July 2023 Electricity Market Review

Market Commentary

Weak electricity spot prices throughout July 2023 were triggered by several factors, including the New South Wales Coal cap, and weaker winter demands driven by the El Nino Weather pattern.

The soft spot prices have translated into falling wholesale futures prices.

AGL’s Liddell plant ceased operations in April of this year, causing spot prices to increase sharply, but have since come back down. 

New South Wales has commissioned a report with an end view of potentially extending the life of Origin Energy’s 2880MW Eraring plant beyond August 2025.

This has resulted in a moderate fall in futures contracts up to 2026. 

Over the longer term, Delta has announced that it may extend the life of the coal-fired 1.3GW Vales Point power plant for up to four years past its scheduled 2029 closure.

New wind generation record set

Spot prices were also affected by a new wind generation record on 7 July at a level of 8,132MW, 715 MW higher than the recently set (and now superseded) all-time maximum of 7,417MW from 25 June 2023.

After two consecutive years of La Nina, El Nino is heading Australia’s way in Summer 2023/24. While this may drive up demand in the summer, the weather phenomenon has added downward pressure on winter pricing.

But July also showed that so many factors can spark price volatility. On Monday, 3 July 2023, electricity spot prices rose across the National Energy Market due to poor large-scale solar, which dipped between 33 and 55% below norms.

12-month renewables grid share hits 37 %

Australia’s renewables grid share has ticked over to 37% for a 12-month period for the first time.

The share of renewables was just 13.6% (and mostly hydro) just 10 years ago. The share of wind and solar in the main grid was barely five per cent at the time. 

In the last 12 months, it has jumped to 29.4 per cent, and one-third of that has come from rooftop solar installed by mostly households and some businesses.

The federal government has a target of 82 per cent renewables by 2030, which will require something like 75 per cent wind and solar by that time – which in turn will need at least a doubling of recent installation rates.

NSW to speed up renewables planning processes

New South Wales has responded to criticism over its planning processes for wind, solar, and storage by saying that it is looking for ways to speed up the process.

Currently, 27 large-scale renewable energy, transmission lines and storage projects are under assessment in the NSW planning system.

These would provide 9 gigawatts of renewable energy and 5.5 megawatts of firming storage to replace the ageing coal generators that are likely to exit the grid over the next 10 years.

There is also a lack of transmission and difficulties in getting connection agreements.

Across the country, AEMO says it has received 16 new connection applications from projects totalling 3.9GW of capacity in the June quarter, taking the total capacity of projects working their way from connection applications to commissioning to 30GW.

Apart from red tape, AEMO says construction timelines are also being affected by the need to refinance – presumably because of high interest rates, long wait times for equipment, and the need to change suppliers.

Battery storage projects are also facing obstacles. The New South Wales government has given planning approvals to two new big battery projects that have been going through the planning process for more than 18 months.

Battery storage will play a key role in enabling that transition. NSW energy minister Penny Sharpe has flagged a review of the planning process to try and resolve any bottlenecks.

12 new renewable energy zones announced in Queensland

The Queensland government has announced plans to create 12 renewable energy zones in the state as part of its $62 billion plan to phase out coal power and shift to 80 per cent renewables in just over a decade.

The roadmap proposes to use the detailed zoning system to better coordinate the rollout and connection of 22 gigawatts of new large-scale wind and solar generation, as well as long-duration energy storage and green hydrogen production by 2035.

South Australia has taken a major step closer to “net” 100 per cent renewables after the first stage of Neoen’s 412MW Goyder South wind farm was connected to the grid.

Goyder South has approval for 1200MW of wind, 600MW of large-scale solar, and battery storage of up to 900MW and 1800MWh.

South Australia currently gets over 70% of its power from solar and wind, reaching periods of 100% renewable supply. With the launch of Goyder South’s first stage launch in 2024, the overall renewable capacity is expected to exceed 80%.

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New South Wales

Average Movement Summary:

New South Wales electricity futures prices started the month at $137/MWh, dropping sharply to $113/MWh by the middle of July 2023. Price ticked up in the third week to $128/MWh, closing at $124/MWh. Prices have come down considerably since the crisis in October 2022, and they are now $1/MWhh lower than what they were this time last year when the biggest market correction on record took place.

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Commentary:

• The volume-weighted average price on the spot prices market dropped to $85/MWh in July from $105/MWh in June.
• Prices are significantly lower than the spot market fetched in July 2022 when the average price was $371/MWh. 
• Electricity spot prices were relatively stable in July 2023, with only one pricing incident above $1,000MWh at $1,182/MWh. The bulk of trading was made between $200-$300/MWh. There was a significant increase in negative pricing, which dropped to a maximum low of  -$62/MWh. 
• Renewables share increased from 24.5% to 27.8% of the state’s energy generation. Reliance on gas increased marginally to 2.4%. Coal contribution dropped by around a percentage point to 70%. 
• Batteries provided 0.05% of the state’s energy but are very costly at an average of $152/MWh compared to renewables at $65/MWh, coal at $97/MWh and gas at $139/MWh.

