How will the outcome of the QLD election impact the energy market?

QLD will have a state election on 25 November 2017 with one of the issues being cost of energy. Unlike other states, QLD does not have supply concerns which makes energy policy a far simpler matter relative to states like SA or VIC. The Labor Party, is committed to lowering costs as well as reducing emissions whereas the Liberal National Party is willing to forego state based emission targets and focus on reducing energy costs.

Edge have pulled out the specific energy commitments made by the major parties below.

ALP

If Annastacia Palaszczuk is elected, she has committed to the following initiatives:

  • Create a third publicly owned power generation company, “Clean Co”, with a mandate to deliver 1,000 MW of new renewable energy projects by 2025
  • At least 50% renewable energy target by 2030
  • Provide a $50 million commitment to support a solar thermal power station

LNP

If Tim Nicholls is elected, he has committed to the following initiatives:

  • Split CS Energy and Stanwell back into three companies to increase competition in the electricity wholesale market
  • Remove state based subsidies for renewable energy
  • Build, with the private sector, a high-efficiency, low emissions coal-fired power station in North QLD
  • Write down the regulated asset base of Energy Queensland by $2 billion to lower distribution costs
  • Scrap the state based 50% renewable 2030 target

The divergence of policies from the two major parties is causing confusion in the short term. Longer term, it is likely that both parties will invest sufficient funds to lower the cost of energy for consumers. Both parties are proposing to introduce a third generating company which is highly likely to drive down wholesale prices through increased competition.

The race to leadership is close, the bookies have the ALP just in front.

Broker ALP LNP One Nation
Sportsbet 1.75 2.00 21.00
Ladbrokes 1.95 1.83 21.00

Current as at 9.50am 14/11/2017

To find out more about the potential impacts the QLD election may have on your energy spend, please contact Edge on (07) 3232 1115 or speak with your Edge Portfolio Manager directly.

Energy Security Board – National Energy Guarantee Webinar

The Independent Chair of the Energy Security Board (ESB), Kerry Schott, hosted a 45 minute Webinar this morning to provide further detail on the National Energy Guarantee (NEG). There was no new information provided in the 45 minute webinar, nor was there clarification provided on key concerns that have been raised to date. The Independent Chair suggested that the NEG will be underpinned by the behaviour of retailers to seek the lowest cost blend of generation to meet their energy blend requirements (low emission and dispatchable). Whilst not voicing express concern on the potential market power of the large Gen-tailers there was a tone of apprehension, particularly for SA where AGL is dominant.

In respect of the RET, it remains unclear whether or not renewable generation that comes online post 2020 will be eligible to receive LGCs, at this stage it appears very unlikely that they will be however this is yet to be confirmed. Renewable generators in existence prior to 2020 will be eligible for LGCs until 2030, unless there is a change in the legislation.

When asked about the functionality of the financial contracts markets and how these would operate when there are now physical requirements in respect of generation blend, Kerry Schott was unable to provide any clarity. The lack of clarity on this change is concerning as the potential complexities appear not to have been considered by the ESB.

Delays to Northern Territory Hydraulic Fracturing Final Report

The Northern Territory Government announced on 7th November that the Final Report for the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory (Inquiry) will not be published until March 2018.  This has been caused by delays in community consultation activities that have set back the release of the draft Final Report to mid-December.

The Federal Government continues to put pressure on the States to lift their moratoriums on fracking, and this may very well be a set-back to the Government’s plan to free up more gas for the domestic market in the short to medium term.  The delay in releasing this report will make it virtually impossible for any significant investment to be made in 2018; should the NT Labour Government lift the moratorium on fracking.

It is reported that the Beetaloo Joint Venture, between Origin Energy and Falcon Oil & Gas Australia, is sitting on a substantial resource of approximately 6.6 Trillion Cubic Feet of natural gas.  If extracted, this gas could be delivered to the East Coast gas market via the Northern Gas Pipeline, which is currently under construction.

