The Australian Energy Market is a dynamic complex market which has been through significant volatility over the past few years. In this report, we have endeavored to provide a summary of market drivers in each state and the shift to cleaner energy. As an independent energy solutions provider, Sustainable Energy Solutions can assist you in navigating the complex market and identifying relevant opportunities for your business.

New South Wales

Since the announcement of the closure of Victoria’s Hazelwood Power Station, in September 2016, the NSW electricity market has seen a substantial increase in both retail energy pricing and volatility.

Across the board average, wholesale futures electricity prices in NSW reached significantly higher levels than they were in 2016; for example, the daily average Close Price for CY 2018 during 2017 was ~170% higher than the daily average Close Price for CY 2018 throughout 2016. Rates have been trending downward since the beginning of this year.

Interconnector flows into NSW from Victoria have decreased, lessening the ability of imports from Victoria’s cheaper brown coal generation to act as a constraint on generators in NSW.

Further, a recent report by the Australian Energy Regulator stated that NSW generators’ coal costs have increased. Coal-fired power generation accounts for around 75 percent of the state’s electricity. Coal prices have risen in recent times, which has particularly affected the costs of generators who are purchasing coal under short-term contracts. At the same time, the increase in gas prices is affecting the costs of the three NSW gas-fired generators. Gas fired generation accounts for around 5 percent of the state’s electricity generation. These market circumstances explain, at least in part, the higher offer prices we have observed in NSW.

Snowy Hydro

The Snowy Mountains Scheme generates on average around 4,500-gigawatt hours of energy each year. In March 2017, the Federal Government announced plans to expand the current scheme ultimately boosting its generation output by 50%.

Snowy 2.0 is projected to increase the Snowy Mountains Scheme’ generation capacity by up to 2,000 megawatts, and at full capacity, will provide approximately 350 000 megawatt hours of energy storage. Snowy Hydro will now undertake further work including additional geotechnical drilling, project tenders, finalising funding, and environmental and planning approval processes as the project progresses to a final investment decision in 2018.

Government Incentives (NSW)

The state governments are helping in identifying ways to reduce your Electricity bills and will assist you to implement innovative energy efficiency practices.

The Energy Savings Scheme reduces electricity consumption in NSW by creating financial incentives for organisations to invest in energy savings projects. Energy savings are achieved by Accredited Certificate Providers installing, improving or replacing energy savings equipment. The Energy Savings Scheme is legislated to run until 2025 or until there is an equivalent national energy efficiency scheme.

AGL announced in 2015 and reaffirmed in 2017 that it intends to close the Liddell Power Station in 2022. In March 2018 Liddell was being thrown a lifeline, with a Chinese corporation which controls south-west Queensland’s Cubbie Station declaring they want to invest in new “clean coal technology”.

In late April 2018 Alinta Energy has lodged a $250 million formal bid to buy the ailing Liddell power station from larger rival AGL.

PM Malcolm Turnbull said the government had been advised that if the Liddell plant were to close in 2022, there would be a 1000MW gap in base load, dispatchable power generation.

Victoria

Since the announcement of the closure of Hazelwood Power Station, in September 2016, the Victorian energy market has seen significant market fluctuation in forwarding supply contracts, highlighted on the graph below.

Closure of the Hazelwood Power Station

Hazelwood Power Station accounted for approximately 25% of Victoria’s electricity generation and nearly 5% of the Australian market. Hazelwood was fueled by cheap brown coal, which is more carbon-intensive due to its high moisture content. The November 2016 confirmation that Hazelwood Power Station would indeed close, applied immediate additional pressure on an already rising market.

Government Incentives (VIC)

The state governments are helping in identifying ways to reduce your Electricity bills and will assist you to implement innovative energy efficiency practices.

Recent changes to the Electricity Industry Act 2000 (VIC) provided for solar and other eligible forms of renewable energy, such as wind, hydro or biomass, (with system size less than 100 kilowatts) to receive a minimum feed-in tariff rate of 11.3 cents per kilowatt-hour for electricity exported to the local network.

More information on this rate can be found on the ESC website.

There some grants and funding available in Vic – see below

http://www.sustainability.vic.gov.au/About-Us/Grants-and-Funding/Energy-assessment-grants

Queensland

Queensland has experienced volatility in the last three years with retail energy rates moving more than 100% in the last 12 months alone.

The Queensland government’s ambitious target of 50% renewable sourced generation by the year 2030 is set to add significant pressure on the state’s energy market over the next 15 years. Given that currently, only 10% of the state’s power comes from renewable sources, a major transition away from coal and natural gas are needed to achieve the target.

QLD’s recently outed Opposition Leader, Tim Nicholls, in early 2017 voiced his concerns about reliance on intermittent power sources saying Queensland runs the risk of ending up in a situation where they are unable to meet the demand needs and most likely will suffer Power outages. The Palaszczuk government replied in June 2017 off the back of the Finkel Report with their “Governments Powering Queensland Plan”. Amongst the government’s proposal:

  • “Restart Stanwell Corporation’s 385 megawatts (MW) Swanbank E gas-fired power station.
  • Deliver a $386m Powering North Queensland Plan to strengthen and diversify the North’s energy supply
  • Establish Queensland Energy Security Taskforce which will implement outcomes of the Finkel Review which are accepted by Queensland, among other actions
  • Confirm the government’s commitment to a 50 percent renewable energy target.”

