September 2023 Electricity Market Review

Market Commentary

The Bureau of Meteorology has officially declared that Australia is facing an El Niño summer, which could put stress on the National Energy Market (NEM), and cause electricity prices to rise.

The Australian Energy Market Operator had already warned of rolling blackouts if demand outstrips supply as the nation battles with prolonged periods of excessive dry heat.

Worries are compounded by looming industrial action at CS Energy’s 750 MW Kogan Creek coal power plant in Queensland which could see generation curtailed. 

Current industrial action is limited to maintenance work but could be extended to limiting generation.

With Callide C not returning to full generation capacity until December, there are concerns that Queensland could be hit by supply shortages, especially if there is an islanding event where the state is disconnected from the rest of the grid.

Bushfires are a particular concern with El Niño being active as they can cause state electricity interconnectors to fail.

Batteries show their volatility and flexibility

A fire at Genex’s Bouldercombe highlighted the volatility and flexibility of battery storage plants. The plant was taken out on Tuesday, 26 September, when a cell caught fire, but was back in action by Thursday 28th.

This is not the first time a battery plant has caught fire. In this instance, the fire consumed one single cell and did not spread to others.

Battery cells can be prone to fires, and once again the extreme heat that El Niño is set to bring is a cause of concern with battery storage plants. 

That being said, the fact that the battery was back online and storing energy 48 hours later shows how flexible they are.

Two new big battery projects in South Australia have obtained transmission connection agreements with ElectraNet, the company that owns the transmission network in the state.

The deals have been signed with Amp Energy for 150 MW, two-hour (300 MWh) Bungama Battery Energy Storage System (BESS) near Port Pirie, and with Zen Energy’s 111MW / 270MWh Templers battery project north of Adelaide

New market cap proposed

In July, AEMO introduced a new market cap, raising it from $15,500 to $16,600. AEMO has now proposed to progressively increase the spot market cap to $22,800/MWh by 1 July 2027.

The proposal is designed specifically to ensure that there is enough capacity to deal with those rare events when there may not be enough generation to meet a surge in demand – perhaps due to a heatwave when consumers turn their air conditioners on simultaneously.

The Australian Energy Market Commission says its modelling has shown that price settings in the wholesale electricity market are currently set too low to ensure there is enough generation and battery storage to keep the system reliable as it transitions.

New Renewables records set

The Australian Energy Market Operator has confirmed a new record high share of renewables on the nation’s main grid, calling it at 69.9 percent between 11 a.m. and 11:30 a.m., according to data recorded at 30-minute intervals.

OpenNEM showed slightly different figures with the instantaneous share of renewables on the main grid passing the 70 per cent milestone a couple of times over the morning of September 20, hitting an all-time high of 70.6% at 11:45 a.m., meeting all of South Australia’s native or underlying demand in the early afternoon on Saturday.

In South Australia renewables contributed around 114 per cent of the state’s demand on Saturday 23 September, exporting most of the excess while some went into storage, and a significant amount was curtailed due to negative prices. 

The new milestone beat the previous peak for rooftop solar of 99.2 percent recorded a week earlier.

South Australia is ahead of other states in Australia and the world, at least for grids of its size. The last coal generator was shut in 2016, the remaining gas plants no longer operate in “base load” mode, and battery storage – first introduced in 2017 – is now rapidly expanding.

On 16 September, Queensland set a new record low demand at 3,211 MW as rooftop solar flooded the grid. 

No new renewable energy projects

The latest data shows that the near standstill on new large-scale renewable energy projects has continued into the new financial year, with no new solar projects registered in the first two months of 2023/24.

The slowdown in new project approvals and financing in the last half of 2023 has been well documented by the likes of the Clean Energy Council and other bodies and was confirmed earlier this week by data released by the Clean Energy Regulator.

The first half of 2023 was quiet for new renewable energy investment commitments, with the CER noting that just 500MW of new capacity had reached a final investment decision in the first six months of the year, well short of what’s needed to meet the 82 per cent renewables target for 2030.

It blamed “a number of challenges” including higher costs, connection and permitting, and revenue certainty. The one bright spot was the rooftop solar sector, now tipped to match the record 3.2GW of new capacity installed in 2021, and may go higher.

Government reveals massive nuclear price tag

The Federal Labor government has put a $387 billion price tag on the cost of the Coalition’s push for nuclear energy.

The number was produced by the Department of Energy and is based on the cost of replacing Australia’s remaining coal fleet of 21.3GW with a minimum of 71 small modular reactors, each of 300MW.

