January 2024 Electricity Market Review

Market Commentary

The National Energy Market saw a decline in spot and futures electricity prices across all states except Queensland, a trend that originated in Q4 2023. 

In January 2024, Queensland stood out as an exception due to the delayed return to service of CS Energy and Genuity’s 843 MW Callide C3 and C4 generators.  

Callide C4 was taken offline in May 2021 following an explosion that caused a grid trip, leaving numerous homes and businesses without power. This recent development has contributed to the sustained electricity prices in Queensland, differentiating it from the decreasing trend observed in other states. 

C3 was taken offline in October 2022 after a cooling tower collapsed.  

The return to service of both units has been repeatedly pushed back and in January, the owners announced new delays due to severe weather incidents which prevented workers and engineers from carrying out repairs. Callide C3’s full return to service has been pushed back to 31 March 2024 while C4’s return has been delayed until 31 July 2024. 

Callide C is one of Australia’s newest coal power plants, commissioned in 2001. It is one of the country’s super-critical coal power stations, alongside Kogan Creek Power Station, and was designed with a lifespan running until 2050. 

The Federal Court has ordered that IG Power appoint special administrators with powers to complete a new investigation into the incidents at the Callide Power Station, near Biloela. 

CS Energy engaged forensic engineer Sean Brady to conduct an independent investigation into the C4 unit. It has been almost three years since the incident, but the report has still not been released. 

Queensland’s situation was exacerbated when Tarong 2 came offline a couple of days earlier than expected for maintenance. The generator was originally forecast to return to service on February 9, but repairs were completed ahead of schedule, and it was back online on February 1. 

High demand due to extreme weather conditions and the three-day long weekend in January contributed towards very high demand levels and restricted supply. 

New low-demand records set at the turn of the new year 

The lowest-ever half-hourly operational demand levels were set for: 

• South Australia, at -26 MW, down from the prior record of 5 MW on 1 October 2023, and the first time this particular demand measure has been negative. 
• Victoria, at 1,564 MW, 351 MW below the previous low of 1,915 MW recorded on 29 October 2023. 
• Lowest-ever daily average spot price in Victoria at -$73.02/MWh, nearly $20/MWh below the previous daily low. This alone dropped the Victorian quarterly average spot price by nearly 4 per cent to $25.70/MWh. 

Battery storage now dominates system services market for main grid 

Battery storage has officially emerged as the dominant force in providing essential services to the main grid, displacing fossil fuel generators in one of the more profitable segments of the electricity market. The latest Quarterly Energy Dynamics report from the Australian Energy Market Operator underscores this shift, revealing that batteries now command a 50% share in the frequency and ancillary services (FCAS) market for the December quarter. This marks a significant increase from 38% the previous year and zero per cent before the inaugural connection of the Hornsdale Big Battery in late 2017. 

The ascendancy of battery storage can be attributed to its speed and versatility. Furthermore, the introduction of a new market, the Very Fast Fast Contingency Ancillary Services (VF FCAS) implemented last year, has played a pivotal role. In this market, only technologies such as batteries, demand management, and virtual power plants (comprising linked smaller batteries) demonstrate the requisite agility and intelligence to compete effectively. 

This trend has been amplified by the commissioning of several major battery projects, including the Hazelwood, Torrens Island, and Riverina projects in the past year. With the recent completion of the Bouldercombe battery and a slew of upcoming projects, the market share of battery storage is poised to rise even further in the coming year. 

Energy utility Origin Energy says it will spend $400 million on a new 650 MWh big battery to be built at the site of its main gas generator in Victoria. 

The board approval for the Mortlake Power Station battery, to be sized at 300 MW and 650 MWh, follows approval for the first stage of the Eraring big battery in NSW – at the site of its soon to be shuttered coal-fired power station – and a growing list of other battery projects. 

EnergyAustralia, one of Australia’s big three energy retailers, has unveiled plans to build a massive four-hour battery in South Australia as it continues its plan to roll out large storage facilities next to its existing fossil fuel generators. 