In June 2017 after nearly seven-years of extensive debate, Chairman Gautam Adani announced that he had signed off on the project to build Australia’s largest coal mine in the Galilee Basin. At peak capacity, the Carmichael Coal Mine will produce more than 60 million tonnes of coal a year.

Much of the coal is to be exported and it is unclear if the domestic region will see a direct benefit in wholesale energy pricing.

South Australia

In South Australia, both renewable and non-renewable sources are used to generate electricity, with the natural gas-fired generation being the main non-renewable source of energy generated in South Australia.

South Australia saw their own internal shift in 2015 where pricing rose nearly 100% in the space of about eight weeks following the announcement of the closure of their last coal-generated power plant at Port Augusta. The wholesale market rose significantly again following the eventual closure of the plant in 2016 and an average retail rate is now 200% higher than that of achievable rates in 2012-2015.

South Australia is ultimately leading the country with regards to renewable sourced generation. As of 2016-17 wind power contributed ~40% of South Australia’s local electricity supply, however, it has been cited that South Australia needs more sources of power that are less intermittent in nature and can be dispatched upon demand.

In July 2017, Tesla and French company Neon commissioned the world’s largest lithium-ion battery array adjacent to the Neon wind farm in Jamestown SA. Paired to the neighboring Hornsdale Wind Farm, the battery will be capable of 129 megawatts of storage and an output of 100 megawatts – at a time – to provide the state with dispatchable renewable energy bringing greater reliability and stability to the state’s electricity grid. The primary purpose of the array is to avoid Load Shedding events such as those seen in February 2017.

Government Incentives (SA)

The state governments are helping in identifying ways to reduce your electricity bills and will assist you to implement innovative energy efficiency practices.

The  Retailer Energy Efficiency Scheme (REES) is a South Australian government initiative that requires energy retailers to help households and businesses save on energy use and costs, and lower their greenhouse gas emissions. South Australian households and businesses may be able to receive free or discounted energy efficiency activities from energy retailers participating in the REES.

State Government Election (Mar-18)

Electricity prices and the reliability of South Australia’s energy grid were key issues for voters in the recent state election.

South Australian Premier-elect Steven Marshall has vowed to reinvigorate his state with a vigorous reform agenda aimed at cutting costs for business. Plans include a $200 million ‘interconnector fund’ for grid connections with other states, as a top priority part of this fund will allow the construction of a new connection to New South Wales to bolster the fragile electricity grid, and also a promise of $100 million ‘household battery fund’ to help support 40,000 households buy home battery storage systems.

Weather

Traditionally we have seen high average prices driven by a limited number of extreme price events. Both excessive hot and cold weather unbalance the supply and demand ratio and can cause a significant market shift.

Coal

Australia is currently heavily dependent on coal for electricity, with almost two-thirds of electricity production being derived from coal.

The International Energy Agency (IEA) has released their 2017 World Energy Outlook which predicts Australia’s coal exports out to 2040 are projected to grow by almost 20%.

A recent report by the Australian Energy Regulator stated that generators’ coal costs have increased. This has particularly affected the costs of generators who are purchasing coal under short-term contracts.

The notion of extending the life of a 50+ year generation asset has taken prominence with two recent reports from AEMO focusing attention on the shortage of generation capacity in the National Electricity Market during times of peak demand, and the exacerbating effect of AGL’s planned closure of the Liddell Power Station in 2022. This has resulted in a wide range of opinions being expressed about what it would take to extend the lives of Australia’s coal-fired generators.

There are a number of key factors that determine the viability of extending each power station’s operational life. These include its age, fuel type (black or brown coal), its operational history, its current fuel contracting/supply, how it is operated and who owns it.

CLOSURE OF COAL-FIRED POWER STATIONS

The Paris Agreement implies Australia will have zero net emissions by the mid-21st century, reaching the target will require a huge shift away from traditional dirtier and cheaper sources of generation such as coal and gas towards more expensive forms such as wind and Solar PV.

The below table is a summary of recent fossil fuel power plants that have been mothballed, closed, or there is speculation over an impending closure

Power PlantsStateCapacity (MW)StatusClosure date
Morwell VIC189ClosedAug-2014
Wallerawang C NSW1,000MothballedNov-2014
Anglesea VIC160ClosedAug-2015
Playford BSA56ClosedMay-2016
Northern VIC31ClosedMay-2016
Hazelwood VIC1,760ClosedMar-2017
LidellNSW2,000Due to close 2022

DISCLAIMER:

This market report does not constitute financial advice and has been prepared by solely for the information of clients or potential clients to assist them in understanding trends in the Australian Energy Market. It is intended as a guide only and not intended to be relied as a complete assessment of the Australian Energy Market. To see real-time prices please contact your Account Manager at Sustainable Energy Solutions Pty Ltd.

It is provided to on a confidential basis and is not to be re-supplied in whole or in part to any other person without our prior written.