August 2023 Electricity Market Review

Market Commentary

Coal electricity generation was the focus of attention in the National Energy Market during the month of August as several announcements were made about extending operational lives and pivoting operations to firming rather than baseload capacity.

A review has recommended that the New South Wales Government enter negotiations with Origin Energy to extend the life of the 2,880MW coal-fired Eraring power station beyond 2025.

The State government commissioned the Electricity Supply and Reliability Check Up review which recommended an extension of the coal plant at Lake Macquarie, north of Sydney. 

The document says a deal with Origin should be temporary and coupled with an exit policy.

Commissioned in 1982, it consists of four 720 MW Toshiba steam-driven turbo-alternators for a combined capacity of 2,880 MW.

The state government was due to make a decision on the future of Eraring by the end of August, but this decision has been pushed back a number of weeks.

The Victorian government has decided to provide financial support for AGL’s brown coal-fired power station Loy Yang A until 2035. Coal provides 60 per cent of Victoria’s power.

This is the second Victorian state government agreement with generators which it said it made to avert the risk of blackouts and spiralling prices if the ageing coal generators shut down before the replacement supply is built.

The agreement offers undisclosed state aid to the 2210-megawatt plant, preemptively safeguarding its operations from potential early closure due to low wholesale prices.

The other deal was signed in 2021 with EnergyAustralia’s 1,480MW to shut down the Yallourn coal-fired power generator in mid-2028.

EnergyAustralia said its 1,400MW Mount Piper will pivot to operate in a firming role for renewables.

It will reduce output during periods of high renewables generation and move to a reserve or backup role by the early to mid-2030s.

The plant will require some modification to ensure that it can ramp up and down faster to meet fluctuations in demand.

New $16,600 market cap, but spot pricing remains soft 

A new market cap of $16,600 for the spot market has been introduced to reflect increases in inflation, but the NEM is still experiencing overall soft pricing in the spot market. 

The new market cap was hit four times in South Australia during August, but overall, average spot prices for the state and across the NEM are generally lower than they were this time last year.

This, at a time when we have units offline and short hours of winter sunshine.

As the country enters spring and solar generation ramps up, and the wind continues to blow, it is expected that spot market prices will remain soft in the lead-up to summer.

Queensland registers new record low daytime demand

On 20 August Queensland gave an example of how Australia’s rooftop solar on warm, sunny days can radically change the energy demand landscape. A new lowest demand point of 3250MW was registered. 

These records will likely be more frequently broken, given the market conditions in the past couple of years.

Low energy prices in 2020 and 2021 resulted in longer ROI for businesses installing solar, but in 2022 and 2023 businesses are paying much higher electricity rates.

This is leading to a scramble to get solar installed so that businesses can mitigate and minimise their energy costs. 

The resulting increase in rooftop solar generation will continue to deepen the Duck Curve’s trough and in turn, drive down daytime demand. 

AEMO says coal exits will not cause blackouts if enough batteries are built

In its annual Electricity Statement of Opportunity Report, AEMO has stated that if the number of planned big battery projects are completed and connected on time, Australia will not be at risk of blackouts resulting from the closure of coal plants.

AEMO said the impact of the planned closure (whether in 2025 or beyond) of Eraring has been complicated by project delays, a looming El Nino summer, and the lingering threat of unplanned fossil fuel outages.

AEMO stated that if planned big battery storage projects are built and connected on time, then the reliability standards will likely not be breached in NSW with the closure of Eraring in two years’ time.

There are a large number of battery projects on paper, in the pipeline, under construction, or waiting to be connected to the grid. 

A new company is pitching a 400 megawatt (MW) / 800 megawatt-hour (MWh) battery in the Upper Hunter Shire Council town of Aberdeen, just 11 minutes drive north of AGL’s massive 2GWh Liddell storage project. 

Maziewood has started a development application for the battery, sited across a road from a Transgrid substation, with an estimated cost of about $600 million.

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New South Wales

Average Movement Summary:

New South Wales electricity futures prices started the month at $123/MWh, dropping slightly by a dollar before ticking up to $132/MWh by the third week of August. Prices retreated to $125/MWh, closing at $126/MWh. Prices have come down considerably since the crisis in October 2022.

