April 2023 Electricity Market Review

Market Commentary

It’s official. AGL’s 2051 MW Liddell coal plant ceased operations 52 years after the four units at the generator first fired up.

The market reacted to the news and spot prices climbed substantially in the final days of April, carrying through into futures prices at the beginning of May.

This month could very well be the one that marks the tipping point in Australia’s march towards renewable energy and net zero emissions. 

The news of the closure has almost been drowned out by a plethora of battery, wind and solar projects that have either entered service or the construction pipeline.

But before everyone cracks open the bubbly, it is worth noting that the road ahead is still long and fraught with obstacles.

Indeed, the way Liddell groaned and refused to give up until the very last could be indicative of what could lie ahead. 

Engineers had expected Unit 1 to drop from its last hold point of around 70MW to zero output pretty quickly, but it simply wouldn’t go.

Just before 10.30 am on 28 April, engineers had to push the button they didn’t want to push to close it down.

When they drop to a certain level of output, coal turbines commonly trip out, and Liddell certainly has, on more than one occasion, but on this one, she held out till the very last and had to be shut down.

In its quarterly report, the Australian Energy Market Operator stated that record wind and solar generation delivered a sharp fall in electricity prices in the March quarter.

Rooftop modules on homes and businesses also played a significant role, helping send operational grid demand down to its lowest level in almost two decades, since 2005.

The low level of demand and the big increase in large-scale wind and solar meant that the number of negative or zero pricing events increased dramatically.

There is still much to do. Australia will need nearly three terawatts, or 3,000 gigawatts, of wind and solar if it is to meet its goal of a net zero economy by 2030, according to a new study put together by Melbourne University, the University of Queensland, and the Nous Group.

To put the 3,000 gigawatts of wind and solar in some context, Australia currently only has about 30 gigawatts of large-scale wind and solar across the country.

in 2022, the Australian renewable energy industry started construction on more than 5GW of new wind and solar farms, a new report has revealed – the highest year for new renewable construction commitments on record.

The latest Clean Energy Australia 2022 report said 5GW of renewables entered the grid from 20 projects, 11 of them solar farms and seven wind farms, a combined wind and solar plant and a biomass plant.

Australia’s wind sector contributed the highest amount of new large-scale generation capacity, at around 1411MW, and large-scale solar followed with 860MW.

2023 is also gearing up to be a huge year for renewable energy. Last month, at roughly the same time that Liddell shut down, Squadron Energy officially entered the wind generation fleet with its  224MW Bango wind farm in NSW.

Earlier that same week, another positive omen manifested as the 150MW Hazelwood battery commenced operations next to the site of the coal plant that shut down without notice in 2017 and triggered a period of high power prices and consumer outrage.

While it was shutting down Liddell, AGL charged up its 250 MW Torrens Island battery in South Australia for the first time. It overtakes the original Tesla big battery, officially known as the Hornsdale Power Reserve, as the biggest battery.

Origin Energy announced that it was bringing the closure of its NSW Eraring plant forward to 2025 and has since pressed “go” on the first stage of the $A490 million battery, which will be sized at 460MW with two hours of storage (920MWh) – making it the biggest battery in Australia if built now.

CS Energy is also building the huge 100MW/200MWh Chinchilla battery next to its Kogan Creek coal plant in Queensland.

Also in Queensland, the 180MW Dulacca wind farm, featuring some of the tallest wind turbines ever installed in Australia, has officially sent its first power to the grid.

Victoria is also in on the act as GMR Energy announced that “early works” have begun on a transmission link to its proposed 480MWh battery on Victoria’s Mornington Peninsula.

Work has also commenced on the massive Golden Plains wind farm near Rokewood in Victoria, on the first 756MW stage of what will be Australia’s largest wind farm, at 1300MW.

The Federal Government has also extended its $12/GJ gas cap on domestic gas until mid-2025, to put further downward pressure on electricity prices.

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New South Wales

Average Movement Summary:

New South Wales futures prices started the month at $131/MWh, climbing slightly to $136/MWh before dropping and correcting, thereby closing the month exactly where they started. Prices have come down considerably since the crisis in October 2022, but they are now $29/MWhh higher than what they were this time last year.

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Commentary:

• Spot prices dropped in March, with the volume-weighted average price (VWAP) at $105 /MWh compared to $116 /MWh the previous month
• Prices are significantly lower than what the spot market fetched in April 2022 when the average price was $187 /MWh. 
• Electricity spot prices were much more stable than the previous month. There were no instances of market caps and the highest price fetched was $1265/MWh. Significantly more than usual negative pricing was registered, but did not nudge past the -$81 mark.
• Renewables share dropped by a percentage point to 31%  of the state’s energy generation. Reliance on gas dropped back down to 3.5% from 4.2% in March. Coal contribution climbed back up to 65.6% from 63.9% in April. 
• Batteries provided 0.05% of the state’s energy but are very costly at an average of $196/MWh compared to renewables at $80/MWh, coal at $115/MWh and gas at $144/MWh.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $84/MWh and there was slight movement throughout the month before an uptick to close April at $89/MWh. Prices have come down considerably since the crisis in October 2022. However, they are up by $33/mWh to what they were this time last year.

