No one will be surprised if AEMO projects a potential problem this summer in reports to be released this week.
Even leaving aside the basic incentive for AEMO to be pessimistic (they don’t have any problem with over supply, only with under supply) the potential for a problem this summer has been evident since January when Hazelwood closure was compounded with the unexpected subsidy keeping the Portland aluminum smelter going.
The smelter news lead to about a 30% jump in futures prices in Victoria and NSW and prices would be higher across the board without the QLD Govt having instructed Stanwell to move QLD prices down.
Most of the 5.7 GW of new utility scale renewable supply will not be on line until after this coming summer and only 1.7 GW of that is in Victoria and 1GW in South Australia. Queensland, which already has the lowest prices, (at least in Winter) is getting 2GW.
New gas supply to Pelican Point may help in South Australia (assuming the plant is refurbished in time) and new gas supply to Swanbank E will help in QLD Sunmer.
However, a breakdown at either Yallourn or Loy Yang A or LYB would be a disaster in Victoria. Flooding of pits, a dredger breakdown, an extended generator trip or a bushfire related transmission loss would all be a problem.
That said, beyond this summer things are looking better, the new variable supply will start to come on line in big licks and many minds are at work on demand response. Simply using the extra energy from more wind and PV to save the gas and water for when its really needed can also make a big difference.
It’s really up to the Energy Security Board in conjunction with AEMO to assess system security so this keenly expected and likely pessimistic AEMO report will be only a short term thing and NOT something longer term policy should be built on.
Turning to the weekly action
- Volumes: In week to August 17 were 1% higher over the last 7 days across the NEM compared to PCP driven by a 3% increase in NSW. Over the CYTD volumes remain flat on PCP and have been flat for the past couple of years. It will be very difficult to get grid delivered electricity prices down substantially for as long as grid delivered volumes are flat or declining. Its for this reason that a significant electric vehicle policy would be just about the best thing that could happen to the Australian electricity industry. It would have to be significant though. No other large load growth is particularly in prospect. Aluminum prices have risen but the only capacity that could come on stream is in QLD and that only marginal.
- Future prices were essentially flat. FY18 prices are about 10% off recent lows and FY19 by about $10 MWh
- Spot electricity prices remain well up on last year but by the end of the week, and not showing in the data, had dropped down towards the $60 MWh as we get properly into the Spring low demand scenario.
- REC.. prices were unchanged and do not seem to react to new project announcements.
Gas prices were unchanged on last week at a 30 day moving average across the NSW, VIC and QLD of $8 GJ. Prices are now higher than last year at this time and this, in our view, represents the higher demand from gas fired electricity
- Utility share prices. The big news as we came to the end of reporting season was the strong performance of Orecobre [ORE], the Australian lithium producer with environmentally friendly operations in Argentina. However this put its change on the year at no better than -1%. ORE stated that lithium prices remain high and that new supply is lagging demand. Also we have removed EWC from our list of monitored shares and replaced with the newly listed Windlab [ASX code WND]. Over the past year the best performing shares have been ORG and AGL. In ORG’s case this represent a turnaround from years of underperformance but for AGL its just a continuation of 3 years of growth.
Share Prices
Volumes
Base Load Futures, $MWH
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.
Hear Giles Parkinson, David Leitch, and special guest Bruce Mountain discuss this issue and more in this week’s Energy Insiders Podcast.