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Commentary:

• The volume-weighted average price on the spot prices market increased to $94/MWh in August from $85/MWh in July.
• Prices are significantly lower than the spot market fetched in July 2022 when the average price was $148/MWh. 
• Electricity spot prices were volatile in August 2023, with one pricing incident just shy of the new market cap at $16,500 /MWh. There were 17 incidents where pricing fell between $1,000/MWh and $11,000/MWh. There were over 5,000 incidents of negative pricing, which dropped to a maximum low of  -$60/MWh. 
• Renewables share increased from 27.8% in July to more familiar territory of 32% of the state’s energy generation. Reliance on gas increased by half a percentage point to 3%. Coal contribution dropped by 5 percentage points to 65%. 
• Batteries provided 0.07% of the state’s energy but energy dispatched is very costly at an average of $218/MWh compared to renewables at $71/MWh, coal at $105/MWh and gas at $188/MWh.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $79/MWh, rising gradually to $83 by the third week of the month. Following the same pattern as NSW, prices dropped to $81/MWh, closing at $81/MWh. Prices have come down considerably since the crisis in October 2022 and are $13/MWh cheaper than they were last year.

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Commentary:

• Victorian average spot prices increased to $65 from $56 in July. 
• Spot prices for August were significantly lower than in 2022 when the average price was $121/MWh.
• Spot prices were volatile, with two incidents at $14,522/MWh and $11,041/MWh. The bulk of trading took place between $100-$300/ MWh.
• There were around 1,500 incidents of negative pricing events, hitting a maximum low of -$60/MWh.
• The share of renewables generation dropped substantially by 5 percentage points to 34%. Conversely, coal generation increased to 64%. Gas generation dropped slightly to 1.4%. 
• Batteries supply accounted for  0.4% of electricity and generation cost an average of $161/MWh. Renewables cost an average of $47/MWh, coal costs $72/MWh and gas $246/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $110, rising steadily to $117/MWh by the third week of the month. Prices retreated to $112/MWh, closing the month with a further drop down to $111/MWh.

Electricity prices have come down to a large extent since the crisis in October 2022 and are $8/MWh cheaper than in August 2022.

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Commentary:

• Queensland spot prices dropped to $68  from $77/MWh in July. 
• Queensland spot prices were twice as expensive in August 2022, when the average price was $133/MWh.
• Queensland’s usual volatility reasserted itself in August with one incident of pricing hitting $10,150/MWh and 15 incidents over $1,000/MW/h. There were around 2,000 negative pricing events, with a low of $-65.
• Renewables increased substantially by 5 percentage points to slightly to 27% of the state’s energy for the month, down 1%. Coal generation dropped by about 5 percentage points to 65%. Gas generation, although high, dropped from 8.1% to 7.3%.
• Batteries supplied 0.09% of total generation. However,  battery energy is costly at an average of $162/MWh. Gas averaged a cost of $131/MWh, coal $80/MWh, and renewables $17/MWh.

South Australia

Average Movement Summary:

As usual, South Australia’s wholesale futures prices 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 114/MWh, mostly moving in a straight line, closing the month slightly lower at $113.  Prices for 2025 and 2026 were flat. 2025 prices align with 2024, but pricing for 2026 is significantly higher at $130/MWh.

Prices have come down substantially since the crisis in October 2022 and are $7/MWh cheaper than this time last year.

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Commentary:

• SA’s average August 2023 electricity spot prices increased drastically to $163/MWh from  $73/MWh in July.
• Prices are lower than in the same period last year when prices averaged  $173/MWh.
• South Australia experienced a wild August with four incidents of pricing hitting the new $16,600 price cap. There were five other incidents over $16,000 and 20 incidents around the $10,000/MWh mark.
• There were close to 3,000 negative pricing incidents recorded, with the lowest price fetching -$200/MWh. 
• Renewables dropped by 8 percentage points to 74% of total generation. Gas generation increased by 7% to 34%.
• Battery power increased to 1% and averaged a cost of $336/MWh. Gas cost an average of $337/MWh and renewables $59/MWh.

Depending on your business’s risk appetite, now could be a good time to secure a new energy contract.

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We hope our review of the electricity market and the relevant movements in electricity prices in August 2023 have been informative and helpful. 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. 

Contact our team for advice on reducing electricity costs and improving your business’ energy sustainability. 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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