Overview
The month of May has been an exceptional outcome with spot prices rallying strongly following on from the recovering April spot prices. This spot price movement was aided by the unfortunate catastrophic event at Callide C which triggered forced outages and load-shedding in the State of Queensland.
Average monthly prices set records in QLD and NSW, spurred on forward prices for the next financial year and calendar year based on the expectation that Callide C Unit 4 will take 12-months to repair. Forward prices strengthened beyond these immediate years, as did LGC forward prices. The price levels now facing the market are remarkably different to those available in the middle of summer. How times have changed in such a short space of time.
The Federal Government approved proceeding with the 660MW Kurri Kurri gas powered generator which will become part of Snowy Hydro's portfolio. The EnergyConnect interconnector between SA and NSW was approved by the AER. Both projects, along with other projects announced in the last few months will shape the industry for decades to come. Although, new renewable projects are slowing.
Despite the recovery in spot prices over the last two months, the solar farm prices we suspect, remain problematic for investors. Snowy Hydro water storages are getting low before the hopeful winter rains. Gas powered generation was more active during the month, making up for forced outages and gas spot prices rallied. Looking forward, gas prices in the Asian region are expected to soften.
Enjoy the rest of the report and the index to the right can be used to navigate around the content.
Key Features
This month's Key Features are the Callide C catastrophic failure and the Kurri Kurri gas plant.
2.1 Callide C Catastrophic Failure
During the month we prepared a report on the Queensland Callide C unit 4 catastrophic failure when at 13:45 on 25 May, CS Energy's Callide C Power Station experienced a catastrophic failure following an explosion and fire in the turbine hall, causing serious damage. The sudden loss of generation from the power station set off a chain of events that led to the loss of more than 2,200MW of base-load generation, curtailment of wind and utility-scale solar generation in Queensland and widespread load shedding affecting an estimated 470,000 customers.
We posed the question, if the speculated repair cost is near the reported $200m, then would the plant be retired early and replaced with a big battery? Already Queensland's largest big battery of 100MW/150MWh at Wandoan South is nearing completion, while the State Government announced Stanwell is progressing plans to develop a 150MW/300MWh battery adjacent to Tarong Power Station.
Retiring Callide Unit 4 would assist the Queensland State Government's aspirational Renewable Energy Target of 50 per cent energy supply from renewables by 2030. It is hard to see how this target will be achieved, without significantly reducing coal generation. To complicate any retirement decision, Callide C:
- uses a super-critical boiler technology making the unit more efficient than Callide B which is due to retire in 2028
- was commissioned in 2001, making the power station much younger than many other coal based generators
- is owned by a 50:50 joint venture between CS Energy and InterGen
Since the Callide event, domestic gas prices rallied strongly as gas generation ramped up across the NEM to cover the loss of both Callide Power Stations (B & C), and surging demand during the cold snap at the end of the month.
Based on the expectation that Unit 4 could be out of service for 12-months, the forward market for FY-21/22 and Cal-22 has strongly rallied in Queensland, and to a lesser extent, also NSW. Our Section 9 Forward Prices shows the strength of the price rally.
Since our article was released, CS Energy have announced that it is hoping insurance will cover the costs of replacing unit 4. AEMO was also advised Callide B unit 1 will be returned to service on 15 June and unit 2 on 20 June, while Callide C Unit 3 will return to service on 2 July.
