Policy news flow

A review of recent policy announcements suggests that we will get more renewables but grid delivered prices could stay high for a while. State policies in Queensland, Victoria and South Australia still seem like they will have more influence on consumers and investment over the next couple of years than Federal policy, despite receiving far less of the mainstream media’s attention.

1. Federal Court decision re network prices. This was decided in favour of networks and puts upward pressure on consumer prices, although the extent is yet to be fully seen. Network price rises for NSW, QLD and South Australia generally take effect on July 1, and for that reason retail price changes in those States also take effect then. In Victoria network prices change on January 1 and so that’s when the retail prices change in that State. Networks (distribution and transmission) are over 40% of the final customer bill and retailers and generators have zero control over network prices and network behavior. As it turns out the AER doesn’t have that much control either. Generation prices rise and fall in line with supply and demand. When prices are high consumers complain but given time new investment responds to the price signal and consumers find substitutes and prices go down. By contrast network prices tend to rise most of the time. Its true that they did fall a bit with lower interest rates but in general networks are entitled to a fixed amount of revenue each year and only the regulator, as overseen by the Australian Competition Tribunal and the Federal Court can send them a price signal.
2. Release of the final version of the Mugglestone Report in Queensland. This has now been released and with it came the under reported  (outsisde of Reneweconomy) and fairly exciting “Powering Queensland Plan”. Leaving aside the renewed commitment to 50% renewables by 2030 and a 2017 reverse auction for no less than 400 MW of new renewables, the short term and unexpected market moving news was that Stanwell Corporation, one of the two large State owned Queensland Generators has been directed to place downward pressure on “wholesale prices”  There is some slight evidence of this already happening.

Figure 1: Recent weekly average pool prices. Source: NEM Review

3. Release of the Finkel Report. Much has already been written about the Finkel Report. Here we note that it’s vague on detail. Perhaps this is deliberate, and like a modern day “Delphic Oracle” the reader takes whatever message they want from it leaving a coin or other sacrifice in the fountain. The report has zero short-term market implications but may encourage storage providers to get out in front of the thought bubble that every new renewable project has to have “dispatchability”. This is a ridiculous concept that would almost certainly increase consumer costs. It’s not employed anywhere else in the world. Neither for that matter is an Emissions Intensity Scheme. Sigh….
4. This just leaves the detail of the forthcoming Victorian scheme. The legislation to support this was due in the middle of the year and its arguably now late.

Retail price increases. Time to pay the piper

AGL and Energy Australia have announced residential rack rate price changes for FY18, ie starting July 1. According to press reports AGL’s NSW increase is 16%. Neither company has yet published the exact numbers on their website although EnergyAustralia will make have them from June 16.

In NSW Ausgrid has increased its network prices by 6%. However as near as I can work out, network prices in Energex area in Qld will actually decline.

Focus on Sydney

AGL offers a 22% discount off its rack rate usage  charge in Sydney, and over the past 12 months that discount has ranged between 20% and 22%. That’s for a non solar, non time of use customer. On that basis we estimate that an 8 MWh customer would pay about 29 cents KWh for grid delivered electricity in Sydney. We can track the drivers of that change over the past few years as follows:

Figure 2: Break up of household electricity costs. Based on AGL 22% usage discounts 8 MWh customer. Source: ITK

In FY13 there was a carbon tax.  The pure retail costs are ITK guesstimate.  If we break down the price increase between FY17 and FY18 it looks a bit more dramatic with a 28% increase in non network charges most of which is generation and retail and the difference is a  little bit higher renewables costs based on the SREC and LRET percentages and recent certificate prices.

Figure 3: Price change for 8 MWh customer Ausgrid area

Turning to the weekly action

• Volumes: A bit higher this week mainly due to NSW and we guess slightly colder weather than last year
• Future prices A little lower in Victoria and Queensland but otherwise not much changed.
• Spot electricity prices Stayed high but a noticeable gap has opened up between the Southern and Northern States recently
• REC
• Gas prices .  Little changed. It will be interesting to see whether the publicity gas is getting impacts Winter peak prices. Our guess is they will be magically a bit lower than last year. Oil is soft making domestic use more attractive than spot export LNG.
• Utility share prices were soft last week in line with the broader market. Redflow staged a minor recovery.

Figure 4: Summary

Share Prices

Figure 5: Selected utility share prices

 

Figure 6: Weekly and monthly share price performance

Volumes

Figure 7: electricity volumes

 

Figure 8: Seven Day moving avg year on year temp change. Source: BOM

Base Load Futures

 

Figure 13: Baseload futures financial year time weighted average

Gas Prices

Figure 14: STTM gas prices

 

Figure 15 30 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.