As we can see from this chart, electricity contract prices remain an uptrend since March 2021 and recently broke through a 10-month resistance level for 2022 contracts. Multiple indicators now suggest this uptrend will continue. 2023 contract prices in Queensland also broke through a 10-month resistance level. However, New South Wales prices remain below this indicator, suggesting a greater likelihood that they will continue higher over the next few weeks. South Australia and Victoria’s contract prices were mostly unaffected by the Queensland supply disruption but remain in an uptrend since February this year.

Turning now to the certificate market. The cost associated with corporates implementing Renewable Energy Target compliance and voluntary renewable energy strategies. LGC’s traded higher this week to $35/certificate.

STC’s remain relatively stable, just below the retail price cap at $38.60/certificate. VEEC’s continued to trend lower at $63.30 after recent highs associated with restricted supply.

ESC’s continue a slow rising trend to $30.90/certificate. The LGC forward curve continues to show significant price backwardation with the cost of 2025 LGC’s now at $7.20/certificate.

Finally, I'd like to provide an update on Energy Action's latest innovative product, the Renewable-backed Supply Agreement. We now offer customers 100% renewable electricity incorporated into a standard electricity contract.

The benefits of this product include shorter contract periods, reduced transaction costs and fast execution times to implementation. If you'd like to know how a Renewable Energy Electricity Supply Agreement can deliver your corporate Net Zero strategy, contact us at Energy Action.

Well, that concludes this week's Australian Energy Market Report. I'm Scott Easton for Energy Action and remember don't pay too much for your energy.