If you would like to understand how the announcement affects your portfolio, please contact Edge on (07) 3232 1115.

STATE OF THE MARKET – Q417 MARKET OVERVIEW

The electricity market is in a state of confusion as a result of poor Federal and State Government policy. The Market Operator, AEMO, released the Electricity Statement of Opportunities during September. The Statement warned of supply shortfalls during the first three months of 2018 and a heightened risk of unserved energy over the next 10 years.

On 17 October the Federal Government announced the National Energy Guarantee (NEG). The Guarantee is the model that will see energy being delivered to consumers reliably and affordably whilst also meeting our international emission commitments. The NEG is an alternative to the Clean Energy Target introduced by Dr Alan Finkel in his Finkel Review. Since the announcement of the NEG, there has been minimal feedback by the Federal Opposition and some of the State Governments. These governments have made it clear they are waiting on further detail before giving their support. Without support from these governments it will be difficult for the NEG to get off the ground. Edge are awaiting further announcements and modelling from the Federal Government as there is insufficient detail to form a view on the impacts or functionality of the Guarantee for producers and consumers of energy.

The combination of forecast shortfalls in energy supply, and a national energy policy that lacks detail, has resulted in the price of forward contracts creeping up despite softening spot prices. This has been particularly evident in NSW.

Figure 1 NSW daily average spot price verse CAL18 price and volume traded on the ASX.


With the exception of SA, average spot prices for Q317 are significantly higher than Q316 prices.  This represents a fundamental shift in the market.

VIC

SA QLD NSW TAS
Calendar Q317 100.01 97.74 79.93 93.57

95.84


Table 1 Q317 average spot prices as at 7 November 2017.


Figure 2 Q316 verse Q317 average spot prices.


With valid concern around shortages in supply, medium to large energy consumers are looking for alternatives to reduce costs and/or hedge price risks. A credible alternative is a Power Purchase Agreement (PPA); entered into directly with a generator. PPAs can be facilitated with any kind of generator that is willing to offer one. Typically, these are renewable energy projects offering 10 – 20 year agreements at defined prices. This type of offtake agreement is generally required prior to a new renewable project receiving financing. Offtake agreements from renewable projects do not suit all customers and the following points are some key considerations that should be taken into account before entering a PPA with a renewable generator:

  • Ability to commit to a volume and price for 10 or more years
  • Correlation of your demand and the output profile of the renewable generator
  • Business view on hedging commodities

Click here if you would like to read more about how Edge is assisting customers to reduce costs through the implementation of PPA’s.

Supply Near Term outlook

Spot prices are expected to be volatile and high due to a shortage in supply. Particularly in the first three calendar months of 2018 in SA and VIC. This expectation is a driver behind the Reliability and Emergency Reserve Trader (RERT) and a reason for forward contracts being traded at high prices.

VIC SA QLD NSW
Q118 146.00 159.00 105.35

106.76


Table 2 Q118 Forward Contract Prices as at 7 November 2017.


The second round of the Long Notice RERT was released on 6 September 2017. The purpose of the RERT is to provide AEMO with the capability to maintain power system reliability and system security by utilising reserve contracts. In order to become a member of the RERT Panel, panellists need to either provide generation or load reduction.

Submissions were due on 20 September and contracts are required to be executed by the 31 October 2017. Currently, there is a Medium to Short Term RERT open to tender which is scheduled to close on 17 November. Participants are asked in this tender what their reserve availability will be in the period 1 November 2017 to 31 March 2018.

The recent commitment from LNG producers to make more gas available to the domestic market should alleviate some of the predicted high electricity prices.  It has to be noted however, that this additional gas is in QLD which is a long way from SA and VIC where the main concerns sit. This gas is more likely to relieve prices in QLD which in turn should help to mitigate high spot prices in NSW, though impacts will be marginal further south.