The company says the Hallett battery energy storage system will have an initial size of 50 MW, with four hours of storage or 200 MWh, but the longer-term ambition is to expand it to a 150 MW battery facility with 600 MWh of storage. 

It will be located next to its existing Hallett gas generator in Canowie, around 210kms north of Adelaide, and will likely be the first four-hour battery to be built in the state 

Solar farms face large, unpredictable revenue swings as marginal loss factors strike again 

Solar farms in north-west Victoria and south-west New South Wales are facing “large and unpredictable swings in revenues” over the coming financial year, an investor group has warned, with a forecast of changing network constraints promising to deliver painful cuts to some generator grid ratings. 

The Australian Energy Market Operator published its preliminary calculations for 2024-25 grid ratings – called Marginal Loss Factors (MLFs). 

The Clean Energy Investor Group says the preliminary calculations suggest some generators’ MLFs could decrease by up to 10% compared to last year. 

Marginal loss factors – which decide how much of a generator’s output is credited as “delivered” to a customer – have indeed become a major issue for solar and wind developers, with often unpredictable changes to ratings potentially leading to ongoing financial losses. 

International Energy Agency calls out Australia for grid queues, policy gaps in race to triple global renewables 

In 2023, the addition of large-scale solar and wind capacity to global energy systems experienced a remarkable 50% growth. This surge sets a pace of renewables expansion unprecedented in the last three decades, propelling the world closer to achieving the COP 28 objective of tripling capacity by 2030. 

According to the latest analysis conducted by the International Energy Agency, and its projections extending to 2028, the world witnessed the incorporation of nearly 510 gigawatts (GW) of new renewable energy capacity. A substantial three-quarters of this increase came from solar photovoltaic (PV) installations. 

The International Energy Agency (IEA) includes Australia in the select group of countries experiencing a curtailment of their projected growth rates in this year’s outlook. This deceleration is attributed to various obstacles, including persistent policy uncertainty surrounding large-scale renewables and a failure to match the regulatory and logistical pace with the substantial expansion of rooftop solar. 

The report goes on to say that in the developed countries of the region, like Australia, overcoming grid bottlenecks, streamlining lengthy permitting processes, and enhancing system flexibility should be prioritised to get their growth back up to speed. 

Wild concept to build reflectors in space to make solar farms on Earth work for longer every day 

It sounds like it comes straight out of a science fiction movie, but researchers are probing the idea of unfurling giant mirrors in space to reflect sunlight down to solar farms after the sun goes down. 

Researchers have previously touted giant installing solar farms in orbit to transmit electricity back to earth. But Jakob de Zwart has different ideas.  

He suggests that deploying reflectors in space could extend the operational hours of solar farms on Earth. This technology, known as “orbiting solar reflectors,” involves strategically positioning large, ultralightweight reflectors in space to bounce sunlight onto solar farms during evening and early morning hours. By using robotic spacecraft for construction and assembly, this vision, first proposed by Hermann Oberth in 1929, may become feasible. The reflectors, orbiting 900km above the Earth, could illuminate a 10km area during each pass, potentially contributing to increased clean energy generation during peak demand hours. 

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New South Wales

Average Movement Summary:

New South Wales electricity futures prices started the month at $100/MWh. Prices rose slowly in the first week of the month to $103/MWh before consistently trending down to $93/MWh to close the month. Prices for 2025/26 followed the same trend but decreased at a shallower rate. Prices have come down considerably since the crisis in October 2022 and are $30/MWh cheaper than last year. 

