June 2023 Electricity Market Review

Market Commentary

Record amounts of wind generation contributed to a solid electricity supply in June, leading to substantial price drops in the wholesale and spot electricity markets.

But the tight link between supply and demand in determining electricity prices manifested again this month, particularly in the third week when a cold snap triggered record demand on the NEM, particularly in NSW and Queensland. On 20th June, demand rose to 32,238MW, which coincided with a short-term price spike.

Four short-term outages at Loy Yang A2, Kogan Creek and units 3 and 4 at Yallourn also had a short-term effect on pricing.

An outage on the Kangaroo Valley transmission line also affected prices.

Thursday, June 22 saw a rare occurrence of high spot prices mid-afternoon as solar was weak due to cloud cover across Australia.

Wind generation was the star performer in June, beating three records. On 8 June, a new record of 7,324MW was set, which was then beaten on 24 June with 7,353MW and again on 25 June when the number hit 7,417MW.

The transition towards renewable energy, and in particular battery storage, continues in earnest, but the head of the Australian Energy Market Operator has warned that things are not moving fast enough to meet the federal government’s 2030 targets, despite a massive pipeline of projects waiting in the wings.

The federal Labor government has interim targets of a 43 per cent cut in emissions by 2030, and a target of 82 per cent renewables in the national grid.

But the former chief scientist and head of Australia’s National Hydrogen Strategy, Alan Finkel says Australia still has a chance to get to the 82 per cent renewables energy target by 2030, but it needs to get everything right.

NSW-based transmission group Transgrid has released a 10-year roadmap outlining a $16.5 billion plan to deal with the exit of coal and transition to 100 per cent renewables with the help of  2,500 km of new transmission lines.

NSW is expected to see four of its remaining coal power stations close within the next ten years and expects to replace this with some 28GW of new capacity, comprising large-scale wind and solar, battery and other storage, and rooftop solar.

Origin is testing 12-hour capacity batteries at the site of the Eraring coal plant which is due to be retired in 2025.

Global asset manager BlackRock has raised over $500 million to build a “shock absorber” battery in NSW.

At 850MW and 1680MWh it will be the largest battery of its type in the southern hemisphere and one of the largest in the world.

NSW has increased a battery tender of “firm capacity” from 380MW to 930MW, with more than 3.3GW of proposals received.

South Australia – which already leads the world with its 70 per cent share of wind and solar in its grid – has outlined plans to become a green “hydrogen superpower”.

By 2050, the Hydrogen Superpower scenario will lead to over three times more utility-scale storage capacity (5 GW), over six times more wind capacity (55 GW), and over seven times more utility-scale solar capacity (63 GW).

The federal and Victorian Labor governments have released plans and opened community consultations for a massive new offshore wind zone off southern Australia, one of at least six planned for the country.

The zone has the potential to host up to 14GW of offshore wind capacity

Victoria also witnessed history being made as the first big battery to be built in Australia at the site of a former coal generator – Hazelwood – was officially commissioned.

The 150MW, one-hour Hazelwood battery is located at the site of what was once the country’s dirtiest coal generator, a 1600MW giant that was shut down in early 2017 with little notice, causing an energy price crisis.

AGL says two new batteries – a 250MW, one-hour battery at Torrens Island in South Australia and a 50MW, one-hour battery at Broken Hill – are all but complete and should be in full operation in the next three months. 

A final investment decision on a potential 500MW, two-hour big battery at the site of the Liddell coal plant that closed in April has also been brought forward to the end of this year.

Energy market turmoil has claimed another two small retailer scalps Mojo Power and Brisbane-based retailer QEnergy.

And in news that is literally out of this world, researchers from the California Institute of Technology say they have successfully beamed solar power from space to Earth.

The team says the breakthrough opens the door to an energy source that could “potentially yield eight times more power than solar panels at any location on Earth’s surface.”

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New South Wales

Average Movement Summary:

New South Wales futures prices started the month at $142/MWh, gradually dropping to $134/MWh by the middle of June. Price ticked up in the third week to $139/MWh, closing at $137/MWh. Prices have come down considerably since the crisis in October 2022, but they are now $8/MWhh higher than what they were this time last year.