Gas Supply Remains in Focus

Market News

The Australian Energy Market Operator (AEMO) released its updated Gas Statement of Opportunities during September. The report indicates that in eastern and south-eastern Australia, there is potential for an annual energy shortfall in the domestic gas market of 54 petajoules (PJ) in 2018 and 48 PJ in 2018. AEMO warned that the shortfall could be higher in a variety of plausible circumstances that could increase demand for gas by household and business consumers, and for gas-powered generation of electricity (GPG) in the National Electricity Market (NEM). AEMO’s estimates that the shortfall could be as high as 107 PJ in 2018 and 102 PJ in 2019. This forecast was quickly followed by the Federal Government requesting major LNG producers to bridge the supply gap or face the implementation of the Australian Domestic Gas Security Mechanism (ADGSM). The LNG producers agreed to the Prime Minister’s request to make gas available. Had they not, the Federal Government has the power to implement the ADGSM which is a mechanism designed to restrict gas exports to increase domestic supply.

The Sole Gas Project is a new source of gas for the south east. The project is estimated to bring an additional 25 PJs of supply to the market each year, of which some is already contracted. This is the first offshore project in VIC to be sanctioned in almost a decade.

Still on the topic of increasing supply of gas to the east coast, the Northern Gas Pipeline is being promoted by owners Jemena, as being operational from the end of 2018. This is despite delays caused by negotiations with traditional owners of land and issues with the construction partner. Once the pipeline is complete it will have capacity to transport 90 TJs per day from Tennant Creek to Mt Isa. The challenge will be delivering gas to the east coast at a competitive price and achieving a level of increased supply that is sufficient to impact prices.

Following the NT Governments announcement of a moratorium on hydraulic fracturing of onshore unconventional reservoirs and the initiation of an Independent Scientific inquiry into Hydraulic Fracturing of onshore unconventional reservoirs, an interim report was released during July.  The report provided some high-level conclusions regarding the environmental, social, cultural and economic risks associated with hydraulic fracturing for shale gas in the NT.  The final report is due March 2018 and will be critical in guiding the NT government on whether to lift the moratorium. During September the Federal Government pressured the NT government into lifting the moratorium in the interest of making more gas available for domestic consumption.


Difference between Conventional and Unconventional gas…


Unconventional gas rests in relatively impermeable rock. The low porosity of the rocks is why, as opposed to conventional gas, ‘artificial stimulation’ is required. Artificial stimulation is where fracturing or “fracking” is required to disrupt the rock and release the gas. Unconventional gas includes Coal Seam Gas (CSG), shale gas and tight gas.

Conventional gas has moved from its original source rocks and is now resting in more permeable rocks and has then been trapped under a seal of impermeable rocks. Collection of conventional gas is easier as the gas accumulates in confined spaces and therefore allows for strategically placed wells to take advantage of areas of accumulated gas.


Gas Prices

Wholesale gas prices were lower for Adelaide and Brisbane and higher for Sydney and Melbourne relative to the same period last year. Unlike last year there were no significant price spikes in Adelaide or Melbourne.

Adelaide price ($/GJ) Brisbane price ($/GJ) Sydney price ($/GJ) Melbourne price ($/GJ)
Q316  $9.27  $7.13  $7.53  $8.48
Q317  $ 8.11  $6.71  $8.94  $8.72

During September there was an increase in average temperatures which lowered demand for domestic heating gas and consequently there was some softening of wholesale prices late in the month.

C&I customers are generally facing increased prices as they come off old contracts. Prices quoted by gas suppliers have a relatively wide range and are subject to swings in consumption and tenure of agreement. The higher contract prices have prompted consumers to ask questions about alternative supply options and there has been an increase in interest into participation in capital city trading hubs.

Gas supply is a key feature of the recently announced National Energy Guarantee (NEG). Gas plays a key role in any emissions reduction policy due to its relatively low emissions and responsive nature of gas fired power stations. Within the NEG there is $90 million allocated to securing medium term supply. The funds will go towards the following initiatives:

  • Geological and Bioregional Assessments program to examine new gas reserves and support increased domestic supply by assessing the environmental safety of unconventional gas;
  • Development of new onshore gas in the NT and east coast;
  • Accelerate the work of the Gas Market Reform group to improve access and transparency;
  • Assessment of benefits in construction of new gas pipelines in the north and west of Australia to the south east via Moomba in SA; and
  • Examination of constraints on increasing gas supply on the east coast such as regulatory barriers and inconsistent policy.

