Know your NEM: Canberra fiddling while Rome burns on energy prices

The Federal Government has turned attention back to electricity prices and the little bits and pieces they are doing around compelling retailers to notify customers when the end of a discount period arrives are welcome.

However, it is in a sense just fiddling while Rome burns. The heavy lifting on new supply is being done by Victoria, Queensland and South Australia. No real thought appears to be in place about how to reduce network tariffs.

Turning to the weekly action

• Volumes: were lower across the NEM. Despite the high level of demand in February volumes for the CYTD are flat across the NEM. Total consumption has been essentially flat for three years now and was declining before that. Higher prices send out a negative consumption signal so we think it more likely demand over the next 12 months will fall rather than rise.
• Future prices have started rising again. Futures prices are up, particularly in NSW and QLD, and more in FY18 and FY19 than the out years. Prices have probably risen 5% from their lows. Not sure why (but maybe NSW lack of initiatives in renewables)
• Spot electricity prices .  Were over $100/MWh average for the week in all States other than Qld where the average was $93/MWh. We are starting to enter the seasonally low point for consumption (spring) so over the next month prices might fall a bit.
• RECs. The market trades so little that when there is a trade it generally results in a big price swing. This week though nothing happened. Flat as a tack. That’s to consumers’ detriment. They are the ones that pay the high REC prices in the end.

Gas prices. Prices averaged around $8 GJ. Although we didn’t see the big spikes in Winter prices that we saw last year, neither are we seeing the price falls that followed.  As a result prices are now actually higher than last year without having moved in week to week terms.

• Utility share prices. Redflow shares strengthened and Genex shares weakened significantly. APA reported solid results with EBIDTA (earnings before interest, depreciation and tax) up about 11%. However, growth is expected to slow in FY18. The FY18 numbers in the table below are management guidance.

Figure 1: APA results and guidance. Source: Company

SKI also reported its results with proportionate ebitda growing just 3% due to lower regulated revenue in Victoria. Backing out a provision adjustment (non cash) ebitda would have been flat. Disappointingly no volume information was included in the presentation.

Figure 2: SKI results six months to June. Source: Company

SKI’s presentation purports to show that networks and transmission are 30% of the household bill. However, in our view that is incorrect and just looks at headline retail prices without allowing for discounts. On our numbers an AGL  8 MWh customer in the United Energy distribution area would pay $2328 in total charges and $1119 in network and transmission costs. The network and transmission share is 48%. However we will revisit these numbers in the next week or so to confirm.

 

Figure 3: Summary

Share Prices

Figure 4: Selected utility share prices

 

Figure 5: Weekly and monthly share price performance

Volumes

Figure 6: electricity volumes

Base Load Futures, $MWH

 

Figure 11: Baseload futures financial year time weighted average

Gas Prices

Figure 12: STTM gas prices

 

Figure 13 : Thirty day moving average of Adelaide, Brisbane, Sydney STTM price. Source: AEMO

 

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 John Grimes discuss this issue and more in this week’s Energy Insiders Podcast.