Electricity price on the way down

Wholesale electricity prices have reduced in recent months however many end users are not seeing the benefits. It is expected the reduction in wholesale electricity prices will not flow onto household and businesses bills until 2024.

Federal treasury has analysed the wholesale electricity market in November 2022 and compared it with the prices we saw in December. Analysis showed wholesale prices dropped but Edge has previously shown renewable energy has not significantly increased, gas supply has not changed, thermal generation has remained unchanged so why the drop in the cost of electricity?

In late December the Federal government stepped into the energy market and intervened, essentially disconnecting the domestic energy market from the international energy market. This intervention put caps on the domestic price of wholesale gas and the price of coal.

Following these caps being put in place the domestic electricity market corrected, and both spot and futures contracts dropped to match an underlying cost of production for electricity based on these new capped fuel prices.

While the wholesale market dropped almost overnight it will take time for the lower costs to flow through to end users unless their load is spot exposed in Q123. Retailers had already locked in the majority of pricing for end users prior to the market dropping due to the intervention, so most end user electricity bills will reflect the historic high wholesale prices.

The federal analysis claims the price caps on coal and gas have dropped prices in QLD by 44% and 38% in NSW. Does this mean electricity bills are going to drop a similar amount? Well, the bad news is no. Retail bills are normally locked in well in advance so many large users have locked in pricing for 2023. The underlying energy costs are only part of the retail bill as other costs include transmission, distribution and AEMO charges which unfortunately have not decreased and have the potential to increase as the market evolves.

While the market intervention was a necessary step to insulate end users from the escalating international energy prices due to the war in Ukraine, the next step is to continue to drive down prices as the country transitions to renewables. We must keep in mind the transition to renewables will come at a cost. Renewable energy requires more transmission lines to connect the generators to the grid, they require specialised services to maintain the security of the grid and will also require a higher cost generation or storage to provide firming for around the clock supply.

While the underlying cost of electricity will drop with more renewable energy entering the market, the other costs on the electricity bill will now represent a higher proportion and are likely to increase.

Edge2020 have an eye on the energy market, enabling us to support price  benefits as well as customer supply and demand agreements. Our clients rely on our experts to ensure they are informed, equipped, and ideally positioned to make the right decisions at the right time. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Drivers behind potential load shedding

In the energy market, probably not unlike most complex markets / industries, we never let the truth stand in the way of a good mainstream news story. So much so, at Edge we struggle to watch mainstream news!

Yesterday Edge highlighted that a tight supply balance was not the key driver for the unprecedented high prices occurring in the spot and contract markets.

As previously outlined, generators bidding behaviour is playing a pivotal role, lifting the average price in the spot market as their spot traders shift volume into higher price bands. This pushed spot prices so high that on Sunday the market reached the cumulative price threshold (CPT). This means that the sum of spot prices in a seven-day period hit a level which caused AEMO to intervene and cap prices until the market returns below this threshold.

As has been widely discussed on Sunday evening, AEMO stepped in and controlled the spot price once the sum of the previous 2,016 (7 days) trading intervals equalled the cumulative total of $1,359,000. The cumulative CPT is equivalent to an average price of $674.16/MWh for the seven-day period.

During market intervention, spot prices in the relevant region are capped at $300/MWh.  This commenced at 6.55pm on Sunday night in Queensland and will continue until the 7-day average drops below the CPT. Once this is achieved the CPT remains on foot until at least 04:00 the next trading day.

Since Queensland hit the cap on Sunday, we have now seen every mainland region in the National Electricity Market (NEM) also hit the CPT. As at publication, intervention pricing is currently enacted in all of these regions (QLD, NSW, VIC, and SA). Tasmania is currently under threat also.

During market intervention the maximum spot price can only reach $300/MWh (there is also a floor of -$300/MWh). $300/MWh is currently lower than the short run marginal cost (SRMC) of many gas generators when priced against the current gas price, which is also currently capped by AEMO (at $40/GJ).

A consequence of capping these markets is higher priced generation withdraws from the electricity market, as an example gas generator have a Short Run Marginal Cost (SRMC) of generation of roughly $400/MWh based on a fuel cost of $40/GJ, but with a cap of $300/MWh on the electricity generated it results in generators removing their availability from the market which in turn results in regional availability dropping. Hence subsequent threats of power outages and the potential requirement for load shedding.  It’s a case of the market being more under threat from commercial drivers than physical drivers.