If you would like to know more about what is happening in the gas market and how your business may be affected, please call Edge on 07 3232 1115 or contact your Edge Portfolio Manager.

Alinta reported to be likely buyer of Loy Yang B

The Australian Financial Review has reported Alinta as the preferred bidder for the Victorian brown coal station Loy Yang B, offering in the range of $1 to $1.3 b for the power station which accounts for roughly 20% of coal capacity in Victoria.  There is another interested party, China Resources which are believed to have made a higher bid, however would require approval from its Chinese parent company as well as Australia’s Foreign Investment Review Board (FIRB). Alinta already has FIRB approval.

Current owner ENGIE is expected to make a decision regarding the sale a next weeks board meeting in Paris.

It is conceivable that more contracts will be made available in Victoria after the sale is announced. ENGIE would have been cautious in signing up new contracts without knowing the future ownership of the power station and Alinta will not be able to sell contracts before the sale is confirmed. This could ultimately put downwards pressure on contracts in Victoria.

Any downward pressure on price would be a welcome relief in Victoria. Prices for electricity on the Australian Stock Exchange for calendar year 2018 delivery in Victoria has increased more than 50% from 1 January 2017 to the end of October 2017. The announcement is not expected to reverse this increase, however could provide some relief.

If you would like to understand how the announcement affects your portfolio, please contact Edge on (07) 3232 1115.

Have you appointed your Metering Coordinator?

The implementation of the new arrangements resulting from the Power of Choice Review undertaken by the Australian Energy Market Commission’s (AEMC), will take effect on 1 December 2017.  The new arrangements include the introduction of the Metering Coordinator, along with changes to the National Electricity Rules (NER).The implementation of the new arrangements resulting from the Power of Choice Review undertaken by the Australian Energy Market Commission’s (AEMC), will take effect on 1 December 2017.  The new arrangements include the introduction of the Metering Coordinator, along with changes to the National Electricity Rules (NER).

Key features of the final rule include:

1. A shift in who has overall responsibility for metering services under the NER, promoting competition in the provision of metering and related services. This is a result of the following:

  • the role and responsibilities of the existing “Responsible Person” to be provided by a new type of Registered Participant, referred to as a Metering Coordinator;
  • allowing any person to become a Metering Coordinator, subject to meeting the registration requirements, other than at transmission connection points and in relation to type 7 metering installations;
  • permitting large customers, and Non-Market and exempt Generators to appoint their own Metering Coordinator at distribution connection points; and requiring a retailer to appoint the Metering Coordinator, where a customer hasn’t appointed its own Metering Coordinator

 
2. The Metering Coordinator will take on roles additional to those currently performed by the Responsible Person, ensuring that the security of, and access to, advanced meters and the services they provide are appropriately managed.

3. Local Network Service Providers (LNSPs) will continue to benefit from network devices installed at customers’ premises, allowing them to monitor, operate or control their networks, provided there is sufficient space to house both the metering installation and the network device.

4. It permits a retailer to arrange for a supply interruption at its customers’ premises for the purposes of installing, maintaining, repairing or replacing an electricity meter.

5. Retailers have the ability to arrange for the de-energisation of a premises if the customer fails to give safe and unhindered access to the premises.

What this means for you:

As a large customer you will have the ability to engage your preferred Metering Coordinator as of 1st December 2017.  If you currently have a Direct Metering Agreement (DMA) with a provider, your retailer should be instructed to nominate your metering provider as Metering Coordinator.

Should you not have a DMA in place, now would be an opportune time to discuss your metering requirements with Edge, as we are in a position to negotiate competitive rates for your metering services.

