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Know your NEM: Queensland prices surge in heat wave

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“plus ça change, plus c’est la même chose” (the more it changes, the more it stays the same).

  • Volumes : In 2017, they have started with a bang, rising up 3% NEM wide but up 9% in QLD and NSW, no doubt driven by hot weather, but down 14% in Victoria due to the Portland smelter being largely offline and milder weather.
  • Future prices: Increased in most areas other than South Australia and the charts below show how prices, particularly in QLD have moved up even over the past month.
  • Spot electricity prices  Averaged $447 for the week in QLD with prices over $13000 mark on a couple of occasions. Of course, there is no newspaper article when this happens because, since there is basically only rooftop PV in QLD in the way of renewables, there is no convenient scapegoat.  Its QLD that desperately needs new renewables and like South Australia it needs dispatchable renewables. The first reverse auction tender in QLD “should be”  for say 200 MW of dispatchable renewables. Get on with guys. See figure 1. We will do more on this later. This year Darling Downs is scheduled to be withdrawn from the QLD market (gas sold to LNG produers). That together with the closure of Hazelwood will see a constant flood of stories this year.
  • REC prices in the near term were a touch softer but since there is no trading it’s all a bit theoretical
  • Gas prices : Were also very strong averaging over $9 GJ in QLD and South Australia and $7 GJ in NSW. Considering that gas is supposed to be a Winter peaking market these prices show how the need for gas fired peaking generation at a time when gas is short is pushing up electricity prices. The oil price is gradually increasing. LNG prices are linked to oil and gas prices are linked to LNG. Forecasts are for say another 10% increase in oil prices this year in $US and if China slows in H2 of this calendar year the A$ could easily decline again. We see some prospect of ORG in particular writing new contracts to buy gas from say APLNG but it won’t be cheap. ORG is long gas and has no incentive to lower  the price. AGL is talking about importing LNG into NSW but that is surely years away. In NSW just getting planning permission for an import termimal could be expected to take a year.
  • Utility share prices: The good news, in our opinion, is that bond markets have eased back a bit (interest rates have fallen) as the markets reconsider the “Trump impact”. In this environment utility shares are holding up quite well with most utility  shares other than Redflow up on the previous month. We will include “Tilt” from next week.
  • Industry news.. This year is going to be all about policy development.  Without new investment of some kind electricity prices will continue to stay well above international peers. Of course there will be much more said on this. Frankly the next announcement we look for is that the Portland Smelter is going to close. Recent press commentary, in line with management history, is that the smelter needs to “stand on its own feet” ie if its only viable with a subsidy, that’s not good enough.
  • Also in Victoria, we had the Fair Work Commission siding with AGL over the enterprise bargaining agreement at Loy Yang A. Both AGL and the unions are playing for high stakes here. Once Hazelwood closes, a strike at LYA or an outage will really set the cat amongst the pigeons. AGL needs a willing and committed work force. With out that productivity will be poor. On the other hand our believe is that AGL had a case that productivity can be improved at LYA.
Figure 1 Half hourly prices QLD last seven days. Source: NEM Review

Figure 1 Half hourly prices QLD last seven days. Source: NEM Review

 

Figure 2: Summary

Figure 2: Summary

Share Prices

Figure 3: Selected utility share prices.

Figure 3: Selected utility share prices.

 

Figure 4: Weekly and monthly share price performance

Figure 4: Weekly and monthly share price performance

Volumes

Figure 5: electricity volumes

Figure 5: electricity volumes

Base Load Futures

rsz_screen_shot_2017-01-16_at_25907_pm

Figure 10: Baseload futures financial year time weighted average

Figure 10: Baseload futures financial year time weighted average

Gas Prices

Figure 11: STTM gas prices

Figure 11: STTM 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.  

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  • David Pethick

    Hi David – can you please go into some detail on “This year Darling Downs is scheduled to be withdrawn from the QLD market (gas sold to LNG produers).”?

    Is “withdrawn” mothballed or run as peaking plant?

    Cheers.

    Dave P.

