October 2020 Energy Market Review

October saw the emerging pattern of record-breaking renewable energy output, and low operational demand start to form into a solid trend. New minimum operational demand records were set in Victoria and South Australia prompting AEMO to release a report detailing its approach to managing the grid under these conditions. South Australia met its entire state demand with solar for one hour (a global first) and Queensland forced solar farms to shed ~650 MW due to oversupply. 

Things are moving fast, and futures prices are starting to creep up, reach out to our Energy Experts now. 

New South Wales

• Contract prices for 2021, 2022 and 2023 climbed between 6 and 8% over the month of October.
• Contracts for 2024 commenced trading at the start of the month at ~$56/MWh and finished the month up 3%.
• All contracts are currently trading between $54.50 and $57.50/MWh.

How did supply and demand affect price?

• NSW has seen the steepest increase in futures prices over the month.
• The state is benefiting from improved reliability of coal-fired power stations and low gas prices associated with the pandemic.
• Spot prices spiked on 23rd October to $13,457/MWh for three consecutive 5-minute intervals for as yet unknown reasons.

Victoria

• Prices for 2021, 2022 and 2023 rose 2-5% over the month.
• 2024 contracts commenced trading and the market has priced them in line with 2022-2023 contracts.
• 2021 prices are still substantially higher than future periods trading at ~$55/MWh compared to ~$46/MWh for 2022-2024.

How did supply and demand affect price?

• Victoria finally received the news that its lockdown restrictions would be eased. While Victorians were overjoyed, electricity markets barely seemed to notice. This suggests an expectation that there will be little impact on demand.
• On sunny Sunday, November 1st, a new low operational demand record was set at 2,709 MW at 1:30 pm reflecting the record pace of residential and commercial solar installations.
• Victoria is also benefiting from improved reliability of coal-fired power stations and low gas prices associated with the pandemic.

Victoria is currently in the midst of a rare dream run in its energy system after being plagued with consecutive outages in its thermal fleet and SA and Basslink interconnectors. The return of any of these disturbances could disrupt the current low prices.

Queensland

• Contract prices for 2021, 2022 and 2023 climbed between 4 and 6% over the month of October.
• Contracts for 2024 commenced trading at the start of the month at ~$41//MWh and finished the month flat.
• Prices for all contract periods have not dipped below $40/MWh for the past 2 months.

How did supply and demand affect price?

• Queensland continues to enjoy plentiful supply and has the lowest prices in the NEM (with the exception of SA’s newly trading 2024 contracts).
• The state grappled with challenges associated with high renewable output and low operational demand on October 13th.
• Spot prices spiked to $15,000/MWh as AEMO instructed large scale solar farms to switch off amid low operational demand.
• The exact sequence of events has not yet been fully analysed but the episode highlights the risks of a disorderly transition. Low demand and high supply does not always equal low prices when it comes to energy markets.

South Australia

• South Australia contract prices were flat over October with slight 2-3% rises for 2021 and 2022.
• 2024 commenced trading in October at ~$41/MWh which is substantially lower than the 2021-2023 prices and the lowest price seen in the SA market in over 5 years suggesting a lot of confidence in the state’s long term supply.

How did supply and demand affect price?

• SA made global headlines this month supplying 100% of its demand with solar for one hour on October 11th. This is the first time this has been achieved for any major jurisdiction worldwide.
• 77% of the record breaking hour came from rooftop solar with the remainder supplied by large-scale solar farms.
• On the same day a new record minimum operational demand of 300MW was also set – knocking another 63MW off last month’s record (see last month). 
• SA is also benefiting from low gas prices associated with the pandemic.

In last month’s energy market review, we concluded that the pace of the renewable energy transition was taking many by surprise and October has certainly reinforced that view. The increased supply from renewables should, in the long-term, put downward pressure on electricity prices, but a disorderly transition has the potential to increase volatility in the short-term. Wholesale electricity prices are at the lowest levels since 2014 but are creeping up. 

Our Energy Experts are just a phone call away – reach out to us today at 1300 852 770!

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.