The Federal government estimates put the cost of such a plan at $25,000 for each Australian taxpayer, and it says the Coalition claim that nuclear energy is the lowest cost form of low-carbon electricity would be three times more expensive than firmed renewables.

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New South Wales

Average Movement Summary:

New South Wales electricity futures prices started the month at $124.50/MWh, dropping slightly by a dollar before ticking up to $130/MWh by the third week of September. Prices retreated to close the month where they started at $124/MWh. Prices have come down considerably since the crisis in October 2022 and are $42/MWh cheaper than they were last year.

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Commentary:

• The volume-weighted average price on the spot prices market dropped substantially from $94/MWh in August to $64/MWh.
• Prices are significantly lower than the spot market fetched in September 2022 when the average price was $153/MWh. 
• Electricity spot prices were relatively stable in 2023, with two pricing incidents just shy of the new market cap at $16,600 /MWh. The bulk of trading took place at around the $70/MWh mark. Incidents of negative pricing dropped from 5,000 in August to 1,300 in September with a maximum low of  -$80/MWh. 
• Renewables share increased from 32% to 38.9% of the state’s energy generation. Reliance on gas was very low at 0.8%. Coal contribution dropped by 5 percentage points to 60.2%. 
• Batteries provided 0.1% of the state’s energy but energy dispatched is very costly at an average of $129/MWh compared to renewables at $34/MWh, coal at $80/MWh and gas at $153/MWh.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $80/MWh, rising gradually to $83 by the third week of the month. Prices rose by a dollar towards the middle of the month, closing slightly cheaper at $78/MWh. Prices have come down considerably since the crisis in October 2022 and are $32/MWh cheaper than they were last year.

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Commentary:

• Victorian average spot prices dropped drastically from $65 in August to $26 in September.
• Spot prices for September were significantly lower than in 2022 when the average price was $111/MWh.
• Spot prices were also relatively stable in Victoria in positive territory, but negative pricing was extremely volatile. The highest price fetched was only $526/MWh. The bulk of trading took place between $30-$60/ MWh.
• Incidents of negative pricing events increased substantially to 2,500 with 100 instances where pricing hit -$400/MWh.
• The share of renewables generation increased substantially by almost 6 percentage points to 39.7 %. Conversely, coal generation decreased to 58.8 %. Gas generation dropped slightly to 1%.
• Battery supply accounted for 0.4% of electricity and generation cost an average of $90/MWh. Renewables cost an average of $9.73/MWh, coal costs $37/MWh and gas $139/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $109, rising steadily to $116/MWh by the third week of the month. Prices retreated to close the month at $110/MWh.

Electricity prices have come down to a large extent since the crisis in October 2022 and are $32/MWh cheaper than they were last year.

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Commentary:

• Queensland spot prices from $68/MWh in August to $50/MWh in September.
• Queensland spot prices were three times more expensive in August 2022, when the average price was $156/MWh.
• Queensland’s volatility presented itself in September with three incidents over $15,000/MWh. There were around 2,500 negative pricing events, with a low of $-85.
• Renewables increased by 4 percentage points to 30.9% of the state’s energy for the month. Coal generation dropped slightly to 63.3%. Gas generation dropped from 7.3% to 5.7%.
• Batteries supplied 0.1% of total generation. However, battery energy is costly at an average of $135/MWh. Gas averaged a cost of $97/MWh, coal $63/MWh and renewables $9/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 113/MWh, climbing steadily to $120/MWh. Prices for 2025 and 2026 were flat. 2025 prices are slightly cheaper than 2024 at$114/MWh, but pricing for 2026 is significantly higher at $130/MWh.

Prices have come down substantially since the crisis in October 2022 and are $2/MWh cheaper than this time last year.

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Commentary:

• SA’s average August 2023 electricity spot prices dropped drastically from $163/MWh in August to $41/MWh in September.
• Prices are lower than in the same period last year when prices averaged $147/MWh.
• South Australia has a very rare steady month. There were only five price incidents of note, one at $9,000/MWh and four around the $3,000 mark.
• There were close to 5,000 negative pricing incidents recorded, with five instances where pricing dropped below -$900/MWh.
• Renewables climbed to 78.6% of total generation. Gas generation dropped from 34 to 20.3%.
• Battery power increased slightly to 1.1% and averaged a cost of $80/MWh. Gas cost an average of $97/MWh and renewables $4.39/MWh.

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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. 

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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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