The commercial dynamics of the current market create a perceived lack of availability in the market and leads to generators looking to other (non-capped) revenue streams for their generation stack. This is precisely what occurred over Monday with 607MW of availability being removed from QLD available generation, and 930MW removed from NSW. The drop in dispatchable generation resulted in AEMO publishing a Lack of Reserve (LOR) forecast and requests by AEMO for a market response. Rather than this call being answered, generators held firm and did not place generation back into the traditional bid stacks.  Across Monday the LOR dropped further as more generation disappeared into the ancillary market and as we approached the evening peak AEMO called an LOR3, which resulted in AEMO also calling on Reliability and Emergency Reserve Trader (RERT) providers to fill the availability gap.

Overnight AEMO’s action on calling RERT prevented load shedding, however this may not be the case in NSW tonight where 590MW of load is forecast to be interrupted at 19:00. If there is insufficient support under RERT to compensate for this supply shortage, we could see load shedding.

With all mainland NEM regions currently operating under the CPT we expect to see more market intervention, and those generators exposed to a capped gas price removing volume out of the market as electricity prices are capped at levels below their SRMC. This is likely to see AEMO needing to intervene in other regions, invoking RERT to source additional availability, or failing that load shedding.

Article by Alex Driscoll and Stacey Vacher.

High electricity prices – What’s really driving them?

Written by Alex Driscoll, Senior Manager – Markets, Trading, and Advisory

In recent weeks we have seen a rapid increase in the cost of electricity both in Queensland (“QLD”) and New South Wales (“NSW”).

The chart shows how spot prices (light blue line) and forward prices in QLD have increased considerably since mid-2021. Most notably, we’ve seen frightening increases since mid May 2022.

The question is, what is really driving these unprecedented high prices?

Underlying fuel costs are playing their role, as we’ve seen significant increases in the cost of gas and coal resulting from the Ukraine crisis. Recent weather conditions on the east coast of Australia have also adversely impacted coal deliveries.

Analysis of the supply / demand balance and the bidding behaviour of participants is also in focus. Whilst underlying fuel prices have had a part to play, trading behaviour appears to be playing a leading role in the most recent electricity price increases. At a high level, the structure of the bid stack is a key driver to volatility occurring in QLD and NSW over the past few weeks.

Having analysed the market Edge2020 have found that small changes in the supply / demand balance coupled with strategic bidding behaviour has had a significant impact on spot prices.  Edge2020’s analysis shows that as solar generation diminishes the market power and influence on the spot price shifts from intermittent generation such as solar, to thermal generators such as gas-fired and coal fired generation.  With surplus availability of generation across the states, high demand or scarcity of supply are not the key drivers for the higher prices.

Both QLD and NSW bid stacks reflect the recent strategic bidding of generators in these regions. The bid stacks show how peaking plant are dispatching units at elevated prices, well above levels supported by inflated gas prices. Bid stacks also indicate that coal fired generation is not operating at full capacity. In the absence of news to the contrary, we can assume that output has been restricted for commercial reasons rather than technical limitations. Noting that no re-bids with technical limitations were published during the period analysed.

As spot market volatility has increased, as to have prices across the forward market, with uncertainty and risk having been priced in significantly. Views on future fundamentals remain broad, resulting in differing strategies between forward traders. Whilst spot traders successfully maintain unprecedented volatility in spot prices however, it’s difficult for forward traders to sell into this market. Once the opportunity presents to do so, we could see significant spreads and chunky declines in forward pricing.

 

 

Updates to EdgeLIVE

With our vision to create a superior energy management platform, we are constantly developing EdgeLIVE to improve its look and overall functionality for our customers. Our technology team have been working tirelessly to completely overhaul the EdgeLIVE Dashboards and navigation functions relating to your ‘end of month’ account management reporting.

Dashboards

EdgeLIVE now has dedicated dashboards for Accruals and Invoice Reconciliation. The new dashboards display a summary of the invoice for each NMI, as well as a line-by-line breakdown of the individual invoice items. The new functionality is easy to follow and can provide users with as little or as much detail as is required.

Snapshot Dashboard

EdgeLIVE also contains a snapshot dashboard to provide a visual representation of both actual and forecast energy costs for our customers’ whole energy portfolio. The snapshot dashboard contains a range of graphics and tables to show trends relating to costs and consumption on a portfolio, asset or NMI level.

