- Volumes : Rose in the weeks ended September 16, most likely on the back of colder weather. Volumes were up in most states
- Future prices: Fell fractionally. There was a more noticeable fall in South Australia
- Spot electricity prices: Rose during the week to be well above last year.
- REC price: Lifted modestly although there is still next to no trading to speak of. A key and emerging question for the REC market will be the Victorian Government’s treatment of RECs created under the 40% renewable target. Recall that the ACT Govt, required the certificates to be voluntarily surrendered and thus didn’t count towards the target. For a quick comparison of the Victorian proposal, at this stage compared to the ACT model check this link: Comparison between Vic and ACT scheme.
- Gas prices : Rose to be well above last year.
- Utility share prices underperformed the soft broader market index. Infigen (IFN) has now given up 30% over the past 30 days. Perhaps investors are disappointed in that there has not been any major corporate news, although it was one of the recipients of ARENA solar funding. We think that the windfarm ownership market is ripe for consolidation. That is there are too many projects and project proponents out there when compared to the number of retailers who need to write PPAs. A more powerful wind and PV company that had a portfolio of projects, from those operating through to those in planning stage and with say 20-30% of the market would have more bargaining power with the likes of AGL and ORG. Such a company would have a lower cost of capital and at the same time could take more merchant risk.
- Company news The only company news to speak of was the ongoing debate around the extent of APA’s market power and what could or should be done about any such power. ITK is of the school of thought that says that Australia made a decision 10 years ago to sell our gas as LNG in export markets. Once that decision, for better and for worse, was made it was always likely to be the case that Eastern Australia would go through at least a phase, and maybe longer, of physical gas. In our view that tightness is compounded by the concentration in the number of suppliers. Secondly, disclosure around contract gas prices and good and timely gas resource and reserve is woeful. How much gas is there really in Gippsland available at $5 gj. How much at $7 Gj? We don’t know. Resources there are variously said to be between 4500 and 6000 PJ. That is still less than 10 years of demand! At the same time Shell is sitting on an unknown but substantial quantity of CSM in QLD and does absolutely nothing with it. ORG sits on around 800 PJ of relatively cheap to produce CSM in its Ironbark field and does nothing. Most likely these guys are waiting for prices to rise further. APA is certainly no Saint in the gas transport market and out to make every dollar it can, but in our view the real problems lie elsewhere. The result will be that gas is not going to be much of a transition fuel in Australia. We are going to skip transition and go straight into first class ie high percentage renewables.
Share prices
Volumes
Base Load Futures
Gas Prices
David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.
Ed: This story was updated to reflect fact that Infigen was, in fact, a winner of the ARENA solar tender.
