February & March 2026 – Review of Market Events
By Aaron Bool
The period began with brief but notable volatility driven by weather conditions. Early February saw a combination of heat, cloud cover, and network constraints trigger afternoon price spikes, particularly in New South Wales. Despite these events, underlying conditions remained relatively well balanced, with strong solar generation supporting keeping average spot prices contained outside of these short intervals. At the same time, broader structural discussions began to emerge, including the increasing role of grid-scale batteries. Market commentary highlighted the potential for batteries to reduce coal generator profitability by limiting dispatch volumes and capping evening price outcomes, signalling a continued shift in how value is captured across the generation fleet.
As February progressed, attention shifted toward infrastructure and market structure developments. Transmission investment became a key focus, with significant cost overruns associated with major interconnector projects raising questions around cost recovery and long-term benefits to consumers. While renewable generation remained strong and spot prices were generally low, forward markets initially softened as stable demand and favourable supply conditions reduced immediate pressure. In parallel, FCAS markets continued their structural decline, with increased battery participation and inverter-based technologies significantly reducing both the need for and pricing of ancillary services. This trend reflects a broader evolution in system security, where newer technologies are increasingly displacing traditional revenue streams.
Toward the end of February and into early March, market dynamics began to shift more noticeably. Policy updates, including the increase to the Market Price Cap from $20,300 to $23,200 effective from 1 July, reinforced longer-term investment signals. However, the most significant driver during this period was the escalation of geopolitical conflict in the Middle East, which disrupted LNG production and introduced volatility across global energy markets. Despite stable demand and generally favourable renewable output within the NEM, external pressures began to influence sentiment and lift forward contract pricing.
Through the middle of March, this divergence between operational conditions and financial markets became more pronounced. AEMO data indicated strong solar generation, low demand, and consistently low average spot prices, reflecting a well-supplied system. However, global uncertainty continued to influence contract pricing expectations, reinforcing the disconnect between physical market conditions and forward market movements.
Early in February, futures across all regions and calendar years trended upward, before softening mid-month as stable demand and strong renewable output reduced immediate supply pressure. This downward movement was most pronounced in longer-dated contracts, particularly CAL28, which fell sharply across NSW, QLD, and VIC. However, this trend reversed toward the end of February and into March, as escalating geopolitical tensions in the Middle East drove a broad uplift across all states and contract years. New South Wales was particularly impacted, with notable volatility in near-term products such as Q2 2026, which experienced sharp day-to-day swings alongside a significant increase in trading volumes. As the market progressed through March, futures remained highly volatile, with no clear period of stabilisation following the initial price surge. Pricing continued to move sharply in both directions on a near day-to-day basis, highlighting the market’s sensitivity to external developments and ongoing uncertainty. By the end of the period, CAL26 showed signs of slight softening, while CAL27 and CAL28 continued to fluctuate but maintained an overall upward sentiment, reflecting ongoing uncertainty in global energy markets rather than domestic supply-demand fundamentals.
The most notable development toward the end of March was the emergence of fuel security concerns. Disruptions to global fuel supply chains began to translate into domestic impacts, including early signs of fuel rationing and increased costs for diesel-dependent generation. These pressures extend beyond direct generation impacts, with flow-on effects across coal transport, logistics, and broader supply chains. While spot prices remained low due to strong renewable generation and subdued demand, the broader risk environment shifted, highlighting vulnerabilities across the energy supply chain.
Looking ahead, the market is expected to remain increasingly influenced by external factors, particularly global fuel markets and geopolitical developments. While strong renewable generation and lower demand conditions continue to support low average spot prices, risks remain around fuel availability, supply chain disruptions, and generator reliability. As the market transitions toward cooler conditions, any reduction in renewable output combined with increased demand may introduce additional upward pressure on prices. In this environment, volatility is likely to persist, particularly if external pressures coincide with domestic constraints, reinforcing the importance of closely monitoring both local system conditions and global energy market developments.
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