Export functionality

In addition to the online dashboards, EdgeLIVE also allows the export of accrual, invoice reconciliation and snapshot data to a ready-designed report format in Excel. As with the dashboards, this report shows actual and forecast costs and consumption on a portfolio or NMI level.

The exported report is delivered directly to your email to save for future reference and is ideal for use in your budget processes or as inserts into any business presentation or documentation.

Upcoming changes

In addition to the above, our technology team continue to work on further developments to be released. Over the coming months we will introduce a finance dashboard which will track spend against retailer purchase orders and display live tracking of savings achieved, such as early payment discounts.

If you would like to discuss our EdgeLIVE platform, please contact Edge on 07 3905 9220.

Supporting Mater Little Miracles

Finding a charity to donate to can be a tough exercise considering the fantastic work that hundreds of charities do on a daily basis. Having worked with many charities in the past as an organisation, Edge’s National Sales Manager, Mike Ricketts, has been donating to Mater Little Miracles for 3 years now.

What do Mater Little Miracles do?

Every baby born at Mater is a Mater little miracle. That’s one in seven Queenslanders and more than 10,000 new babies every year who can proudly say, “I’m a Mater baby.”

But sadly, not all babies are born healthy. Some are born premature, are seriously ill, or are simply too small to go straight home with their parents.

Mater is dedicated to providing the best possible start to life for the seriously ill and premature babies cared for at Mater by raising vital funds through Mater Little Miracles.

More than 2,000 babies each year will have to spend time in our Neonatal Critical Care Unit (NCCU) where specialist staff treat and care for up to 79 seriously ill and premature babies every night.

Some babies are born as young as 24 weeks and weigh as little as 400 grams, some have come from as far as Cairns and Townsville for the specialist neonatal care for which Mater is renowned.

Thanks to donations like Mike’s, the Mater Foundation has provided over $51 million of funding to health, education and research.

If this is your first time, we encourage you to donate and if you are a regular, we thank you. To donate or to learn more about Mater Little Miracles, please follow the link – https://www.materlittlemiracles.org.au/

STAFF PROFILE – Mike Ricketts

What is the best piece of advice you have ever received?

The best piece of advice I’ve ever received would have to be ‘Don’t worry about the things you can’t control but focus on the things you can.’

Name a place you have never been to and would like to visit. Why?

I have always wanted to visit the Amazon Rainforest. The sheer scale of it is mind blowing.

Who or what inspires you?

Individuals that have been classed as ‘disadvantaged’ by society but live a life just as full as any other. Seeing ‘less fortunate’ people enjoy what they have is extremely inspiring.

What is one of the biggest challenges facing energy customers today?

I feel the biggest challenge customers/consumers face today is the everchanging nature of the market and industry. With constant regulation changes, price spikes and conflicting opinions, our role in the industry becomes more and more prominent year on year. It keeps it interesting for people like me, motivating me each day to assist businesses understand and stay ahead.

What does a typical day look like for you at Edge?

A typical day for me is full of energy and fast paced. I am constantly looking for new ways to improve and grow the business whilst learning all I can about this complex industry. There is always something to do.

Supporting Angel Flight Australia

What is Angel Flight Australia?

Established in April 2003, Angel Flight Australia is a charity that coordinates non-emergency flights to assist country people to access specialist medical treatment that would otherwise be unavailable to them because of vast distance and high travel costs.

All flights are free and assist passengers travelling to or from medical facilities almost anywhere in Australia.

Who do they help?

Anyone who is medically and financially disadvantaged, being families who have been financially devastated by medical bills due to illness, accidents or other chronic conditions.

How does Edge support Angel Flight Australia?

For nearly two decades, Alex Driscoll, Manager Wholesale Clients and Markets, has been involved in 4WD adventures to show other participants parts of the country they would not normally be exposed to. Since 2005, Angel Flight Australia has been the recipient of the entry fee paid by each participant. Previous fundraiser adventures have been to Cape York, Simpson Desert, Victorian High Country and Central Australia.

Previous fundraising activities include the Stoney Creek Mini Music muster run over a weekend with music, food and activities, with all proceeds going to Angel Flight Australia.

For more information on how you can support Angel Flight Australia, please visit https://www.angelflight.org.au/.

STAFF PROFILE – Alex Driscoll

What is the best piece of advice you have ever received?

