Know your NEM: Prices down, despite seasonality of rooftop solar

Pool prices are low, even in a seasonally weak quarter for wind and solar

Pool prices have fallen massively this year. Daytime prices are commonly in the $30s/MWh.

Figure 2 Source: NEM Review

However, futures prices have stabilised in the past couple of weeks. FY24 isn’t traded much, but even so the trends are clear. You can see the big fall expected in Victoria and South Australia.

In ITK’s view this reflects the influx of new renewables and also the recent increase in brown coal generation output.

The low prices are in the face of flat demand. The underlying point here is that across the NEM we have now just passed the typical Winter high point for demand.

So demand will get SOFTER from here, pushing prices down further.

The figure below excludes rooftop and allowing for that demand would be less than 1% below last year.

Soft prices are in spite of seasonally low rooftop solar

The overall share of variable renewable energy (wind and solar) in the past 30 days is 15.2%, compared to a peak level in the past 12 months of about 21%.

That’s because rooftop solar is very seasonal and has weakened off to not much above last year’s levels. Also this is not yet a particularly strong time for wind.

Figure 5 Source: NEM Review

Figure 6 Source: NEM Review

Pool price likely to weaken further over the next few months

Over the next six months ITK expects:

1. Rooftop solar total output will increase strongly.
2. Wind output will increase strongly reflecting seasonality and big new projects in Victoria ramping up;
3. Demand will soften for the next four months before rising again going into Xmas;
4. Lots of utility solar plants will also come on line;
5. The only positive price driver barring a big coal generator breaking down is an increase in global thermal coal and to a lesser extent gas prices. However, it’s hard to see this for the next few months. Coal prices are in fact getting weaker not stronger and even at today’s prices gas is still too expensive to be used for anything other than ever briefer evening peaks.

A good time for corporates to negotiate a PPA

Corporates should probably think about renewing their contracts in the September quarter. The almost certainly close to zero mid day prices we will see this year will provide a good anchoring impact for negotiations.

Coal generators in a race to the bottom

Any generator without a big parent balance sheet or unprotected by a strong PPA is going to get hurt and some businesses may go bust. However, the plants themselves will remain operational.

Most of the gas plant can also go into maintenance, after all that’s what it does a lot of the time anyway.

For coal plants though, it’s back to the fight for market share between Victorian and NSW generators that we haven’t really seen since the early days of the NEM.

That fight lead to several Victorian generators eventually changing hands but also the closure of some coal generation in NSW.

This time around we already know that Liddell will close, but here at ITK we don’t think that’s the end of the story by any means.

The coal generators have a lot of experience at coping with tough times including probably 75% of output contracted at least one year forward. Most are vertically integrated.

Those that are not, primarily LYB and Vales Point will have to scramble.