February 2024 Electricity Market Review

Market Commentary

In February 2024, electricity market observers saw that uncertainty over negotiations to extend the lifespan of Eraring coal power station – currently on track to close in 18 months – is keeping power operators in the dark.   

Downward pressure has been maintained on spot and futures prices, but extreme weather events in New South Wales, South Australia and Victoria resulted in all three states experiencing extended market cap events at $16,600/MWh on the spot market.  

Eraring called into action as Sydney swelters, highlighting risks if it closes in 18 months  

Temperatures hit close to 40° Celsius in New South Wales and all coal generators, including Eraring, were called into action to prevent a shortfall in the supply of electricity on February 29.  

Eraring maintained a significant 16.5% share of the state’s power supply. The heightened demand triggered price spikes, with wholesale prices reaching the market cap of $16,600 per megawatt-hour in the afternoon of February 29, marking more than 460 times the spot price in NSW at midday on Friday.  

The pressure on the grid stressed the challenges faced by the state’s energy infrastructure, raising concerns about its ability to cope with demand without the contribution of 2,800 MW Eraring.  

These findings intensify the ongoing negotiations between Origin and the NSW government over extending Eraring’s lifespan. The discussions encompass factors such as the potential increase in coal costs for Origin under a new sales deal with suppliers, including Centennial Coal and the expiration of the $125-per-tonne coal price cap on July 1.  

Despite the urgency of these talks, Origin asserted that Eraring operated normally during the high-demand period, with its vast generation portfolio performing well to meet customer needs and support the market.  

Increased pressure on the timing of coal power plant closures reflects the broader challenges that come with Australia’s transition to clean energy, marked by delays in the generation capacity build-out, transmission line projects, and rising costs. 

While Origin faces pressure from climate-conscious shareholders to reduce emissions, Eraring remains a vital contributor to its emissions reduction target of 40% by 2030.  

Challenges faced by coal stations become more pronounced  

The challenges faced by coal stations, including technical and financial hurdles, have become more pronounced as wind and solar power drive wholesale prices down during daylight hours. This has necessitated flexible operations and increased investment.  

As the negotiations continue, the operational significance of Eraring during high-demand periods adds complexity to the decision-making process.  Industry experts are expressing doubts about the feasibility of closing Eraring in August 2025, given its crucial role in maintaining the electricity supply in NSW.  

Fierce storms tear down critical infrastructure in Victoria 

Fierce storms in Victoria tore down six major transmission towers, also levelling large parts of the local network, leaving over half a million people without power on February 13. The spot market hit the market cap of $16,600/MWh on 24 consecutive market trading intervals in the aftermath.  

Futures prices in Victoria were also affected after transmission infrastructure was brought down with a massive spike, though they eventually settled to around where they started the month at $56/MWh.  

The event triggered a series of consequences, including the shutdown of the massive Loy Yang A coal generator and the loss of over 1 GW in load.  

The most significant power outage resulted from the destruction of local networks. Storm cells brought down trees and powerlines, leaving over half a million people without power.  

The next morning, over 80,000 home and business customers remained unconnected to the grid.  

Matters worsened when the largest wind farm in the state – Stockyard Hill – wound down quickly after a grass fire broke out in the area. It happened around 90 minutes before the storms.  A week later, the Waubra wind farm – located west of Ballarat – switched off as local fire authorities ordered thousands of people to evacuate as significant bushfires threatened buildings and some communities.  

Records broken in run-up to Victoria’s storm  

Amidst the turmoil of storm-induced blackouts affecting over half a million customers in Victoria, it went largely unnoticed that both the state and the country’s main grid established numerous new output records.  

Wind and solar achieved a record output of 21.255 gigawatts at 12 pm AEST. In Victoria, at 11:35 a.m., wind and solar marked a new output record of 5.6 GW.  

This occurred just over an hour before the storms wreaked havoc. Victoria also achieved a renewable output record (including hydro) of 6.3 GW at 12:25 pm, just over half an hour before the transmission collapsed.  

This record represented a substantial increase from the earlier peak of 5.9 GW recorded on January 16 of the same year.  

Simultaneously, the overall grid set a new record for renewable output, including hydro, at 22.17 GW, surpassing the previous peak by nearly 500 MW, established in early December.  

Batteries set records as prices lurch from market floor to cap in South Australia  

On the night of February 21, the largest battery in the South Australian market operated at maximum capacity, contributing to an overall peak in battery output.  

During the day, wholesale electricity prices fluctuated, starting at the market floor, and then later reaching the market peak in the late afternoon.  

Around 9.30 am grid time, the wholesale market price dropped to the market floor, hitting a low of minus $1,000. However, in the late afternoon, as solar and wind output diminished with the setting sun on a hot Adelaide day, the prices surged to the market cap of $16,600.  

South Australia maintains an average of 71% reliance on wind and solar power, a world-leading figure for a grid of its size. Over the last quarter, this figure increased to 82 per cent. While this renewable energy mix has proven reliable, it also introduces greater volatility into the market.  