Your title isn’t only what you put on your business card; it is what you do with your position that counts.

Name a place you have never been to and would like to visit. Why?

Everest. It’s the highest place on earth so would be an amazing achievement to stand on the top.

Who or what inspires you?

Self-made successful people inspire me, being the likes of Richard Branson, Sid Kidman and Ranulph Fiennes. These people generally take risks to challenge themselves or create any opportunities.

What is one of the biggest challenges facing energy customers today?

The energy market is constantly changing with new technologies, pressure put on the network resulting from the changing energy mix and policy makers struggling to keep up with these changes. As a result, customers are challenged to make energy decisions with such a high level of change and uncertainty. Adding to this, new concepts are constantly entering the energy discussion and consumers are struggling to gain the knowledge to understand the topic and how it impacts them.

What does a typical day look like for you at Edge?

No day at Edge is ever the same for me. One moment I will be contract trading, the next moment I am modelling the forward curve, working on a new project or on the phone providing advice to clients.

Clean Energy Regulator confirms 2019 RRP and STP

On 12 March 2019, the Clean Energy Regulator (CER) has confirmed the 2019 renewable power percentage (RPP) and small-scale technology percentage (STP) has been set by legislative amendment.

The 2019 RRP has been set at 18.6% and the 2019 STP has been set at 21.73%.

As explained by the CER, the RRP and STP set the annual statutory demand for large-scale generation certificates and small-scale technology certificates in the Renewable Energy Target.

If you have any questions regarding the 2019 RRP or STP or any other matter relating to energy, please contact Edge Energy Services on 07 3905 9220 or 1800 334 336.

2019 forward curve continue to rise

The electricity forward price for 2019 continue to increase as fears around system security, adequacy of supply and stressed buyers increase.

Since the start of the financial year, forward prices across all mainland states in the National Electricity Market has been increasing. From 1 July 2018 to close of business 9 October 2018, CAL19 prices have increased by between $8.35/MWh and $18.78/MWh

The largest increase has been in Victoria, closely followed by New South Wales. Victoria has now overtaken South Australia as the most expensive region to purchase 2019 contracts.

Prices have been gradually increasing since the start of the financial year however since Monday 27 August, New South Wales and Victorian prices have increased rapidly.

Over the weekend we experienced lightning strikes on the border between New South Wales and Queensland. One of the main transformers was struct twice at the same time knocking out both the primary and backup line which is attached to the same equipment. The lightning strikes caused the interconnector between the two regions to shut down immediately to prevent further damage to the system. At the time, Queensland was exporting electricity into New South Wales. The sudden loss of electricity from Queensland forced an involuntary load reduction in New South Wales. This also dropped the frequency which may have been a contributing factor in shutting down the interconnector between Victoria and South Australia. AEMO is still investigating the exact cause however this led to involuntary load shedding in both Victoria and Tasmania which is an interconnected region. The majority of the load curtailed was industrial load and all load was restored within an hour.

The prices immediately started increasing when the 2019 market opened Monday morning. Late the next day (after the market had closed) there was another article in the Financial Review questioning the availability of generation due to drought conditions, particularly in New South Wales. The market had been tracking Snowy Hydro water levels, however the article also targeted Bayswater; a large New South Wales coal fired power station. In 2008, Bayswater was forced to curtail generation due to water shortages and could potentially be faced with similar restrictions again.

Though the market was already aware of the current water levels, there was more trading following the load shedding and the drought article. This could be a result of companies being keen to ensure 2019 contracts are in place in the event of further generation curtailments.

The market then seemed to settle again.  Forward prices started softening due to lower spot prices in the back half of quarter 3. Late in quarter 3 the price then started to increase again. This was most noticeable in Victoria and New South Wales however it gradually spread to the other NEM regions as well. This is likely due to corporations fixing their 2019 contracts late, and a concern over 2019 spot prices.

Snowy Hydro continues to have little water and it is unclear how much it can generate during 2019. We are seeing generators bid to accommodate more solar PV. Some large generators are reducing their output to keep prices up in the middle of the day. If this continues,  we may not see the price drop as some were hoping for.

The last driver is the market having the expectation that some consumers are leaving their contracting until very late. It certainly seems that the buyers are more distressed than sellers,  making it difficult to buy cheaper electricity.

If you have any questions regarding electricity forward prices or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.