High risk plays on energy market as Victoria renewables target looms

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Traders are playing a short game on the futures market, which seems high risk given Victoria’s renewable energy ambitions and questions over future of major smelter. And a question over Redflow battery storage maker.

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Volumes : In year on year terms volumes were down 1% across the National Electricity Market for the week ended September 2. Warmer weather saw consumption down in all States other than QLD. For the calendar year to date (CYTD) volumes are up 1% but only due to QLD. NSW demand is flat despite a relatively strong State economy and Victoria down 1%.

Future prices: were stronger for the week with FY18 prices up 2% across the board. We continue to keep a sharp eye on the Victorian futures price where we expect traders are playing a very short term game. The combination of the 40% renewables target in Victoria and the unprofitability of the Portland smelter potentially offset by the closure of the Hazelwood power Station make this a high risk market in our view.

Spot electricity prices: were softer during the week. Lower than last year in South Australia, up strongly in QLD and up 10% in NSW.

REC prices were unchanged

  • Gas prices : continued to soften. South Australia is now paying no more for its gas than a year ago. NSW prices though are up and QLD prices are well up. There is now only 1 LNG train to really get going in the next six months in QLD – APLNG train 2. GLNG train 2 will also gradually increase its production but since it is very dependent on market gas we expect its capacity utilization to increase only modestly.
  • Utility share prices: The broader share market was soft in the week, down 3%, 2% for the month and up just 1% (before adjusting for dividends) on last year. Utility share prices were mixed on the week but all of them have share price declines in the past month and several have lost considerable value. Redflow, Orecobre, and Infigen are about the worst performers for the month although Origin’s not far behind.

Company news. Although its not necessarily a make or break year for Redflow, ITK notes that the Auditors qualified the 2016 accounts stating “that the consolidated entity incurred a loss of $14,121,539 and a net cash outflow from operating activities of $12,445,288….. These conditions…. indicate the existence of a material uncertainty…..” Redflow’s notes to the accounts state that at 30 June, the company had a cash balance of $12.6 m and the directors “believe they will be able to raise additional equity or debt finance should the need arise”. Redflow also announced on Sep 2, that Simon Hackett had assumed the role of acting CEO, as well as Executive Chairman following the resignation of Stuart Smith its prior CEO. Management states that “more than 1200 people from around Australia have directly expressed interest in buying ZCell-based energy systems”. Redflow’s share price is up 67% from Jan 1 2016 despite being down 25% in the past 30 days.

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Share Prices

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                          Figure 2: Summary share price movements

 

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Volumes

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Base Load Futures

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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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4 Comments
  1. MikeH 3 years ago

    Hi David, Do you have any comment on this article in today’s Fairfax press re SA Futures. Most of the article is confused nonsense but the suggestion that SA is facing higher prices next year seems plausible.

    http://www.theage.com.au/business/sa-power-prices-set-to-soar-even-as-renewables-usage-rises-20160830-gr4e34.html

    • David leitch 3 years ago

      Mike the futures prices are one guide to wholesale prices over the next few years. They are sitting at around $110 for the next couple of years. That’s a high price by any standard. I don’t have access any more to historic futures data, but I’d think the prices in South Australia are $30-$40 MWh higher than what they have been over the past couple of years.

      You need to remember that SA is a small market and the two biggest thermal generators Northern, and Pelican Point have both been withdrawn from the market. Unless the wind is blowing there is very little competition.

      • MikeH 3 years ago

        Thanks David

  2. Kenshō 3 years ago

    Hi David, would it be possible to do an analysis on Tesla Motors. In this article here, it suggests that Tesla may find it difficult to pay its debts and bring the cost of batteries and vehicles down.
    http://seekingalpha.com/article/4003704-cutting-edge-bleeding-death

    From an electronics technicians perspective, I’m concerned about the company for these reasons:
    A) So much of the articles on Renew Economy are projections upon batteries and vehicles being made more cost effective for everybody,
    B) There is so much glamour around the company and their products. The Powerwall is a highly engineered product. Normally batteries located inside in traditional cabinets and racks are easier to replace individual batteries, easier to service modular components like the BMS and then don’t require liquid cooling. The vehicles are highly engineered performance and luxury sports cars and SUV’s.
    In summary, allot of articles in Renew Economy are based upon the idea of a trickle down effect, with Tesla leading a paradigm shift and humanity eventually getting cost effective storage and vehicles, yet is Tesla’s debt so, that we really can not put all our faith in them to follow through? I’m also a Social Worker and I’m concerned about the hype and if Tesla is able to make good on their promises or if we are getting caught up in hopes of a green planet to the exclusion of being objective and rational. In my view if analysis is based upon objectivity and rationality, then as a community we are better placed to move forward with realistically obtainable approaches and strategies.

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