News and Articles

August Energy Update

Electricity pylons - aerial view

August 2022

Electricity futures prices for Cal 2023 ended the month near their highest point since the recent crisis began, while Cal 2024 and 2025 prices also continued rising. Gas prices have held their falls since last month and remain below $20/GJ (still high in historical terms), however fears remain over coal and gas supply in the coming months and the impact of the northern hemisphere energy crisis which is expected to worsen as temperatures fall heading into winter. Additionally LNG train maintenance over the last couple of weeks has provided an increase for domestic supply but as these come back online companies will once again be seeking to export with record high prices in the international market.

The uncertainty and volatility in the market is obvious following last month when prices finally seemed to be falling, however this proved to be very short lived. The average spot price has fallen this month but remains higher than historical levels, and the negative pricing during the day is only partially offsetting the high peak prices due to higher average generation costs. As retail contracts end and industry slowly begins to feel the price effects of this crisis over the next 18 months, particularly in their gas contracts, the message that current prices are unsustainable and will affect Australian business is being amplified through the media. However the high prices have already continued longer than expected and there is very little prediction for the situation to improve significantly in the near future.

Recent Highlights

  • AEMO has warned in their 2022 Electricity Statement of Opportunities that all mainland NEM regions could face reliability shortfalls within the next few years without an increase in committed generation, storage and transmission projects to fill the shortfall caused by retiring thermal generation.
    • Some factors with the potential to impact system reliability include higher electricity demand as electrification speeds up, extreme temperatures, project commissioning delays and reduced reliability of aging generators. AEMO
  • Industry customers are facing a crisis when having to renegotiate gas contracts, with contract prices tripling to $25-35/GJ up from $8-9/GJ last year. Short term contracts are the hardest hit by the price increases as retailers try to recoup costs from the recent energy crisis where gas prices reached as high as $59 and had to be capped at $40/GJ by the energy regulator. AFR
  • A meeting was held between state and federal energy ministers where they discussed issues such as the capacity mechanism design, emissions reductions objective in the National Electricity Rules, and vehicle emissions standards. Industry has been calling for greater policy direction, particularly following the recent energy crisis. AFR
    • Energy expert Kerry Schott said that the decision for politicians to determine any capacity mechanism design rather than the Energy Security Board will effectively abandon the idea for a national mechanism and states will go it alone, which may be less efficient but allow for faster implementation. AFR
  • Energy Australia has a reported a $1.6 billion loss for the first half of the year, due to the extreme market volatility, with the majority of their loss coming from hedging contracts in the retail business. Following this AGL and Origin also reported similar losses. AFR, ABC
    • Energy analysts believe that the energy crisis will disproportionately affect small retailers, particular those without their own generation capacity. This has already been seen with the closure of multiple small retailers, and others encouraging customers to look elsewhere.
  • A report from the Australian Energy Market Commission has recommended increasing the Administered Price Cap (APC) from $300/MWh to $500/MWh, to help solve the issues where generators were forced to be compensated after generating at a loss under the APC in June. WattClarity

Renewable Energy News

  • A new winter minimum demand was set on Sunday 28th August. At this time solar (including rooftop solar) was providing 50% of generation, above coal which was at 42%. RenewEconomy

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