Storage, the future for AGL

During the record high energy prices experienced last winter combined with a rapid transition to renewable energy saw AGL Energy return a half year loss of $1B due to outages at Loy Yang A and their Hunter Valley power plant.

Despite this, AGL’s new chief executive Damien Nicks has an optimistic outlook for the second half, after a “challenged” first half. As a result of this drop in underlying profits, investors are worried about how AGL will fund its decarbonisation and whether the transition to renewable energy will occur fast enough, reinforcing the huge challenge faced by Australia’s energy-intensive industries.

AGL announced last year to committing to a $20B plan to develop 12GW of renewable energy by 2036 following pressures from shareholders and activists. A major component of the 12GW of renewables is 5GW to 7GW of firming capacity assets such as batteries and pump hydro. AGL are expecting the firming capacity assets to generate higher returns (7% to 11%) compared to wind and solar (6% and 8.5%).

Despite the decline in underlying profits, “Having a clearly endorsed strategy now, and now we have a board and management team in place means that the banks look at our transition plan and strongly support that,” Mr Nicks said. “That is a key part of us getting access to that capital.” The projects will be funded through cash flow, corporate equity, debt, and project debt.

While this may be a good strategy for AGL to improve shareholder value, it will be interesting to see how the strategy goes meeting Australia’s ambitious climate goals.

AEMO’s emergency powers prevent blackouts during high peak demand

candle due to blackout

Last Friday demand was forecast to break the all-time record of 10,119MW seen in March 2022. AEMO’s pre dispatch forecasting was showing demand peaking at 10,656MW but by 5:30 it had fallen short with Queensland’s demand peaking at 9,750MW.

With a record peak demand forecast due to high temperatures and humidity, AEMO utilised its emergency powers to prevent blackouts across Queensland. As the evening peak approached on Friday, AEMO intervened in the market and at 4:25pm  they enabled Reliability and Emergency Reserve Trader (RERT).

Between 5.30pm and 9.30pm members of the RERT panel reduced consumption on site or increased on site generation to reduce the overall QLD demand. These panel members are compensated by AEMO under individual arrangements if their services are used.

Prior to the dispatching of RERT, AEMO had sent lack of reserve notices to the market to encourage generators to offer more supply. Also, the QLD energy minister said the system would be tight, but he was confident of avoiding blackouts.

As previously discussed, Queensland relies on wind and solar generation to provide clean cheap electricity, but it is currently reliant on coal fired generation to provide the reliable backup when the sun has gone down, and the wind is not blowing.

Currently on a “normal” day demand is easily filled with a combination of solar, wind, gas and coal but on extreme day like last Friday the system becomes more dependent on scheduled generation like gas and coal fired powered stations.

Following the failure at Callide C3 and Callide C4 the state is down 840MW of availability and on extreme days this generation can mean the difference between “normal” prices and the lights staying on and very high prices and the possibility of load shedding.

If it was not for AEMO stepping in, demand may have increased, and spot prices may have certainly capped out close to $15,500/MWh. While very high prices are not good for end users, they are a signal for investment.

If high spot prices occur, it may encourage increased participation in the market and new generation being built but currently the uptake of renewable projects and storage has been slow.

Queensland has high ambitions to replace the coal fleet with renewable and storage but days like last Friday only reinforce that coal fired generation still plays a significant part in the security and price outcomes in the QLD market.

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

AEMO Services shortlisted 4.3GW of renewables in NSW

AEMO Services recently ran a tender process for Long-Term Energy Service Agreements (LTESA’s) and Renewable Energy Zone (REZ) Access Rights to support investment, construction and operation of renewable energy generation and long duration storage infrastructure in NSW.

AEMO Services shortlisted 16 projects totalling 4.3 GW of generation and storage in its first auction. AEMO Services is expected to go to tender for more supply and storage in the future as NSW undergoes the transition from coal fired generation to renewables.

To enable the transition from coal to renewables, investment in NSW is likely to be over $32B to allow renewables to fill the gap as the last 5 coal fired generators in the state retire over the next 10 years.

With 16 projects being selected from the first round, AEMO Services will continue to run 2 auctions per year until the end of 2030 to source 12GW of renewables and 2GW of storage to fill the shortfall.

