Australia Energy Market Report - August 2018

​Market Changes:

Australia’s energy industry is venturing significant disruptions and transformations as it transitions from a substantial reliance on traditional fossil fuel sources to a new energy environment.

Wholesale electricity and gas prices decreased across most regions and markets compared to Q1 2018. The electricity price declines were driven by the reduced volatility in Victoria and South Australia; increased renewable output and reduced demand related with seasonal temperature decreases.

The weather for Q2 2018 was warmer than average than other second quarters. This together with an increased industrial output contributed to a 2% increase in NEM operational demand compared to Q2 2017.

In the gas market, lower GPG (Gas-Powered Generation) driven by lower electricity prices and reduced LNG (Liquefied Natural Gas) exports - contributed to the gas prices reduction.

Whilst gas prices were generally lower across most AEMO gas markets during the quarter, prices peaked above $10/GJ in late June following an unplanned outage at Longford which coincided with a period of high GPG demand in the NEM (National Electricity Market). When the output from the Longford plant; the biggest supplier for the south-eastern states was disrupted, it fell by about one-third below normal levels.

Price trending in all states for August 2018 as seen on the charts in this report, the volatility still remains within the market.

Market Features & Key Changes in the Electricity Supply Mix:

  • Queensland continued the recent rend of recording the lowest wholesale electricity ($70/MWh) and gas prices $8.18GJ) in the East Coast.
  • NSW Electricity prices increased by $12/MWh to 84/MWh due to a reduction in black coal generator availability and associated price volatility in early June.
  • The supply mix in the WEM (Wholesale Market) in Western Australia remained steady with GPG and black coal continuing to dominate (approx. 90% of total generation).
  • The key changes inn the electricity supply mix compared to last year are the Hydro generation increased across the NEW by approx. 650 MW: Q2 2018 was the highest Q2 on record; these were driven by increased output from Tasmania’s Hydro generators, and Mainland hydro generators reducing the price market offers to increase dispatch.

Current News on Electricity Market:

  • Spot wholesale prices for NSW averaged $78-86 per megawatt hour in the first half of August - before the government dropped the National Energy Guarantee and emissions targets. Those prices rose to an average $92/MWh in the third week of August and $116 last week when the government changed prime ministers.
  • Similar price rises have been seen in Victoria (from an average $59-$72/MWh) in the first half of August to $81-$107 in the last two weeks), Queensland (from $78-86/MWh to $84-94/MWh) and South Australia (From $59-$82/MWh to $75-86/MWh), Tasmania, which has a lot of hydro and wind power, has had typically low winter prices ($20-$37/MWh).
  • Analysts foresee that a worsening drought may drive up wholesale power prices, acting as a potential launching pad for a royal commission by a government focused on cutting electricity costs.
  • Energy Minister Angus Taylor has outlined his ambition to drive down power costs amid a forecast rise in wholesale prices, but there are concerns a price rise driven by the drought may be used to launch a royal commission.
  • The Australian Energy Market Operator has listed drought as an immediate threat for the upcoming summer, as it reduces water available for hydro generation and for cooling thermal power plants.
  • Just three months after Origin Energy stunned the renewables industry with a record low power off-take deal for the 530MW Stockyard Hill Wind Farm in Victoria, AGL Energy has delivered more of the same, securing an off-take price of below $60/MWh through the sale of its 453 MW Coopers Gap Wind Far, between Kingaroy and Dalby in Queensland’s south-east.
  • The energy market has started to focus more on the challenges next summer may bring; drought has depleted Snowy Hydro’s storage.

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