Australia Energy Market Report – February 2018

Market Developments:

Although some volatility remains, prices have trended downwards in all states for February 2018, as seen on the chart below. The markets are slowly normalizing after the dramatic rise in 2017 due to the closure of the Hazelwood coal fired generator. Speculative fears that the system may struggle to cope with the reduced generation capacity and high temperatures over summer seem to have been dispelled. However, prices remain far higher than their historical average as there remains uncertainty over the impact of government legislation and how new technologies will alter the make-up of the industry. This is further exacerbated by limited competitive pressure within the market, primarily among energy generators.

Australia’s future energy outlook is facing continuing changes in macro trends where by Market & Customer Transformation, De-carbonization (Carbon Emission), Decentralization (Off Main Grid, including Micro Renewables, Embedded Electricity Generation, Virtual Power Plants), and the Role of the Network.

Electricity & Energy Market:

  • The Australian energy and resources industry is in a period of transition. Encompassing the economic growth, examining supply and demand, policy and market developments along with the impact of new technology and future opportunities for investment. With clear objectives to provide reliable, affordable and low-carbon energy services whilst managing to build a sustainable energy export sector.
  • In February, Energy Security Board (ESB) has released the first public consultation paper for the National Energy Guarantee. In which it outlines the National Energy Guarantee’s intention is to deliver more reliable, affordable and cleaner energy to Australian consumers. It is to ensure contracting is in compliance associated with meeting annual electricity emission targets that will work in practice while the Federal Government set the emission target to draw efficiency and reliability requirements for each region across the whole power system. In early April the ESB will provide a draft design to the COAG Energy council.
  • The Federal Government abandoned its Renewable Energy Target in October 2017 in favour of the National Energy Guarantee, which is intended to deliver the right level of dispatch able energy. The NEG scrapped subsidies on renewable energy like wind, solar power and hydro.
  • Growing numbers of businesses in 2018 are also set to follow the trend away from fossil fuels, naming major players like Telstra and AGL are increasingly choosing clean energy including solar power and wind.
  • AGL Energy has decided to close its Liddell coal plant in 2022 and replace it with a renewable energy hub; wind, solar and solar batteries.
  • AGL plans for a $200 million upgrade of the Bayswater Power Station (due to close in 2035) in the Hunter region of New South Wales to commence this February 2018. AGL says the project at the coal-fired plant in Muswellbrook is part of an effort to hold off the expected 1,000 megawatt shortfall once Liddell Power Station comes to cease operation. Bayswater power station could add 100M, as well as investment in new gas capacity (750MW) to help meet the 1,000MW of reserve capacity shortfall identified by the Australian Energy Market Operator.
  • In the interim, although spot prices were higher in January, the forward prices point to lower rates in the next months and years.
  • According to JPMorgan’s utilities team, the practical success of the power system is in coping with spikes in demand through the summer and so this helped soften forward power contract prices.
  • AEMO’s Electricity Forecasting Insights forecasted for the maximum demand to remain flat until the mid-2020’s, and projected the start to increase as the time of maximum demand moves later when rooftop PV output is small or nil.
  • As energy prices continue to experience volatility with it being a commodity, it is with the gas industry and its ability to meet domestic demand that also remains as the spotlight. According to Oakley Greenwood Gas Price Trends Review, the wholesale price of electricity in the (east coast) National Electricity Market had been heavily influenced in recent times by the price of gas. While a study from Melbourne University revealed a linked in high-energy prices to the gas market; due to the eastern Australian gas export industry impacting a huge jump in demand (triple the size of the domestic market) and linking prices to international markets.
  • Higher gas prices had been adduced as a major element behind the rising wholesale electricity pricing. Leading to higher prices for consumers and a spike in profits for electricity companies. In February, Origin Energy had its first-half underlying profile more than tripled on the back of rising energy prices to $582 million. While AGL announced an almost doubling of its first-half net profit to $622m driven by healthy margins on higher wholesale prices. And Energy Australia have had 67 per cent jump in full-year earnings to $551m due to higher wholesale prices.
  • The Australian Government had allocated part of their Energy Budget Package 2017-2018 in providing an additional $7.95 million for 2017-2018 to ensure EAR meticulously monitor the energy market & energy providers.
  • With Australia committing to strong emission reduction targets, new emerging renewable electricity generation and storage technologies will put increasing pressure on tradition coal and gas fired power plants. There are increasing interests in renewable electricity generation options, which are already in commercial use; the rooftop PV is the most influential renewable energy generation.
  • Increasing trends in innovation for information and data analytics, the modern information technology and communication used to improve supply network efficiency and reliability. For example, smart electricity meters offering range of capabilities to manage and reduce energy consumption.