While the generation and storage mix has not been released, it is likely it will be a mix of solar, wind for the generation and batteries and pump hydro will be selected to meet the eight hour storage solution.

Under the auction scheme the successful projects will essentially be underpinned by a long term energy service agreement to ensure the projects receive a minimum return on investment to allow them to get project finance.

The 16 projects have until the 10th February to submit the financial part of the bids to AEMO Services when they will be assessing each project against a set of criteria including technical capability, delivery timeline, cost and social licence. Unsuccessful projects can update their submissions and submit offers in future rounds. The next auction is likely to be in July 2023.

With companies striving to meet future sustainability targets the supply of projects has been tight. Hopefully following the close of the first auction and another round in 6 months we will start to see projects reaching financial close, construction and finally delivering renewable energy to the grid.

At Edge 2020 keeping our customers informed on the energy market is a top priority for us. As the world shifts towards a more sustainable future, we are committed to playing our part by procuring from renewable energy sources, whilst continuing to secure cost-effective energy solutions for our customers. If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

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

Renewables, battle of the billionaires

Singapore lit up at night

Previously, Edge has discussed the electricity markets’ move away from coal and gas to renewable energy and firming technologies. Last week it was announced that the Australia-Asia PowerLink Project (AAPP) better known as Sun Cable had gone into voluntary administration. AAPP was planned to be the world’s biggest solar and battery storage project.

Sun Cable was backed by some of the largest renewable energy developers in Australia, namely Mike Cannon-Brookes from Grok Ventures and Squadron Energy’s Andrew Forrest.

It appears from the outside the decision to wind up the company was due to a lack of alignment of the companies’ objectives by the shareholders but is there more to the story.

Sun Cable was to provide renewable energy generated in Australia and transport it via a 4,200km underseas cable to Singapore. Powering the project would be a huge solar farm near Elliott in the Northern Territory. The 20GW Elliott solar farm would be firmed with a 42GWh battery.

The first part of the Sun Cable project was planned to start construction next year, resulting in 800MW of renewable energy flowing into Darwin by 2027. Currently Darwin has a maximum demand of around 250MW so either the generation project will need to be resized or the solar farm will need to be constrained until it is able to export. With several solar projects already built in the Northern Territory but not approved for connection, the NT market may become very constrained as a result of the single line transmission between Katherine and Darwin.

Late in 2022, Sun Cable announced it had signed a Memorandum of Understanding (MoU) with the Indonesian government to unlock more than $150B in “green industry” growth in the region. The MoU has a broad plan to build key industries to improve Indonesia’s GDP. These industries include mining, energy, transport, food, agriculture and IT infrastructure, all an interest to mining and IT entrepreneurs.

With Indonesia already approving a sub sea survey permit it is likely the sub sea power cable could reach Indonesian shores and provide cheap renewable electricity to the region to assist in its growth.

Following the announcement of Sun Cable going into administration the federal government remains positive on the future prospect of Sun Cable. Are two billionaires too much for a business like this? Will one of them retain control of the company?

Feedback from Minister Bowen suggests following discussions with senior individuals at SunCable, there are no plans to stop moving forward with the project. Minister Bowen said

“It’s a change of approach and corporate structure, but of course in that regard that is entirely a matter for them”

Following a restructuring process, it looks like AAPP will still go ahead but most likely led by only on billionaire.

The Safeguard Mechanism – the big stick came out

Carbon emissions safeguard mechanism

The Safeguard Mechanism is the legislation which came in in 2016, it was designed to reduce the emissions of the industrial sectors within Australia with targets, or baselines, capping the amount of emissions each facility can emit. The flaw was that the large industries could continue to re-set these baselines to ensure that as production increased, so did the baseline, and as such the emissions would also be increased without penalty. In the Financial year 2020 – 2021, these 215 large emitters made up 28% of Australia’s Carbon Footprint.

During the election campaign the Albanese government stood on a pledge to tighten the legislation around these 215 facilities to ensure that they were contributing to the now legislated target of a 43% reduction in emissions by 2030 (v’s 2005) and net zero by 2050.

