May 2023 Electricity Market Review

Market Commentary

In May 2023, we saw just how tight the link between electricity demand and supply has become in determining energy prices as events from previous months like Liddell’s closure and Callide C’s delayed return to service left their mark on spot market prices in May. The volatility of recent spot prices reflects uncertainty in the market causing futures prices to spike.  

To put it into more context, during the early hours of May 1, supply tightened by 1,500 MW after a scheduling error by AEMO. This resulted in constraints being applied to the interconnector flow from Victoria to New South Wales.

The error was rectified, but not before prices spiked and stayed high until May 5 before settling down. 

Volatility returned around mid-month due to a lack of reserves, again pushing prices up and triggering AEMO to call for a market response to free up power.

Once the dust started to settle on this event and prices began to subside, CS Energy announced that Callide C would not be returning to service for at least another six months, once again pushing prices North.

Callide C3 and C4 are still offline after a generator explosion in 2021 and a collapsed cooling tower in 2022. 

CS Energy initially anticipated that the coal units would be back in operation by February of this year. However, they later announced delays to April, then to September and October, and now it’s been pushed to 2024.

CS Energy disclosed that the return of the Callide C4 unit’s operation has been further delayed until May, and it won’t be fully functional until July. 

As for the C3 unit, it is expected to partially resume operations in early January, but it won’t be fully operational until sometime between mid and late February.

Another factor that led to high demand in May was the cold weather. Minimum temperatures this month were close to mid-winter levels across central and eastern Australia and dropped up to 5 degrees Celsius below average, and sometimes reached 10C below normal.

Big batteries are continuing to become part of the norm in Australian renewable energy generation. 

In a case of reverse engineering, the first major solar farm to be integrated with an existing large battery facility in Australia, the Wandoan South solar project in Queensland, has recently started operating. 

This follows the trend of combining big battery projects with established wind and solar projects across the country, including locations such as Hornsdale, Lake Bonney, Tailem Bend, Gannawarra, Darlington Point, and Western Downs. 

Vena Energy owns the 125MW Wandoan South solar project, along with the 100MW/150MWh Wandoan South battery project, which commenced operations in August of the previous year and holds an operational agreement with AGL Energy.

Meanwhile, Squadron Energy, led by Andrew Forrest, is progressing with plans for a 400MW wind farm and a large battery in southern New South Wales. 

The project entails 65 turbines located in Wiradjuri Country, east of Gundagai. In addition to the wind farm, Squadron Energy aims to deploy a 150MW battery energy storage system, forming part of their larger initiative to develop approximately 20GW of solar and wind projects across the country, accompanied by 11 battery systems. This effort aligns with their goal of achieving “firm” renewable energy, as outlined in late 2022.

Investment in clean energy is rapidly outpacing spending on fossil fuels, driven by concerns over affordability and security amid the global energy crisis. According to the International Energy Agency’s (IEA) new annual World Energy Investment report, approximately AUD 3.7 trillion will be spent on energy globally in 2023. 

Out of this, over AUD 2.3 trillion will be directed towards clean technologies, including renewables, electric vehicles (EVs), nuclear power, grids, storage, low-emission fuels, efficiency improvements, and heat pumps. 

The remaining portion of this year’s investment, just over AUD 1 trillion, will be allocated to coal, gas, and oil.

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New South Wales

Average Movement Summary:

New South Wales futures prices started the month at $137/MWh, climbing sharply to $144/MWh and dropping. Prices then climbed back up to the $145 mark and closed the month at $141. Prices have come down considerably since the crisis in October 2022, but they are now $11/MWhh higher than what they were this time last year.

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Commentary:

• Spot prices climbed steeply in May, with the volume-weighted average price (VWAP) at $196/MWh compared to $105 /MWh the previous month.
• Prices are significantly lower than what the spot market fetched in May 2022 when the average price was $320 /MWh. 
• Electricity spot prices were extremely volatile in May with two instances of market capping at $15,500/MWh and 20 instances where pricing was over $10,000/MWh. Negative pricing volatility was also experienced, with two instances where pricing was -$900 or lower.
• Renewables share dropped by almost 3 percentage points to 28.4% of the state’s energy generation. Reliance on gas climbed to 3.9% from 3.5% in April. Coal contribution climbed 2 % to 67.6%. 
• Batteries provided 0.05% of the state’s energy but are very costly at an average of $322/MWh compared to renewables at $169/MWh, coal at $202/MWh and gas at $290/MWh.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $92/MWh and there was a substantial increase to $99/MWh in the first week of May before dropping off. Prices peaked again and closed the month where they started at $92. Prices have come down considerably since the crisis in October 2022. However, they are up by $11/mWh to what they were this time last year.

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Commentary:

• Victorian spot prices climbed to $131 in May which is nearly double what they were in April.
• Spot prices for May were significantly cheaper than in 2022 when the average price had shot up to $233/MWh.
• Although average prices shot up in Victoria, the market was much less volatile there than in NSW. The highest price fetched was $1021/MWh with the bulk of trading taking place between $300-$400/ MWh.
• There were increased instances of negative pricing but did not fall beyond -$59/MWh.
• Coal generated 66.5% of the energy mix, up 2.6% from the previous month. Renewables supplied dropped by 3 percentage points to 30.5%. Reliance on gas, although up, slightly was low, only contributing 2.6% of generation. 
• Batteries supply doubled to 0.4% of electricity and while costly, are significantly cheaper than they are in NSW at an average of $199/MWh. Renewables cost an average of $113/MWh, coal cost $139/MWh and gas $247/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $111, climbing sharply to $117 and dropping back to $106. Volatility followed, and the month closed at $123. Electricity prices have come down to a large extent since the crisis in October 2022  and are $3/MWh cheaper than the same time last year.

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Commentary:

• Queensland spot prices climbed to $166/MWh in May from $105/MW in April. 
• Although still high, Queensland spot prices are now just under half the price they were during the same period in 2022 when the average price fetched was $347/MWh.
• Peak spot prices were extremely volatile. Although there were no market cap events, there were 10 instances of pricing close to $15,000/MWh and 20 instances where prices were over $10,000. Negative pricing was less volatile, with a low of $-51.
• Renewables supplied 25% of the state’s energy for the month, down 1%. Coal generation dropped by about 3 percentage points to 64.7%. Gas generation climbed by 4  percentage points to 10% of total generation.
• Batteries supplied 0.07% of total generation. However,  it is very costly at an average of $354/MWh. Gas averaged a cost of $254/MWh, coal $174/MWh and renewables $81/MWh.

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 started the month at 110/MWh climbing after a few days to $120/MWh and again at the close of the month at $129. Prices have come down substantially since the crisis in October 2022 however, they are $3/MWh costlier than this time last year.

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Commentary:

• SA’s average May 2023 electricity spot prices more than doubled in price to $202/MWh compared to $78/MWh in April.
• At $202/MWh, prices are cheaper than in the same period last year when prices averaged  $312/MWh.
• Price volatility was high, with one market cap event and 25 instances of pricing being close to $10,000 or more. Numerous negative pricing incidents were recorded but were less extreme than those in positive territory.
• Renewables dropped from 72% in April to 56.6% of total generation. Gas continued its upward trend from 27% the previous month to a staggering 42.6%.
• Battery power remained on par with last month at  0.6% and averaged a cost of $445/MWh. Gas cost an average of $293/MWh and renewables $108/MWh.

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 our review of the electricity market and the relevant movements in electricity prices in May 2023 have 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.

We source, analyse, compare and rank commercial, industrial and multisite energy quotes. Obligation Free.

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