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Commentary:

• Victorian spot prices climbed to $78 in April from $62 /MWh in March. 
• Spot prices for April were significantly cheaper than in 2022 when the average price had shot up to $141/MWh.
• Prices were somewhat stable in positive territory, with the highest price fetched at $449/MWh and the bulk of trading at $290. There were increased instances of negative pricing but did not fall beyond -$62/MWh.
• Coal generated 64% of the energy mix, up 2% from the previous month. Renewables supplied the state with 33.5% of its power, down 2.5%. Reliance on gas, although up slightly was low, contributing 2.2% of generation. 
• Batteries supplied 0.2% of electricity and although costly, are significantly cheaper than NSW at an average of $129/MWh. Renewables cost an average of $57/MWh, coal cost $85/MWh and gas $163/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $107, dipping slightly before correcting back to the month’s opening price. Electricity prices have come down to a large extent since the crisis in October 2022 but are still up $23/MWh costlier than the same time last year.

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Commentary:

• Queensland spot prices dropped to $105/MWh from $123/MWh in March. April’s average price is still up significantly compared to $89/ MWh in February and $57 / MWh in January. 
• Although still high, Queensland spot prices are now just over half the price they were during the same period in 2022 when the average price fetched was $220/MWh.
• Peak spot prices were volatile with one instance of pricing close to the market cap at $14,950/MWh. There were 25 instances of pricing above $1,000. Negative pricing was less volatile, with a low of $-75.
• Renewables supplied 26% of the state’s energy for the month, up 3%. Coal generation dropped from 1.5% to 68%. Gas generation dropped by almost 2 percentage points to 6% of total generation.
• Batteries supplied 0.09% of total generation. However,  it is still costly at an average of $166/MWh. Gas averaged a cost of %165/MWh, coal $113/MWh and renewables $53/MWh.

South Australia

Average Movement Summary:

South Australia’s wholesale futures prices, as usual, displayed a different trend to other states, largely due to its different energy mix of which the majority is renewables and the rest gas. 

Prices started the month at 103/MWh climbing after a few days to $109/MWh and closing April at that price. Prices have come down substantially since the crisis in October 2022 however, they are $35/MWh costlier than this time last year.

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Commentary:

• SA is the only state in the NEM where average spot prices increased from March. April’s prices increased to $78/MWh from $65/MWh the previous month.
• At $78/MWh, prices are roughly half what they were in the same period in 2022 when the average was $152/MWh.
• Price volatility was low, with the only instance of note being a spot price of $9,899. Negative pricing incidents were recorded, with the only one of significance being -$311. Renewables dropped a percentage point to 72% of total generation. Conversely, gas continued its upward trend from the previous month to 27%.
• Battery power accounted for 0.6% and averaged a cost of $136/MWh. Gas cost an average of $119/MWh and renewables $49/MWh.

In addition to local woes, the international electricity market will continue to be influenced by the conflict in Ukraine and the possibility of a new Russian offensive during the Northern Hemisphere Spring.

Businesses may want to consider purchasing electricity through wholesale tenders, as we are witnessing a significant price uptick. Depending on your business’s risk appetite, now could be a critical time to act.

Act now! Reach out to one of our skilled energy consultants today and gain valuable insight into the potential costs that may lie ahead. Don’t wait, take control of your energy expenses now!

We hope our review of the electricity market and the relevant movements in electricity prices in April 2023 have been informative and helpful for you. We understand that these are challenging times, and we’re here to support you. If you’d like to delve deeper into the energy market’s previous months, you can find our monthly energy market reviews here. 

For advice on how to reduce electricity costs and improve your business’ energy sustainability, reach out to our team. We’re here to assist you and explore your options together.

Explainer:  Why we focus on Wholesale Futures Prices

Wholesale Futures Price: This reflects what the market expects wholesale electricity spot rates to be in future periods. The offers that commercial and industrial (C&I) customers receive via Leading Edge Energy are closely correlated to wholesale prices on the ASX Energy futures market; this is why we focus on these prices in our commentary.

Spot Price: This represents how much the spot market is charging for electricity currently based on demand and supply. Spot prices go up when demand is high and supply is tight. You can view live Spot Prices here.

You can learn more about the difference between wholesale electricity futures and spot prices in our blog section.

Disclaimer: The information in this communication is for general information purposes only. It is not intended as financial or investment advice and should not be interpreted or relied upon as such.

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