March 2023 Electricity Market Review

Market Commentary

March 2023 saw wholesale electricity prices around the country rise sharply in response to various factors, including the new Safeguard Mechanism passed in parliament, possible plans by NSW’s state government to buy out Eraring, and Callide C going into voluntary administration.

The Australian Parliament passed the Labor Government’s plan to slash carbon emissions in the heavy industrial and resources after a deal was reached with the Greens – with the new arrangements taking effect from 1 July 2023.

The legislation targets the nation’s top 215 polluters and is the centrepiece of Labor’s emissions reduction target of 43 per cent below 2005 levels by 2030.

The safeguard mechanism law requires big emitters such as BHP, Rio Tinto, Santos and Woodside to reduce their carbon footprints by 4.9 per cent a year until the end of the decade. The hard cap has been designed to keep emissions below 1233m tonnes of carbon to 2030, or 28 per cent of the national emissions “budget” of 4381m tonnes over the same period.

Apart from the hard cap, the legislated changes include more restrictive conditions for new gas fields with high reservoir emissions and measures to discourage heavy reliance on offsets.

The NSW Premier has not ruled out keeping Eraring (currently scheduled for 2025) going. In the lead-up to the state elections,  Labor Party leader Chris Minns said the Labor Party would consider buying Eraring to keep it running.

After his triumph, he reiterated that the government would consider all options to keep the state’s lights on and that privatisation had led to higher prices.

The future of the 810MW Callide C coal power plant in Queensland is uncertain due to a shareholder dispute which has put its co-owner, IG Power, into voluntary administration. 

CS Energy, which operates Callide C and owns half of the plant, stated that administrators had been appointed to IG Power due to disagreements over future funding. 

Callide C’s two units have been offline since last year following incidents and breakdowns, with repairs ongoing. 

CS Energy says it is continuing efforts to get both units back up and running despite the setback.

On 16th March, New South Wales and Queensland experienced ‘Actual LOR2’-level Low Reserve Conditions and significant price volatility.

AEMO geared up to pull the trigger on Short-Notice  Reliability and Emergency Reserve Trader. This did not materialise, but the shortage warning came less than a month before the closure of Liddell’s Unit 4.

In Queensland, long-term outages were affecting both Callide C4 and Callide C3, Tarong North station was offline, and Kogan Creek was only operating at around 500MW.

In the NSW one unit was out at Bayswater, one at Mount Piper and one at Vales Point. 

The issue was compounded because interconnectors were severely constrained during the event, meaning that NSW and Queensland were isolated from the rest of the grid.

Wholesale baseload futures prices experienced significant increases for the years 2023, 2024, and 2025.

The market is engulfed in yet another phase of instability and chaos. From a broader lens, prices are ominously surging higher in comparison to the corresponding period from the previous year.

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New South Wales

Average Movement Summary:

New South Wales futures prices started the month at $113/MWh, dipping slightly before climbing again. Prices then climbed steeply to close off the month at $126. Prices have come down considerably since the crisis in October 2022, but they are now $15/mWh higher than what they were this time last year.

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Commentary:

• Spot prices increased significantly in March, with the volume-weighted average price (VWAP) at $116 /MWh compared to $90 /MWh the previous month
• Prices are significantly higher than what the spot market fetched in March 2022 when the average price was $100 /MWh. 
• Electricity spot prices were significantly more volatile in NSW than usual. There were four instances of pricing hovering close to the market cap and 12 instances above $10,00/MWh. Negative pricing was present but remained stable around the -$40 mark. 
• Renewables contributed 31.8 % of the state’s energy, down 3% from the previous month. Reliance on gas was relatively high compared to usual trends at 4.2%. Coal contribution dropped to 63.9% from 65% in February. 
• The NSW government may attempt to keep Eraring operational, but one Liddell unit will be shut down in less than a month. The state experienced a shortage in supply in March and there are worries that there will not be enough power to fill the gap once the shutdown begins.

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Victoria

Average Movement Summary:

Victoria futures prices dipped in the first week of March, dipping slightly before climbing again in the second week. A short second dip was experienced before prices climbed sharply to close the month at $97. Prices have come down considerably since the crisis in October 2022. However, they are up by $30/mWh to what they were this time last year.

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Commentary:

• Victorian spot prices were the cheapest in the NEM in March. Spot prices climbed to $62 in March from $57 / MWh from $108/ MWh the previous month. 
• Spot prices for March were up compared to the same period in 2022 when the average was $54.75 /MWh.
• Prices were somewhat stable in positive territory, with the highest price fetched at $357/MWh and the bulk of trading at $299.50. There were 6 instances where negative pricing fell to around -$900 / MWh.
• Coal generated 62% of the energy mix, up 3% from the previous month. Renewables supplied the state with 36% of its power, down 4%. Reliance on gas was low, contributing 1.8% of generation.
• Queensland set a new Operational Demand record on 17 March, reaching 10,070MW beating the previous record by 12MW.

Queensland

Average Movement Summary:

Queensland futures prices opened at $99, dipping slightly before climbing again in the second week of February. Prices then dipped again slightly before rising sharply to close the month at $129. Electricity prices have come down to a large extent since the crisis in October 2022 but are still up $49/MWh costlier than the same time last year.

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Commentary:

• Queensland spot prices increased sharply to $123/MWh in March, compared to $89/ MWh in February and $57 / MWh in January. 
• Although high, Queensland spot prices are cheaper than they were during the same period in 2022 when the average price fetched was $147/MWh.
• Peak and trough spot prices were very volatile with six instances of market capping at $15,500/MWh and 12 instances above $10,000. Negative pricing was also volatile, with eight instances of more than -$300/MWh and a low of -$355.
• Renewables supplied 23% of the state’s energy for the month, down 4%. Coal generation increased 2.5% to 69.4%. Gas generation increased by almost a percentage point to 7.8% of total generation.
• Callide C is experiencing fresh woes after one of its joint owners called for voluntary administration due to a shareholder dispute. The plant is offline after suffering an explosion and structural failure at two units last year.

South Australia

Average Movement Summary:

South Australia’s wholesale futures prices, as usual, 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 dipped slightly for the first three weeks of March before climbing back to what they were to close the month at $104/MWh. Prices have come down substantially since the crisis in October 2022 however, they are $25/MWh costlier than this time last year. 

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Commentary:

• Average spot pricing returned to $65/MWh from a spike in February to $99/MWh.
• Prices in SA were almost on par with the same period in 2022 when the average price was $67/MWh.
• Flipping last month’s script, price volatility was low, with the only instances of note being pricing climbing above $1,000 on two occasions and negative pricing dropping below -$900 on five occasions. The lowest price fetched was -$982.
• Renewables generated substantially less than usual, dropping from 81% in February to 73.4%. Conversely, gas generation shot up to 26% of the energy mix in March, compared to 22.3% the previous month. Battery power accounted for 0.6%.

In addition to local woes, the international electricity market will continue to be influenced by the conflict in Ukraine and the possibility of a new Russian offensive during the Northern Hemisphere Spring.

Businesses may want to consider purchasing electricity through wholesale tenders, as we are witnessing a significant price uptick. Depending on your business’s risk appetite, now could be a critical time to act. 

Act now! Reach out to one of our skilled energy consultants today and gain valuable insight into the potential costs that may lie ahead. Don’t wait, take control of your energy expenses now!

We hope that our review of the electricity market in March 2023 has been informative and helpful for you. 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. 

For advice on how to reduce electricity costs and improve your business’ energy sustainability, reach out to our team. 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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