May-22 Energy Market Report

Carl Daley -

During the month of May, the people of Australia voted for a change of Government and so the new Labor Government has walked into a firestorm. Despite the challenges of the energy market clearly evident in the leading months, future energy policies and market conditions did not pierce through the election talking points to the scale the challenge deserved. Labor Party energy policy was, and is, predicated on driving energy prices down and tackling Australia’s emission targets. The ‘teal’ seats and Green seats also picked-up on the community sentiment for stronger action on climate.

The notion of lower power prices over the next couple of years, in the backdrop of a globally stressed energy market, might be best described using a quote from one of Australia’s classic movies, The Castle  of - “Tell him he’s dreamin”.

Not surprisingly, the new Government is blaming today’s challenges on the previous Government for not setting in place a suitable long-term energy policy over the last 9-years. When the electorally battered Liberal Party reflects on the election, one wonders if they will conclude the refusal to adopt any one of the energy policies led by former Prime Minister Malcolm Turnbull and Treasurer Josh Frydenberg, was a mistake.

The current market events have now eclipsed previous market turning price points of:

  • February 2021 when forward prices were around $35/MWh for the next few years in Victoria and Queensland, questioning whether we had slipped back in time many decades. Since this low point, prices have continually strengthened up until today’s unprecedented levels
  • winter of 2016 which began the 3-year surge in power prices including the ‘straw that broke the camel’s back’ event of the sudden closure of Hazelwood Power Station in March 2017, at the time when the east coast of Australia became connected to the global LNG market
  • The survival of the Renewable Energy Target in circa 2015 which has been the springboard for renewable energy projects (including roof-top solar), across the country which has structurally changed the market
  • the introduction of a Carbon Tax in Jul 2012 which lasted two-years before being rescinded by a Coalition Government in 2014. During this time, off-peak prices significantly strengthened, a reflection of the higher emitting generation stack dominating these periods.
  • The east-coast of Australia coincident drought of 2007 when hydro plant water storage levels dropped to precarious levels and forced coal-fired generation to conserve cooling water by curtailing generation. Prices reflected the previously inconceivable risk by setting records in the spot and forward markets
  • The summer of 2020 when for the first-time spot prices really popped, causing big ‘winners’ who avoided financial ruin, while some ‘losers’ never recovered leading to shareholder exits
  • May 1998 when the “off-peak led recovery” began dragging spot and forward prices up from prices in the low teens

1.0 Overview

The highlights for the month are: