The Australian east coast energy market has reached an important juncture as the market grapples with the renewable transition and absorbs the global impact of rising energy prices. Origin Energy's CEO Frank Calibri prediction that, “It's going to get messy”, has arrived.
This year of April 2022 has delivered the highest spot electricity and gas market outcomes for this time of year in our history. Forward electricity market prices for the next financial year have reached unprecedented levels in QLD and NSW. The outlook for the next 3-years is the highest on record for QLD and NSW, while Vic and SA are the second highest on record.
Spot electricity prices have become digital whereby if there is an unexpected plant outage, or little wind or sunshine - spot prices jump. It doesn’t matter what time of day, digital spot prices outcomes are prevalent 24/7.
Over the last 20-years, we measured the number of pre-dispatch prices predicted for the day to exceed $300/MWh, as at 8:00am each day. The April 2022 count led the pack with the greatest number of cases and even though the number of pre-dispatch high prices was more than actual events, it demonstrates that both the actuality and risk of high price events has ramped-up.
In case you are wondering, the closure of the first unit at Liddell power station, based on our research, had little impact on April market spot price outcomes due to the expected trading strategies of AGL.
The unexpected unit outage at AGL’s Loy Yang A power station has helped this digital price outcome impact the southern States, but more importantly the re-alignment of natural gas prices for gas power generation and thermal coal prices for black coal power plants, have been the driving force. Irrespective of whether the gas molecules can be exported, or the tonnes of poor-quality thermal coal be exported, the globally shadowed input costs have all contributed to this digital price dynamic.
The Federal Government political parties are busy trying to convince voters that their party should be elected, and therefore has not been solely focussed on the energy market prices. Energy and climate policies have shared the limelight with other policies, but there is a giant train coming down the track that is going to impact people and organisations. Those businesses and organisations who have not locked into fixed energy prices starting July and residential tariffs are facing are major price shock, although the size of the shock will depend upon the State.
Australian topography has the Great Dividing Range, and in the energy market we have the Great Divide between northern and southern States. Prices increases for States north of the Murray River will be significantly greater than the southern States. However, the southerners should not be too complacent. As at the end of March, we expected residential tariffs to be modestly impacted in the Southern States, but because of the April price outcomes and the month of May showing even greater price outcomes, the previous immune southern States of Victoria, South Australia and across the stretch of water to Tasmania, are all now affected.
Residential Retailers who have not progressively hedged, will struggle to retain customers profitably.
The month of April has delivered outcomes that are unprecedented and as a result, Governments (both State and Federal) will feel compelled to act as big market players have lost control of price outcomes. Governments are often slow to act, but their actions have a long-lasting impact (circa 20-30 years). Watch this space.
Our monthly report provides further insights.
1.0 Overview
The highlights for the month were:
