May-21 Energy Market Wrap

This month we're shaking things up a little; in addition to our concise market update, we also thought we'd give you a chance to test out your own knowledge with our quiz! We want to make things interesting, so the winner of the five questions below will be awarded a prize .... see below for the details:

Overview

The month of May was marked by rallying prices across all domestic energy markets with events making waves across the National Electricity Market with the:

• Callide C Catastrophic Failure driving record May spot prices for QLD and NSW; as well as triggering FY-21/22 and Cal-22 forward prices to strongly rally
• Federal Government's decision to proceed with the 660MW Kurri Kurri Gas Power Station to allegedly secure the system and keep prices down
• AER approving the EnergyConnect interconnector between NSW and SA

Forward market prices across all Regions have undergone a remarkable recovery over the last 4-months, while gas powered generation increased lifting gas prices and environmental certificate prices remained flat.

Plus there's heaps more, including our Key Feature for the month, so read on and enjoy! As always, to access our full version of the report jump over to our subscription page and take a look.

Electricity Spot Prices

Following April's recovery from a historically low Q1-21, spot prices skyrocketed during May. During the month:

• the Callide C event on 25 May triggered extreme price events in QLD and neighbouring NSW pushing average prices for May to more than double the average price year-to-date
• QLD and NSW average May prices were record highs for May, while average spot prices in VIC and SA were more than $20/MWh higher than the previous month, and the TAS average spot price rose by more than $15/MWh
• extreme price outcomes in QLD sent the 7-day cumulative price to more than half way towards the Cumulative Price Threshold (CPT)
• extreme price outcomes during May showed a strong correlation to periods of low wind generation
• risk-of-change measures for all mainland regions were high, indicating that prices were very sensitive to small changes in demand/supply
• contribution of prices above $300/MWh was significant for both QLD and NSW
• despite a record high average prices, QLD has a high portion of negative half-hour prices and NSW set a new record
• Origin and Stanwell became less prominent setting spot prices, while Snowy and Alinta became more dominant during May

Consumption and Demand

• QLD operational energy consumption was higher than last year's COVID-19 affected levels, except for SA
• maximum demand was lower than the previous year in the northern States of QLD and NSW; while VIC, SA and TAS had higher maximum demands
• during the Callide C event on 25 May, QLD demand shed around 2,200MW falling to a monthly low of under 4,000MW

Forward Prices

• forward market electricity prices rallied strongly across the NEM during May
• forward prices have materially recovered over the last few months
• the Callide C incident impacted FY-21/22 prices as well as Cal-22, most prominanty in QLD, followed by NSW and to a lesser degree further south

Generation

• new generation capacity has slowed in recent months
• Gas generation stepped-up to replace coal-fired generation and to chase high spot prices, causing gas spot prices to strengthen
• Hydro generation ramped-up towards the end of the month
• Wind generation was volatile during May, marked by high levels in the third week and low generation for the rest of the month and in particular the last week
• Solar average prices continue to be especially low

Generator Behaviour

• QLD Stanwell offered more capacity in the lower price bands since the beginning of Q2, and therefore became less prominent in setting prices
• NSW Origin continued the publicly announced strategy of moving capacity from low price bands to higher price bands
• VIC Snowy reduced their capacity offers in the below $35/MWh price band since 10 April
• SA AGL increased capacity in the below $100/MWh and below $300/MWh price bands since mid April
• HydroTas has increased capacity in the below zero price band since mid April and reduced capacity offered in the below $100/MWh and below $300/MWh price bands

Weather

• BNE had a cooler average temperature for the month, with slightly more Heating Degree Days than same time last year, leading to a higher level of Weather Sensitivity
• SYD's average temperature was equal to same time last year, and had less Heating Degree Days and slightly more Cooling Degree Days, leading to an increase in Weather Sensitivity given electric heating
• MEL's average temperature was slightly above same time last year with less Heating Degree Days, leading to a higher Weather Sensitivity
• ADL's average temperature was higher than same time last year with less Heating Degree Days, but more Cooling Degree days; the net result was a no change in Weather Sensitivity
• HBA had a cooler average May than the last 4-years, and therefore the Heating Degree Days and Weather Sensitivity increased

Water Storages

• Snowy Hydro's storages fell to the second lowest level for May in the past 10 years
• HydroTas water storages remained steady

Everything else...

• ancillary costs jumped in May with nearly $30m added for the month
• domestic natural gas prices rallied during the month mirroring a rise in Asian gas spot prices
• national environmental certificate prices remained flat while state certificate prices continued to rally