Feb-20 Energy Market Wrap

The Australian energy market is not immune from Coronavirus as soft demand for LNG in Asia is infecting the domestic gas market, setting gas prices equal to the levels of 2016. Not quite the levels of the ramp-up gas period of 2012 to 2015, but nevertheless much softer than the last few years.

Domestic natural gas prices for the month were the highest in Adelaide with an average of $6.96/GJ, and the lowest was Brisbane with $5.46/GJ.

Lower wholesale gas prices led to gas-powered generation monthly market share increase by 1.2% taking the market share to 9.2% across the NEM.

After a string of record levels of LNG exports in the past year, exports for February were at their lowest level in six months. Given that February 2020 had an extra day than last year, the daily export quantity was lower than the previous year by about 400 tonnes/day.

The soft domestic natural gas prices impacted power prices, with February delivering the lowest February prices in all States since 2016 for NSW, Vic and SA; and the lowest since 2015 for Qld and Tas.

Tasmania had the lowest average spot power price being below $40/MWh, while South Australia which was impacted by the Heywood interconnector outage, was the highest price at over $64/MWh.

VIC solar farms in the dreaded “Rhombus of Regret” of the West Murray region, with the addition of the Broken Hill solar farm, continue to have 50% of their output curtailed. Further adding to their pain were recently announced draft Marginal Loss Factors, where the same solar farms have had their MLF reduced even further.

This month’s report includes an update on the growth of wind and solar capacity in the NEM. In the period 2016-2018, there was commissioning of around 1.7GW of wind capacity, and 2018 had a colossal jump of almost 2GW of solar farm connections.

Over the past year the growth of both wind and solar capacity has been constant and there are more than 50GW of proposed wind and solar projects (not far off the current installed capacity of the NEM at around 60GW). Although the new connections growth rate is expected to slow.

Also in the news this month was the falling price of batteries. Market expectations sees the cost of batteries falling by around 65% by 2032, a view that reflected by investor appetite for batteries, as shown by the likes of AGL and Origin. AEMO’s ISP forecasts meanwhile, are soft on batteries, based on CSIRO forecasts which show only a 33% fall in costs by 2032.

Also reviewed in this month’s report is the triggering of the Retailer Reliability Obligation by the SA Energy Minister in response to forecasted Reliability Gaps for 2022 and 2023.