Well yesterday, 10th January 2023, the government after extensive round tables, consultation papers and responses released their “draft” position paper. I use the word draft in quotes as the timeframe for change to this draft is less than likely. Responses are due by the end of February and it going in front of ministers in April to be enshrined with a 1st July 2023 start date. I think we can safely say the government have set their cap on their desired outcome.

So, what has been decreed. Well in brief, bar the reduction in baselines, 4.9% annually until 2030 and a review following that, and a cap and trade scheme to allow under baseline emitters to benefit from a new (non-financial!) ACCU called a Safeguard Mechanism Credit (SMC), the big changes and costs, will come to those emitters who will be eventually pushed onto non-site specific variables and forced to use “industry benchmarks”. They can apply for exemptions until 2030 but even these will be under tightened scrutiny and cherry picking your years of production will no longer be allowed. This will be a blow to some who rely on their baselines to reduce costs in those high production and high emitting years. These emitters will also no longer be able to sit on high reported, calculated or fixed baselines and will loose their site-specific variables by the end of this decade in an already reducing baseline decline rate.

To cap this cost, the government are proposing a ceiling for the ACCU market. They propose this to be set at $75/tCO2-e initially and increasing by CPI +2% annually after the first financial year, FY24. With spot ACCUs currently trading around $34.50 (source https://accus.com.au/) this is quite a ceiling indeed.

The proposal is also tightening the benefits which can be gained by the Emission Reduction Fund Projects, with no new projects to be sanctioned and no renewal of current projects. Even those in existence will only have a two-year grandfathered period before the abatement cannot be utilised within the accounts.

Interestingly though the parts I found most intriguing were the future papers we can expect. The Chubb review was, I can now assume, purposely vague on international credits and I believe this is due to the implication from the safeguard paper that we can expect a further review, likely to come out this year, which will look at the usage of “high quality international offsets” within the ANREU. These could then be rolled into many types of legislation for Carbon Neutral claims as per Climate Active current accreditation, including Safeguard legislation.

The other interesting area is around carbon leakage with an investigation to be undertaken if Australia should follow the EU and implement a Carbon Border Adjustment Mechanism (CBAM). It would basically create a plug to stop carbon leakage between countries. i.e. if you moved production to a country which was less ambitious in its carbon policies you would still have to pay the “leakage” of that carbon, or to import that substance, if it was not manufactured within a country with similar carbon ambitions, you pay the carbon cost to use it in Australia.

Overall, there is a lot to un-pick in this paper but following extensive consultations I think (bar the ACCU ceiling price) little will shock industry. It is a “hybrid” approach to get the government on track without losing industry along the way. There will be some winners, especially those on industry set baselines, initially able to bank SMCs, but overall the government have balanced a carbon abatement requirement without hampering industry too much. There will always be nay sayers who want more, say this isn’t enough and want to move quicker, but we cannot forget the economic climate we are in at the moment and the turmoil yet to unfold. I say hear ye hear ye to the DCCEEW, this one balances the tightrope of industry and climate ambitions well.

Kate Turner is Edge2020’s senior manager markets, analytics and sustainability. Through a passion that renewable energy solutions are key to any climate change solution, Kate supports our clients to manage their portfolios and any associated risk within traditional markets as well as complex renewable energy portfolios. Kate is hands on in procurement development and implementation for our clients and leads our market regulatory and advisory sustainability services. If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Does another new environmental scheme create more uncertainty?

Australia's renewable energy schemes

In December the Department of Climate Change, Energy, the Environment and Water released two papers. One on Renewable Electricity certification and one on the Guarantee of Origin Scheme.

These are mainly aimed at the hydrogen industry but the first could have a significant impact on the electricity sector if the proposals are implemented as per the position paper.

The Renewable Electricity Certification paper asks for feedback on the need for a new mechanism for electricity to be certified, currently to be used only for voluntary surrender purposes. It proposes it will act alongside LGC creation (Large-scale generation certificates) with the developer able to decide if they produce an LGC or a REGO (Renewable Energy Guarantee of Origin certificate) on any given period, in any given day.

The REGO can be used for all uses, bar RET liability i.e., voluntary surrender.