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Victoria

Average Movement Summary:

Victoria futures prices opened the month at $86/MWh. Prices fell sharply to $73/MWh at the middle of the month, closing at $79/MWh. Prices have come down considerably since the crisis in October 2022 and are identical to what they were this time last year.

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Commentary:

• Victorian spot prices dropped significantly to $56 from $85 in June. 
• Spot prices for July were significantly lower than in 2022 when the average price had shot up to $340/MWh.
• Spot prices told a similar tale to NSW in July, with the only price event of note being one incidence of pricing at $1,144/MWh, with the bulk of trading taking place between $100-$200/ MWh.
• There was another increase of negative pricing events (around 2,000) and hit a maximum low of -$121/MWh.
• The share of renewables generation dropped marginally to 39%. Conversely, coal generation increased marginally to 59%. Gas generation also increased slightly to 1.5%. 
• Batteries supply accounted for  0.4% of electricity and, generation cost an average of $118/MWh. Renewables cost an average of $41/MWh, coal costs $63/MWh and gas $180/MWh.

Queensland

Average Movement Summary:

Queensland futures prices opened at $123, dropping sharply to $106/MWh by the middle of July. Prices climbed back up to 117/MWH, closing the month with a further drop down to $111/MWh.

Electricity prices have come down to a large extent since the crisis in October 2022 and are $2/MWh costlier than in July 2022.

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Commentary:

• Queensland spot prices dropped significantly to $77 from $102/MWh in June. 
• Queensland spot prices were four times as expensive in June 2022, when the average price was $391/MWh.
• By Queensland’s usually volatile standards, spot prices were quite stable. There was one event where pricing hit $1,167/MWh.  Negative pricing was less volatile, with a low of $-55.
• Renewables dropped slightly to 22% of the state’s energy for the month, down 1%. Coal generation increased by about 2 percentage points to 69.7%. Gas generation, although high, dropped slightly to 8.1%
• Batteries supplied 0.1% of total generation. However,  it is very costly at an average of $140/MWh. Gas averaged a cost of $115/MWh, coal $85/MWh and renewables $36/MWh.

South Australia

Average Movement Summary:

South Australia’s wholesale futures prices, as usual, displayed a different trend to other states, largely due to its different energy mix of which the majority is renewables and the rest gas. 

Prices started the month at 116/MWh, dropping to $112/MWh by the third week before settling and closing the month at $114/MWh.  Prices for 2025 and 2026 were flat.

Prices have come down substantially since the crisis in October 2022 and are $2/MWh costlier than this time last year.

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Commentary:

• SA’s average June 2023 electricity spot prices dropped to $73/MWh from $85/MWh in June.
• Prices are significantly lower than in the same period last year when prices averaged  $372/MWh.
• Price volatility was present, but not exceptional. The highest price fetched was $4,093/MWh. There were around 2,500 negative pricing incidents recorded, with the lowest price fetching $972/MWh. 
• Renewables dropped slightly to 72% of total generation. Gas generation increased by 2% to 27%.
• Battery power remained on par with last month at  0.6% and averaged a cost of $154/MWh. Gas cost an average of $144/MWh and renewables $33/MWh.

In addition to local woes, the international electricity market will continue to be influenced by the conflict in Ukraine and the possibility of a new Russian offensive during the Northern Hemisphere Spring.

Businesses may want to consider purchasing electricity through wholesale tenders, as we are witnessing a significant price uptick. Depending on your business’s risk appetite, now could be a critical time to act.

Act now! Reach out to one of our skilled energy consultants today and gain valuable insight into the potential costs that may lie ahead. Don’t wait, take control of your energy expenses now!

We hope our review of the electricity market and the relevant movements in electricity prices in May 2023 have been informative and helpful for you. We understand that these are challenging times, and we’re here to support you. If you’d like to delve deeper into the energy market’s previous months, you can find our monthly energy market reviews here. 

For advice on how to reduce electricity costs and improve your business’ energy sustainability, reach out to our team. We’re here to assist you and explore your options together.

Explainer:  Why we focus on Wholesale Futures Prices

Wholesale Futures Price: This reflects what the market expects wholesale electricity spot rates to be in future periods. The offers that commercial and industrial (C&I) customers receive via Leading Edge Energy are closely correlated to wholesale prices on the ASX Energy futures market; this is why we focus on these prices in our commentary.

Spot Price: This represents how much the spot market is charging for electricity currently based on demand and supply. Spot prices go up when demand is high and supply is tight. You can view live Spot Prices here.

You can learn more about the difference between wholesale electricity futures and spot prices in our blog section.

Disclaimer: The information in this communication is for general information purposes only. It is not intended as financial or investment advice and should not be interpreted or relied upon as such.

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