The best energy market report in Australia ?
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For the third time since deregulation, transmission towers were knocked over by severe weather
Australia has faced the most severe bushfire season in our history, and the power industry has
been impacted. Distribution assets have been damaged and transmission asset damages at Snowy caused NSW to separate from the Southern States. From memory, for the third time since deregulation, transmission towers were knocked over by severe weather and in this latest case, the outage impacted the Victorian Portland smelter and has cut the Heywood interconnector.The grid has been stressed as evidenced by an increase occurrence of Lack Of Reserve notices followed by extreme prices being set in New South Wales, Victoria and South Australia. Administrative Prices have so far been avoided, and now with the heavy floods facing Queensland and New South Wales, the very welcomed rain is unlikely to drive administered prices. However, driven by the Heywood interconnector outage, for the first time in our history, Extreme Ancillary Services Price have resulted in an Administered Price Period being declared for Ancillary Services Prices.
Reliability and Reserve Trader (RERT)
The bushfire smoke caused solar PV production to lessen, as the air quality dropped
Reliability and Reserve Trader (RERT) was exercised on four occasions to help stabilize the system, leading to another round of pass through costs to consumers. In their Summer 2019-20 Readiness Plan last December, AEMO reported that the RERT cost from the 2018-19 summer was approximately $34.5m. In the same report AEMO forecasted that the 2019-20 RERT cost would be approximately $44m. This financial year, estimated RERT costs total $39.3m.
The Coronavirus is posing as a real threat to both people and the economy.
The notion of Force Majeure being called on LNG supply contracts is an interesting tactical play but may impact the LNG shipments from Australia. Already the soft Asian LNG price along with the NT gas pipeline appears to be impacting the east coast domestic gas prices, although the ACCC’s netback price shows there is further scope for softening domestic gas prices. Not surprisingly, the spot electricity prices for January in Vic, SA and NSW are in the top quartile of our spot price forecast for the quarter.
Despite the strong spot prices, the forward markets continue to soften, and it almost appears there is a disconnect between the physical market and the financial markets.
It is clear that the expected rollout of renewable generation is slowing, as supported by the latest report from the Clean Energy Regulator.
Solar farm developments appear to be slowing, affected by:
- Connection issues causing delays and increased costs
- Voltage fluctuations heightening fears of curtailment
- Offtake agreements harder to find
- Financing harder to find
- Fierce competition from rooftop solar
LGC prices are rising due to a tightening of the market as reported by the Clean Energy Regulator. All LGC acquittals must be made by 14 February 2020 for the 2019 year, so it will be interested to note those retailers who utilise the mechanism to minimize cost.