The main difference of the REGO to the LGC elements being proposed in the paper are:

  • It proposes to allow the use of below-baseline generation to create a REGO.
  • It will also allow STCs systems to create a REGO once the maximum deeming periods from date of installation has been met. If the minimum threshold isn’t met they can aggregate multiple small scale systems to create a certificate.
  • Further it suggests almost a double counting whereby a battery could purchase REGOs to “store” green electricity then re-sell as green electricity with a new REGO.
  • For exporting renewable energy i.e. Sun Cable whereby the REGO can be created even though the electricity is exported overseas, this is not allowed under the RET scheme for LGCs. How we can claim that against a domestic usage is yet to be seen!
  • There is a proposal any vintage can be surrendered at any time for this year’s claim
  • It is also worth noting a REGO would require a time stamp under the proposals – meaning hourly matching could be undertaken. However, a note for is you are in an aggregated system for the REGO the last hour to make the 1MWh REGO would be the one counted.

It is proposed this will allow claims post the sunsetting of the RET in 2030 but does not go as far as to state it will replace the RET – however this must be implied that it is the intention of the scheme.

If this is to go ahead there are a few concerns:

  • Will it crash the price of the LGCs?
    • Could the market be flooded with “equal value” REGO certificates and bar RET liability the LGC market move?
  • Alternatively – What happens to the LGC market if everyone signs up to REGOs – would it mean LGCs could potentially go up in price as people are only creating REGOs and the LGC RET liability can’t be met
  • Will it increase volatility with an arbitrage being available between the two schemes?
  • Does this really level the playing field for Hydrogen in the way they think it will? I am not sure we meet all criteria in the market leading hydrogen certification markets with this proposal
Consultations close 3rd Feb but this is one to watch. It may be being pushed through a side door but it could blow open the LGC market as we near the end of the RET scheme. Have your say here: https://consult.dcceew.gov.au/aus-guarantee-of-origin-scheme-consultation   

 

Coal and gas moves to renewables and storage

Renewable generators with battery storage

With Enel X announcing the installation of battery storage systems in shopping centres in Melbourne and on the NSW central coast, this year may see a shift in the energy market as we transition from coal and gas to renewables and storage.

Recently AEMO’s CEO Daniel Westerman said, ‘even after factoring the cost of new transmission lines, wind and solar remain by far the cheapest forms of new power generation’.

Key federal policies have underpinned the need to progress an increase in renewable energy. Growth in renewable energy is dependent on the growth of storage to be fully utilised and the need for greater transmission infrastructure is required to link the projects to the end users.

The announcement of the Net-zero emissions target of 43% of 2005 levels by 2030 have pushed other mechanisms to also ramp up across the country. The key federal mechanism is the Safeguard Mechanism, which targets the emissions reduction for Australia’s largest emitting facilities. In line with the Safeguard mechanism the 82% renewables energy target in the National Electricity Market (NEM) by 2030 is also incentivising renewable generation. As both these drivers will require more renewable energy to be rolled out to offset the thermal generation, more storage will be required to compensate for the intermittency of renewable generation and an increase in transmission lines will be required to connect the renewable energy projects with storage and end users.

AEMO has for many years been looking at a fundamental shift in generation, transmission and energy usage. AEMO is now focusing on firming, Electric vehicles and the regulatory framework to enable these changes to occur.

In recent years we have regularly seen that the NEM has the potential to operate with very high levels of renewables, but the limiting factor still remains that thermal generation provides reliability and system security when the wind is not blowing or the sun is not shining. At the end of December, South Australia produced 104% of its demand with renewable energy and exported the extra electricity to neighbouring regions.

With most states striving for high renewable energy targets, Victoria is hoping to reach 95% renewables by 2035 and Queensland has increased its target to 80% renewables by 2035.

With the recent volatility in the overseas energy markets, in which Australia is a pivotal player in due to the large quantities of coal and gas we export, there is now a greater incentive to shift away from thermal generation due to the volatility and high prices.

AEMO reports show there is currently 21GW of new projects undergoing connection assessment and they expect 5GW of new capacity to be added during FY2023, in addition to the 4GW currently operating.

To assist this influx in renewable generation ARENA granted $176m in December 2022 to fast track 8 new battery projects to bring in 2.0GW/4.2GWh of storage. The plan is to triple the battery storage across the NEM by 2025.

