Annual Market Report Part 2 - Financial

The first part of our Annual Report reported on Spot Prices has been published and the final part focusing on Generation and Demand is coming soon.

1.0 Overview

This section summaries the key outcomes in the Australian energy financial markets:

1. The Cal-23 base swap price went on a wild ride during the 2 years prior to the commencement of 2023. During 2021, the Cal-23 swap price was trading well below the actual spot price level, but rallied to record highs in 2022 during the energy crisis. Other tenors like Cal-24 to Cal-25 also peaked in 2022 and softened during 2023.
2. ASX energy forward market prices followed a similar journey for all Regions during 2023. Prices continued to soften in the first quarter of 2023, but rallied again in Q2-23. The general trend for forward prices in the second half of 2023 was for softer prices, although the journey was bumpy for some regions, particularly the northern ones. NSW recorded the highest Cal-24 forward price during 2023 at $147/MWh in May-23, while VIC and TAS both shared the lowest forward price for 2023 at $68/MWh although occurred at different times (Dec-23 and Oct-23 respectively)
3. The 2023 year provided numerous opportunities for inter-regional trading. The SA-VIC Cal-26 differential reached almost $80/MWh at the beginning of the year but compressed to $35/MWh by the end of the year. The NSW-VIC differential for Cal-25 and Cal-26 increased to as much as $60/MWh early in the year but then compressed to $35/MWh for Cal-25 and $43/MWh for Cal-26 by the end of the year. The QLD-NSW Cal-24 differential was around $20/MWh in the first half of the year but then compressed to around $5/MWh at the end of the year.
4. Trading on ASX energy was less volatile in 2023 compared to 2022 when the daily Mark-to-Market (MtM) of forward positions resulted in significant daily margin calls. The largest daily movement for 2023 was a downward movement of $1,078m on Monday 16 Jan, which compares with the largest daily movement in 2022 was $2,748m on Monday 10 Oct-22.
5. In 2023, NSW and VIC trade weighted base swaps had the largest premium to the spot price at $34/MWh and $24/MWh respectively. QLD trade weighted price was closest to the actual spot price, trading at a negative premium of -$3/MWh, while SA trade weighted base swaps traded at a negative premium of -$19/MWh.
6. $300/MWh cap trade weighted purchases only paid off in SA with a cap profit for a buyer of $3/MWh. Trade weighted cap payouts were negative in the other regions with QLD at -$9.73/MWh, NSW at -$11.59/MWh, and VIC at -$15.17/MWh.
7. LGC spot prices remained within a tight trading range of $42 to $58/certificate during 2023 with an average price of $51.64/certificate. The LGC spot price peaked in Jun-23 and softened over the rest of the year. In contrast, LGC forward prices for all tenors continued to climb throughout most of the year.
8. The Small-scale Technology Certificate (STC) price was steady during 2023 with an average price of $39.89/certificate. The effective cost to customers fell significantly with the STP rate falling from 27.26% in 2022 to 16.29% for 2023.
9. In the State certificate market, Victorian Energy Efficiency Certificate (VEEC) prices continued to climb in 2023 with an average price of $77.87/certificate, while NSW Energy Saving Certificate (ESC) prices continued to soften with an average price of $29.32/certificate.
10. Environmental costs to customers fell for all regions in 2023, largely due to the substantial drop in the Small-scale Technology Percentage. The reprieve in environmental costs was less significant for Victorian customers due to the increase in VEEC costs.