The reforms from the Power of Choice Review will support the electricity market in meeting consumer needs over the next 15-20 years.  It provides more opportunities for consumers to make informed choices about the way they use electricity based on the benefits that end use services provide. Further information on Power of Choice can be found here: http://www.aemc.gov.au/Major-Pages/Power-of-choice

Potential delay in reaching agreement on National Energy Guarantee

The Queensland Premier officially called an early election to be held 25 November 2017. This means that the planned November COAG Energy Council meeting is unlikely to be able to agree on the National Energy Guarantee (NEG) as it requires all states and territories in the National Electricity Market to agree. The Federal Minister for the Environment and Energy, Josh Frydenberg, is still pushing ahead with modelling the scheme which the Energy Security Board will deliver to the Minister 13 November 2017.

It is not known how soon after the election a government could be formed in Queensland, however with Sportsbet tipping the Liberals to take over in a close race, it may take some time. Until then, the only constant is uncertainty which is proving highly detrimental to investment.

Ergon Retail offer ‘EasyPay Rewards’ to help alleviate rising costs in energy

On Tuesday 24 October, Queensland Treasurer Curtis Pitt and Energy Minister Mark Baily announced a new suite of measures to create electricity savings for Queenslanders under the Palaszczuk Government’s Affordable Energy Plan.

One of the initiatives announced will be the removal of Ergon’s non-reversion policy.  The non-reversion policy prevented customers who transferred away from Ergon Retail from returning.  The Government believes that removing this policy will give customers in regional Queensland more choice when selecting a retailer.  Not only will regional customers be able to shop around, but they will now have the ability to test the water and return to Ergon Retail should they wish to do so.  Coupled with this announcement, Ergon Retail are now offering ‘EasyPay Rewards’ whereby regional customers could earn discounts of up to $75 for residential households and $120 for small businesses every year.

Other initiatives under the Affordable Energy Plan included:

  • Rebates of up to $300 to purchase an energy efficient fridge, washing machines or air conditioner, providing bill savings of up to $50 a year for an energy efficient washing machine or fridge or $135 a year for an air conditioner. Up to 100,000 Queensland households are expected to take up the offer.
  • An Asset Ownership Dividend of $50 a year for every household bill over the next two years, starting from January 2018 and evident on bills from the second quarter of 2018.
  • Another 4000 regional households can save up to $200 through the expansion of the Energy Savvy program.
  • Support for primary producers by delivering an additional 200 energy audits to agricultural customers through an expanded Energy Savers Plus program in partnership with the Queensland Farmers’ Federation, as well as providing a 50% co-contribution (up to $20,000) to implement audit recommendations.
  • Support for Queensland jobs and industry by providing energy audits for large customers including manufacturers, with a 50% co-contribution to implement recommendations (up to $250,000 per customer). This is expected to deliver savings of 10% to 40% for large industrial customers.
  • No-interest loans to help those Queenslanders who don’t have access to the upfront capital required to invest in solar and battery technologies to help reduce their bills and be part of a clean energy future. Queenslanders will be able to apply from March 2018, with savings of up to $700 per year expected for those who take up solar.

 

The initiatives are planned to be available from 1 January 2018, with calls for applications for Ergon’s EasyPay Rewards open now.

QLD Premier provides ultimatum to QLD Retailers

QLD energy retailers have been requested by the QLD Premier to pass on lower electricity prices to customers or face public shaming and increased competition through a new government owned retailer.

The lower electricity prices are driven by the QLD Governments intervention in the market which consists of ordering Stanwell Corporation (state owned) to lower wholesale prices, the $770 million subsidy for non-solar households for QLD Solar Bonus Scheme and the recommissioning of the Swanbank E Gas power station. Premier Palaszczuk promised to name and shame retailers who did not commit to the pledge by this Friday. Moving forward, Ms Palaszczuk confirmed that her government and the QLD Competition Authority would be monitoring retailers on a quarterly basis. If it is found that retailers are not passing on the savings then she would order a re-entry by the government into the retailing sector.