Over the next year we will also see more transmission lines connecting the nation as more renewable energy zones are connected to the load centres under the Rewiring the Nation policy.

The first transmission projects to receive Rewiring the Nation funding were announced following the October 2022 Federal budget. Recently funded projects include the VNI NSW-Victoria interconnect, Marinus Link and various NSW transmission projects connecting the renewable energy zones. This funding will assist in building the transmission lines over the next 10 years.

If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Coal price caps result in high compensation but lower forward prices

Last week reports emerged that one coal fired power station could receive up to $450M in federal compensation as a result of the price cap on coal. Under the new legislation, coal fired generators are compensated for the cost of coal they have locked in at prices above the $125/t cap.

The coal price cap is likely to be higher than the coal currently locked in by many coal fired power stations, however some power stations are exposed to higher priced coal. Under the coal price cap mechanism, generators must bid into the market at a price inline with coal procured below the coal price cap. Generators that are exposed to coal prices above the coal price cap will not be able to dispatch their unit unless generating uneconomically. The compensation is designed to level the playing field allowing the units with fuel costs above the coal cap to continue to supply power and assist in system security.

Based on the current price of coal, compensation for Queensland’s Gladstone power station could reach $450m. The compensation will be split between the Queensland and federal governments on a 50/50 basis while the $125/t coal price cap is in place. The total compensation amount will vary depending on the amount of coal procured at prices above $125/t.

Many may argue that generators with high costs should be forced up the bid stack and not be compensated for high fuel costs. While stations like Gladstone may not have the benefit of low coal prices the station is currently crucial to system security in Queensland. Gladstone is not the only coal fired power station to receive compensation. In NSW, Origin’s Eraring power station will also receive compensation.

The coal cap legislation forbids coal producers from selling coal to domestic generators above the price cap and electricity generators must dispatch into the NEM at costs that reflects the cost of coal procured below the coal cap. The changes in bidding have resulted in the forward market electricity prices dramatically falling with the likelihood of future contract prices to level off in line with new long run marginal costs.

Below is a summary by state of recent activity:

QLD
  • QLD prices ranged between -$78.70/MWh and $270.00/MWh for the 2 weeks ending 31st December 2022, averaging $67.59/MWh.
  • QLD Q422 prices ranged between -$122.18/MWh and $15,500.00/MWh , averaging $120.24/MWh.
  • Solar output fluctuated across the period with output peaking close to previous weeks at 2,106MW, during the negative spot period the output was economically curtailed. Cloud cover also reduced output.
  • Apart from Christmas eve, wind generation displayed a consistent negative correlation with solar. Output peaked at 685MW leading up to Christmas then reduced to a normal maximum of 450MW for the remainder of the year.
  • Gas fired generation including Swanbank E, Townsville, Roma and Condamine covered the evening peaks with the exception of Yarwun that operated 24/7.
  • Wivenhoe hydro generation reflected the gas generators by covering the evening peaks and evening while Kareeya continued to generate around the clock.
  • Coal fired availability remained high with Gladstone taking a unit off over the Christmas / New Years break, Kogan creek returned to service on 20th December and remains online. Millmerran 1 came offline on the 30th and remains offline. All other operating as expected.
NSW
  • NSW prices ranged between -$69.20MWh and $223.54/MWh for the 2 weeks ending 31st December 2022, averaging $73.60/MWh.
  • NSW Q422 prices ranged between -$120.00/MWh and $15,500.00/MWh, averaging $115.66/MWh.
  • Most price spikes are now being capped below $149/MWh lower than the previous $300/MWh cap, this is likely as a result of the cap on gas.
  • Solar output fluctuated across the period with output peaking close to previous weeks at 2,367MW, during the negative spot period the output was economically curtailed. Cloud cover also reduced output.
  • Wind output dropped as we approached Christmas then increased to peak at 1,436MW at the end of the year.
  • Tallawarra was the only gas turbine to generate over the Christmas break due to relatively low prices.
  • Coal fired availability remained high despite various movement in units, Bayswater returned to service on the 20th but Eraring and Vales Point both took units offline over Christmas. Eraring returned to service on the 2nd January but the Vales point unit remains offline.
SA
  • SA prices ranged between -$605.41/MWh and $4,027.21/MWh for the for the 2 weeks ending 31st December 2022, averaging $41.19/MWh.
  • SA Q422 prices ranged between -$1,000.00/MWh and $15,500.00/MWh , averaging $63.67/MWh.
  • Solar generation peaked at 435MW on the last day of the year but maximums averaged 350MW. Negative spot prices caused units to be constrained.
  • Wind generation was sporadic reaching a high of 1,915MW but also dropped to less than 10MW occasionally. The SA market spiked on two occasions, both times the output from wind generation dropped significantly.
  • Thermal generators continue to operate over the evening peak when spot prices are generally higher, however they are operating during other parts of the day when spot prices are high. Torrens Island is operating all hours of the day, but Quarantine, Barkers inlet, Dry creek and Pelican Point have reduce run times as they focus on higher price periods.
VIC
  • VIC prices ranged between -$141.51/MWh and $228.44/MWh for the 2 weeks ending 31st December 2022, averaging $36.17/MWh.
  • VIC Q422 prices ranged between -$996.18/MWh and $584.31/MWh , averaging $62.86/MWh.
  • Solar generation was heavily constrained due to negative prices, solar output peaked at 797MW.
  • Wind generation was sporadic reaching a high of 2,871MW but also dropped to less than 5MW occasionally.
  • Hydro generation continues with its strategy of only operating Murray over the evening peaks, with Dartmouth, Eildon and Bogong adding additional generation when required. Hydro generation continues to increase during the high price periods. Hydro generation across Victoria and NSW has been used to keep a cap on spot prices, however the market is now capping around $140/MWh rather than the traditional $300/MWh cap price.
  • Yallourn continues to have various issues over the Christmas break with unit tripping followed by a fail return to service of unit 1, by the end of the year Yallourn was operating with 3 units. The Loy Yang A & B station operated consistently across the last 2 weeks of the year, continuing with the strategy of reducing generation during low price periods.