    • DaveP – not sure about the Darling Downs thing – not shown on the AEMO generator info page:
      https://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Planning-and-forecasting/Generation-information
      (but that does show Swanbank E return has been deferred a bit)

      In terms of QLD prices, DaveL, worth noting the impact on Cumulative Price:
      http://www.wattclarity.com.au/2017/01/qlds-cumulative-price-over-half-way-to-the-cumulative-price-threshold-after-a-sizzlinsuper-saturday/
      (early Tuesday morning it’s $151,910)

      • David Pethick

        Cheers Paul. Thought I had missed an announcement on DDPS.

    • David leitch

      Dave

      The gas to run this plant comes from ORG’s contract with APLNG, 1000 PJ at 40 PJ per year. All that gas for the next ten years has been sold to GLNG in two separate contracts (365 pj in May 2012over ten years and 100 PJ in Dec 2013 over 5 years) although ORG has reserved the right to claw back a PJ or two.

      As a result ORG shouldn’t really have any gas to run Darling Downs at the moment. Of course ORG has other sources of gas, but mostly actually from Bass Strait and offshore Otway (South Australia). It could be shipping gas to Darling Downs power station at the expense of some other use, but basically it has announced/signalled that the intention was to run Darling Downs in open cycle mode.

      • David Pethick

        Hi David – thanks for the clarification. The conclusion is reasonable, particularly with the announced IPO of the upstream business.

        Dave P.

  • Malcolm M

    Something significant that you’ve missed is the loss of 1500 MW of coal-fired production in Victoria over the weekend. This has pushed overnight Vic spot prices up to $60/$100/MWh mark, and daytime heatwave prices to $250/kWh. At Loy Yang A1 production of 500 MW was withdrawn on Fri 13th, Yallourn W1 production of 350 MW was also withdrawn on Friday 13th, and Loy Yang A2 production of 500 MW was withdrawn on Sunday 15th. This is equivalent to the loss of Hazelwood at the end of March.
    The withdrawal of the Loy Yang units may be related to the industrial action with AGL. They could be taking a stricter interpretation of reasons to close a generator for repairs than they would otherwise. The LNP should get behind union-busting solar !

    • Stewart Rogers

      Yet the buffoons around here in Victoria want Hazelwood to be closed down. How can you simply withdraw 1600MW of capacity with no ramifications?

      • Malcolm M

        Closure of Hazelwood would not have been a problem when gas was $2/GJ. But now it’s $10/GJ.

        • Stewart Rogers

          It’s not rocket science. QLD wants to go 50% renewable by 2030. All you will have is a large amount of renewables and gas peakers + liquid fuel + hydro. Going to cost an utter fortune at peak times of energy usage. They should reopen north power station in SA and NOT mothball Hazelwood.

          Even the private sector wants to buy Hazelwood. Check out what Trevor St Baker has had to say. He bought out Vales Point and he already says he’s willing to buy Hazelwood.

          • David Pethick

            Nothing stopping anybody from buying Hazelwood or Northern Power Station from their current owners. I’m sure they would happily sell them for something close to $1!

            What TSB wants is for the market rules to be changed to incorporate capacity payments and higher ancillary services payments. These changes would significantly increase the value of large coal-fired power stations with multiple units.

            I assume he would prefer these changes to the market rules happen shortly after he’s bought the assets.

            Cheers.

            Dave P.

          • Stewart Rogers

            Trevor will buy it off Engie and run half the turbines. Communist Andrews probably wouldn’t allow it.

    • trackdaze

      Damn the intermitency of coal. So flaky.

  • George Darroch

    Darling Downs Power Station is rather new (2010), which says something about the economics of gas right now.

    • David leitch

      correct. The decision to run DD as open cycle was however made years ago. ORG in a rare success has called the gas market tightness well.

  • Jonathan Prendergast

    Nice to have you (and your analysis) back David.

    The prices keep going up!

    Great point about Queensland price increases, despite no renewables, being not news worthy.

  • George Darroch

    “the next announcement we look for is that the Portland Smelter is going to close. Recent press commentary, in line with management history, is that the smelter needs to “stand on its own feet” ie if its only viable with a subsidy, that’s not good enough.”

    Unfortunately it appears that the Victorian and Federal Governments are both willing to pour our money and electrons into this pit for years to come.

    Its eventual closure will be a blow to the region, for sure, and there needs to be a transition plan.

    • David leitch

      There’s a bit to be said about that.

  • Chris A

    Looks like there are now lots of articles today on QLD over the weekend David. Fin Review seems to be on the money this morning.