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Commentary:

• The volume-weighted average price on the spot prices market dropped from $193/MWh in May to $105/MWh in June.
• Prices are significantly lower than the spot market fetched in June 2022 when the average price was $398 /MWh. 
• Electricity spot prices were relatively stable in June, with only two significant extreme pricing events at $14,800/MWh and $14,450. There were 100 incidents of negative pricing which never dropped lower than $50/MWh. 
• Renewables share dropped by almost 2 percentage points to 26.5% of the state’s energy generation. Reliance on gas dropped from 3.9% to a more customary low rate of 2%. Coal contribution climbed significantly by 4 % to 71.4%. 
• Batteries provided 0.03% of the state’s energy but are very costly at an average of $223/MWh compared to renewables at $93/MWh, coal at $114/MWh and gas at $163/MWh.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $92/MWh. Prices tapered off and fell gradually through the months closing at $86/MWh. Prices have come down considerably since the crisis in October 2022. However, they are up by $3/MWh compared to what they were this time last year.

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Commentary:

• Victorian spot prices dropped to $85 in June, down from $127 in May. 
• Spot prices for June were significantly cheaper than in 2022 when the average price had shot up to $296/MWh.
• Spot prices were also stable in Victoria for the month of June, with the only price event of note being one incidence of pricing edging above $1,000/MWh with the bulk of trading taking place between $100-$200/ MWh.
• There was a substantial increase of negative pricing events (around 1,500) but did not fall beyond -$90/MWh.
• The share of renewables generation shot up by 10% to 40%. Conversely, coal generation dropped from 66% to 58%. Gas generation also dropped from 2.6% to 1.3%. 
• Batteries supply accounted for  0.4% of electricity and while costly, are significantly cheaper than they are in NSW at an average of $104/MWh. Renewables cost an average of $41/MWh, coal cost $61/MWh and gas $174/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $123. Prices varied by 2-3 $/MWH but largely remained settled, closing the month where they started at $123/MWh.

Electricity prices have come down to a large extent since the crisis in October 2022  and are just shy of $2/MWh cheaper than they were in June 2022.

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Commentary:

• Queensland spot prices dropped to $102/MWh in June from $165/MW in May. 
• Although still high, Queensland spot prices were four times as expensive in June 2022, when the average price fetched was $400/MWh.
• Peak spot prices were extremely volatile. There was one market cap event at $15,500 and five other incidents when pricing was close to $15,000/MWh.  Negative pricing was less volatile, with a low of $-55.
• Renewables dropped to 23% of the state’s energy for the month, down 2%. Coal generation Increased by about 3 percentage points to 67.8%. Gas generation, although high, dropped slightly to 9.3%
• Batteries supplied 0.1% of total generation. However,  it is very costly at an average of $172/MWh. Gas averaged a cost of $163/MWh, coal $109/MWh and renewables $60/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 129/MWh, dropping to $116/MWh by the third week before settling and closing the month at that price. 

Prices have come down substantially since the crisis in October 2022 and are $10/MWh cheaper than this time last year.

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Commentary:

• SA’s average June 2023 electricity spot prices dropped by more than half to $85/MWh from $202/MWh in May.
• At $202/MWh, prices are lower than in the same period last year when prices averaged  $302/MWh.
• Price volatility was relatively high, but there were no market cap events. The highest price fetched was $12,900/MWh and three incidences of pricing close to $10,000/MWh. There were around 2,000 negative pricing incidents recorded, with the lowest price fetching $980/MWh. 
• Renewables climbed back up from 56.6% in May to more familiar levels of 74% of total generation. Gas generation also dropped sharply from 42.6% to 25%
• Battery power remained on par with last month at  0.6% and averaged a cost of $156/MWh. Gas cost an average of $181/MWh and renewables $41/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 May 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.

We source, analyse, compare and rank commercial, industrial and multisite energy quotes. Obligation Free.

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