High risk plays on energy market as Victoria renewables target looms

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.

Share Prices

                          Figure 2: Summary share price movements

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.