At Edge2020 we help our customers navigate the ever-changing energy landscape and to ensure the proactive and accurate delivery of advisory, account, and portfolio management services and associated outcomes. 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

Energy users wait for lower price after intervention bill

Following the passing of the energy reform bill in Canberra last Thursday, end users are waiting to see when the price of gas and electricity starts to match the caps imposed in the wholesale market.

Prior to the passing of the intervention bill, end users were looking at gas deals above $30/GJ. Now a cap of $12/GJ has been imposed, what will be the offer price to gas consumers? AGL have been quoted,

“as soon as the legislation is passed, they will try to get some better offers”

The legalisation covers uncontracted wholesale gas and capping this portion of the market at $12/GJ may not see the benefits flow through to end users.

Large end users of gas have the option to procure gas from the spot market, this segment of the market is not covered by the $12/GJ cap so prices in the gas spot market are likely to be higher than $12/GJ. So, with coal prices peaking again above $300/t is there the potential for gas to now be the transitional fuel to renewables?

The war in Ukraine has influenced the transition to renewables and potentially speed the process up worldwide. European countries are now less likely to take significant volumes of gas from Russia, so they will be looking at alternative fuel sources. As a result of the gas supply issues out of Russia, some European countries are reviving their coal fired generation fleet while they transition to renewables.

While international gas prices remain high, Australian gas producers have been very vocal in leaving the domestic gas market alone and let it work as intended. They argue the gas market will fix itself, higher prices will signal the investment in new supply, resulting in lower long term energy prices.

The gas market is currently proving to be very profitable for producers at the expense of end users. A recent report from the regulators exposed that the majority of offers for 2023 gas were over $30/GJ and a report out of AEMO shows the cost of production is $9.50/GJ or below. With a potential continuation of the $20/GJ profit for gas producers they will be pushing to make gas the transitional fuel and push out the coal industry.oc

While the intervention bill is designed to be in place for 12 months, the ACCC has flagged an extension to the reasonable pricing framework saying they,

“would be expected to be required until domestic gas prices are reflective of the underlying costs of production and that there is sufficient supply at these prices”.

At Edge2020 we will continue to monitor both the gas and electricity markets to understand the impacts these market caps will have on the prices offered to end users.

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