February 2023 Electricity Market Review

Market Commentary

The Federal Government has upped the ante to put downward pressure on gas and electricity prices by proposing a curb on Queensland exports as the Australian Energy Market Operator warns of East Coast energy shortages from 2027.

Gas price caps for the domestic market have been temporarily imposed as the Federal Government reacted to projections of massive energy and gas price hikes due to the upset of the world energy markets after the invasion of Ukraine.

Following the government’s intervention to reduce energy prices, the market responded favourably, resulting in a decline in prices. However, AEMO has since issued a warning of potential electricity supply shortages from 2027 onwards. This is due to the upcoming exit of AGL-owned Liddell (scheduled for April 2023) and the Origin Energy-owned Eraring (currently scheduled for 2025) coal-fired power stations from the market, as well as the accelerated closure of additional coal-fired plants.

It is expected that renewables, Snowy 2.0 (scheduled for completion in 2026), and large-scale battery storage will eventually take over the share of the coal market. However, gas will still be the go-to generation source to plug the gap in the interim.

Energy consumers paid a heavy price in February as AEMO reacted to a projected “red zone” incident in Queensland when a supply shortfall was projected on 3 February. AEMO triggered the Reliability and Emergency Reserve Trader mechanism, but at 9,806 MW, demand was 1,000 MW less than what was projected after a cool weather change.

Triggering the mechanism cost $1,475,000.

During the second week of February, wholesale baseload futures prices experienced a slight increase, but by the end of the month, there was a significant decrease in prices for the years 2023, 2024, and 2025.

Businesses seeking to purchase electricity in advance will welcome the news that prices have significantly dropped since the peak of the energy crisis in October 2022.

Looking at the bigger picture, the market has stabilised and wholesale prices are marginally higher compared to the same period last year.

As Australia transitions out of summer and business activities pick up, both generation and demand have increased across the entirety of the National Energy Market.

If you need assistance with procuring and comparing electricity or gas plans, reach out now and contact our team of energy experts. We can help you develop a strategy for future contracting and lock in the best plan for your business.

For more insights on developments in the National Electricity Market (NEM) from the past month, read the full February 2023 Electricity Market Review below.

New South Wales

Average Movement Summary:

New South Wales futures prices started the month at $134 /MWh, dipping slightly before climbing again. Prices then tumbled dramatically to close off the month substantially lower. Prices have come down considerably since the crisis in October 2022, however, they are still roughly $20/mWh higher than what they were this time last year.

Commentary:

• Spot prices dropped slightly in February, with the volume-weighted average price (VWAP) at $89 /MWh compared to $94 /MWh the previous month
• Prices are more or less in line with what the spot market fetched in February 2022 when the average price was $83 /MWh. 
• Electricity spot prices were relatively stable in positive territory, with the highest price for the month at $958. Negative pricing was somewhat unpredictable, with seven instances of prices being below $-990.
• Renewables contributed 34.8 % of the state’s energy, up 4% from the previous month. Reliance on gas was much lower than last month, down from 3.2% to 0.4%. Coal contribution was down 1% up to 65%. 
• AGL’s Liddell plant is winding down operations this month and will officially cease to generate electricity by the end of the month. The threat of supply squeezes further highlights the fact that Origin Energy’s Eraring plant closure has been brought forward to 2025.

Victoria

Average Movement Summary:

Victoria futures prices looked very similar to NSW, starting off higher than the previous close, dipping slightly before climbing again in the second week of February. Prices then tumbled dramatically to close off the month, becoming substantially lower. Prices have come down considerably since the crisis in October 2022, however, they are now slightly up by $17/mWh to what they were this time last year.

Commentary:

• Spot prices dropped sharply in February with the VWAP falling to $57 / MWh from $108/ MWh the previous month.
• Spot prices for Feb 2023 are in line with what they were in 2022 when the average was $53 /MWh.
• Prices were somewhat unpredictable, with the highest price fetched at $10,500/MWh. There were 50 instances where pricing fell into negative territory below -$100 / MWh. The lowest price fetched was -$402 / MWh.
• Coal generated 59% of the energy mix, down 4% from the previous month. Renewables supplied the state with 40% of its power, up 4%. Reliance on gas was very low, despite having increased by a percentage point to 1.3% of supply.
• Energy Australia registered a $1bn loss for the calendar year 2022, with much of the blame pinned on unplanned outages at its Yallourn plant, forcing it to go to the spot market to fulfil contractual obligations.

Queensland

Average Movement Summary:

Queensland futures prices also opened higher than the previous close, dipping slightly before climbing again in the second week of February. Prices then tumbled dramatically to close off the month substantially lower. Electricity prices have come down to a large extent since the crisis in October 2022 and are now only slightly below $8/mWh compared to their value at the same time last year.

Commentary:

• Spot price, although not as volatile as usual, Queensland registered a volume-weighted average price (VWAP)
•  increase to $89 / MWh from $57 / MWh the previous month.
• Queensland has experienced significant volatility over all periods with average prices dropping from $162 during the same period in 2022.
• Peak and trough spot prices were somewhat unremarkable despite the triggering of the RERT, with the highest price fetched at $1,297/MWh. Negative pricing did not fall below -$100 and the lowest price fetched was -$61 / MWh.
• Renewables supplied 26% of the state’s energy for the month, up 4 percent. Coal supply dropped 3% to 67% and gas share also dropped by 1% to 7% of total supply.
• Callide C4’s new generator stator unit has arrived on site and the power plant is expected to return to service in a stepped manner in May 2023. C3, which suffered structural failure is also set to return in May in an incremental manner.

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 were moving in a straight line the previous month before 2023 and 2024 took a sharp downturn. 2025 was less volatile, though it closed the month lower. Prices have come down substantially since the crisis in October 2022 however they are still almost double what they were at this time last year.

Commentary:

• Spot prices were extremely volatile in SA throughout February. Average spot pricing climbed somewhat with the VWAP at $99 / MWh up from $67 / MWh the previous month.
• Prices in SA are significantly higher than in the same period in 2022 when the average price was $54 / MWh.
• Volatility was high with two instances of market capping at $15,500. There were 13 instances of pricing above $10,000. There were also numerous instances of negative pricing with 60 occasions where the price was lower than -$100 / MWh. The lowest price fetched was $489.
• Renewables generated 81 % of the state’s energy mix. Gas generation dropped to 18% from 22.3% when the state was cut off from the grid in January 2023. Battery power accounted for 0.5%  but it is very expensive, averaging $383 /MWh.
• Market Demand reached 3,142MW on Thursday 23 February which was the highest market demand since the state recorded 3,259MW on 16th January 2014.
• Solar output was low, which brought in gas, liquid fuel generation and large-scale battery discharge. The wind picked up later in the day allowing prices to settle.

It is clear that the Federal Government’s intervention in the gas market and the state’s intervention in the coal market have resulted in lower electricity prices across all NEM states.

It is uncertain whether this trend will continue, but the response in terms of pricing has been promising so far.

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.

Depending on risk appetite, now could be a good time for businesses to purchase electricity through commercial and industrial energy contracts – as we now see the market stabilise.

Contact one of our proficient energy consultants now to acquire insight into the potential costs you might face.

We trust that our review of the electricity market in February 2023 has provided useful insights and information. If you would like to learn more about the energy market in previous months, our monthly energy market reviews can be found here. Please feel free to contact our team of energy experts to explore your options in these challenging conditions.

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 and 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.