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Commentary:

• The volume-weighted average price on the spot prices market reversed the downward trend set in Q4 of 2203, rising from $68/MWh to $81/MWh. 
• Prices are significantly cheaper than January 2023, when the spot price was $94/MWh.  
• Electricity spot prices were volatile in NSW in January 2024. There was one extreme event where pricing hit $11,782/MWh and 45 instances where pricing was above $1,000/MWh. The bulk of trading took place at around the $80/MWh mark. Incidents of negative pricing dropped significantly to around 350, but negative pricing was also volatile with a maximum low of -$878/MWh. 
• Renewables share in the first month of 2024 dropped quite significantly to 36.6 percent from 41 percent at the end of 2023. Reliance dropped to 0.7%. Coal contribution started the year strongly at 62.6%.  
• Batteries provided 0.1% of the state’s energy and are now undercutting gas generation at an average of $201/MWh compared to $350/MWh (gas). Renewables cost an average of $80/MWh, and coal $91/MWh. 

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $67/MWh, on a downward trend from last year. Prices continued to rise to $75/MWh on 7 November, but gradually decreased to close the month at $53/MWh. 2025 and 2026 prices dropped less steeply.  

Electricity prices have come down significantly since the crisis in October 2022 and are $30/MWh cheaper than last year. 

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Commentary:

• Victorian average spot prices rose continued the downward trend established in late 2023, with spot prices dropping to $25/MWh. January 2024 is significantly cheaper than 2023, when the average price was $48/MWh. 
• New Year’s Eve registered the lowest-ever daily average spot price in Victoria at -$73.02/MWh. This dropped the Victorian quarterly average spot price by nearly 4 percent to $25.70/MWh. 
• Electricity spot prices were stable in January, with no incidents of note and a maximum price of $316. The bulk of trading occurred around the $20/MWh mark. 
• Incidents of negative pricing significantly rose to around 2,500. There were 225 instances where pricing dropped below the -$100/MWh with a maximum low of $761/MWh.  
• The share of renewables generation was in line with the close of 2023 at 39.75. Coal generation increased marginally to 60%. Gas generation also remained static at 0.2%.  
• Battery supply accounted for 0.2% of electricity, and generation cost an average of $63/MWh. Renewables cost an average of $10/MWh, coal costs $32/MWh and gas $73/MWh. 

Queensland

Average Movement Summary:

Queensland futures prices opened at $92, rising to $104/MWh by the third week of November before dropping to close the month at $96/MWh. The 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 almost doubled from $93/MWh in December to $160/MWh in January 2024.  
• Queensland spot prices are significantly more expensive than January 2023, when the average price was $94/MWh. 
• Queensland experienced an extremely volatile start to the year with two instances of market capping at $16,600, reverted to its usual volatility In November. There were 32 incidents with pricing above $10,000/MWh and 75 instances where pricing was above $1,000/MWh. 
• There were relatively few negative pricing events, with a low of $-41. The bulk of trading occurred at the $160/MWh mark. 
• Renewables started the year poorly with a below par contribution of only 27.2percent where last year the average was 33 percent, dropped substantially from 33.5% to 29.5% of the state’s energy for the month. Coal generation rose slightly to 64.2%. Gas generation substantially to 8 percent to make up for the shortfall in renewable energy.  
• Batteries supplied 0.1% of total generation. Battery energy cost a whopping $1,002/MWh in January. Gas averaged a cost of $397/MWh, coal $184/MWh and renewables $106/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 96/MWh, dropping steadily to $76/MWh by the end of the month. 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 $41/MWh cheaper than last year.  

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Commentary:

• SA’s average November electricity spot prices continued to trend down to $32 in January compared to $35/MW in December.  
• Prices are significantly cheaper than in the same period last year when prices averaged $57/MWh. 
• South Australia experienced a relatively stable spot market start to 2023. The only event of note was one instance of pricing hitting $1,000/MWh.  
• 2,500 negative pricing incidents were recorded, with a low of below -$705/MWh and 200 instances were pricing fell below -$100/MWh.  
• Renewables climbed back to 84 percent of total generation after a dip at the end of 2023. Conversely, gas generation dropped back the familiar territory of 15 percent. 
• Battery was static 0.9% and averaged a cost of $89/MWh. Gas costs an average of $81/MWh, and renewables at $12/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 first electricity market update for 2024 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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