The South Australia state government has fast-tracked its target of “net 100 per cent” renewables to 2027 – rather than 2030 – because of the state’s new wind and solar developments and its ambitious hydrogen plans.  

South Australia already leads the world, with more than 71 per cent of its annual demand being met by wind and solar only over the last 12 months. South Australia has set a new record for wind and solar output as the state surges towards its accelerated target of “net 100 per cent” renewables by 2027. On February 29, wind and solar output reached a new peak of 3,143.3 MW – a new record. 

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New South Wales

Average Movement Summary:

New South Wales electricity futures prices started the month at $93/MWh. Prices dropped to $82 but climbed back to $95/MWh in the third week of the month before dropping back to $91/MWh to close the month. Prices for 2025/26 followed the same trend but at a higher cost. Prices have come down since the crisis in October 2022 and are $18/MWh cheaper than last year.

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Commentary:

• The volume-weighted average price on the spot prices rose substantially from $81/MWh in January to $111/MWh by the end of February.
• Prices are higher than February 2023, when the spot price was $90/MWh.
• Electricity spot prices were volatile in NSW in February 2024. On February 29, a heatwave pushed temperatures up towards 40° Celsius. The market cap of $16,600/MWh was hit during four instances. The price went above $10,000 on 13 occasions. The bulk of trading took place at around the $100/MWh mark. Incidents of negative pricing dropped significantly to around 300, but negative pricing was also volatile with a maximum low of -$809/MWh.
• Renewables shares in the first month of 2024 dropped from already low levels of 36.6 in January to 34.8 per cent. Reliance on gas increased to 1.3 %. Coal contributions increased to 63.7%.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $54/MWh, on a downward trend from last year. Prices spiked dramatically to $66 on 13 February when a storm knocked out transmission infrastructure. Prices gradually settled and closed the month slightly higher at $56/MWh.

Electricity prices have come down significantly since the crisis in October 2022 and are $17/MWh cheaper than last year.

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Commentary:

• Victorian average spot prices rose drastically from $25/MWh in January 2024 to $83/MWh at the end of February. Spot prices are significantly more expensive than in the same period for 2023, when the average price was $58/MWh.
• Victoria suffered an extreme weather event on February 13 when severe storms brought down critical distribution infrastructure. The $16,600MWh market cap was hit on 24 trading intervals. The bulk of trading occurred around the $75/MWh mark.
• Incidents of negative pricing dropped to around 2,000. There were 600 instances where pricing dropped below the -$100/MWh but there were six instances of a maximum low of -$999/MWh.
• The share of renewables generation was in line with last month at 39%. Coal generation dropped slightly to 59%. marginally to 60%. Gas generation increased to 1.6%.
• Battery supply accounted for 0.3% of electricity, and generation cost an average of $179/MWh. Renewables cost an average of $111/MWh, while coal cost $71/MWh and gas was at $73/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $96, dropping to $86/MWh by the second week of February before climbing back up to $90 to close off the month. Prices for 2025 and 2026 followed the same trend but with a shallower curve. 

Electricity prices have come down since the crisis in October 2022 and are $4/MWh cheaper than last year.

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Commentary:

• Queensland spot prices dropped significantly from $160/MWh in January to $119/MWh in February. Queensland spot prices are significantly more expensive than they were in February 2023, when the average price was $88/MWh.
• Queensland also experienced extremely hot weather on 26 and 29 February. This led to 12 instances where pricing climbed above $10,000/MWh. There were relatively few negative pricing events, with a low of $-45. The bulk of trading occurred at the $100/MWh mark.
• Renewables started the year poorly and dropped further to 26.9 per cent. Coal generation rose slightly to 64.7%. Gas generation increased slightly to 8.2 per cent to make up for the shortfall in renewable energy.
• Batteries supplied 0.1% of the total generation. Battery energy cost $412/MWh in January. Gas averaged a cost of $229/MWh, coal $129/MWh and renewables $81/MWh.

South Australia

Average Movement Summary:

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

Prices started the month at $76/MWh by the end of the month, dropping to $70 and flatlining, ending the month at $71/MWh. Prices for 2025 and 2026 were flatter but slightly more expensive than 2024.

Prices have come down substantially since the crisis in October 2022 and are $32/MWh cheaper than last year. 

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Commentary:

• SA’s average electricity spot prices doubled from $32 in January to $66/MWh in February.
• Prices are significantly cheaper than in the same period last year when prices averaged $97/MWh.
• South Australia experienced 10 instances of market capping at $16,600 on 21 February.
• 2,500 negative pricing incidents were recorded, with four lows of -$1000/MWh.
• Renewables dropped to 81 per cent of total generation. Gas generation increased to 18 per cent to make up for the drop in renewables.
• Battery was static at 0.9% and averaged a cost of $409/MWh. Gas costs an average of $239/MWh, and renewables at $35/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 you have found our electricity market update for February 2024 informative and helpful. We understand that these are challenging times, and we are here to support you. If you would 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 are 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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