Know your NEM: Spot prices below last year, futures also down

Volumes : Volunes for the week ended August 19 were soft, likely driven by warmer weather to be down 3% compared with the previous corresponding period across the National Electricity Market. Total volumes are trending down in line with seasonal norms for this time of year. There is still some further increase to come from QLD as APLNG train 2 ramps up towards the end of the year.

Future prices: Prices fell this week with a meaningful 6.5% drop for FY18 in Victoria. In our view this may reflect a (delayed) reaction to AGL’s report that LYA contracts with Portland had been cancelled. We continue to monitor Victoria closely.

Spot electricity prices:. Actually, spot prices were below last year, in all States, possibly reflecting a good level of wind generation as well as the soft demand and that most of the interconnectors seem to be working.

REC prices were unchanged

Gas prices : fell compared to last week but remain about 20% above last year. Reforms to regulation of gas transmission will in our early view not change the underlying issues that the supply of gas is relatively tight, and the number of gas suppliers is even tighter. There is more CSG gas to be had from QLD and there is shale gas in the Cooper Basin and more reserves in Bass Strait but environmental and fundamental cost issues will make it expensive. Gas tightness isn’t going away any time soon.

Utility share prices: Largely underperformed the broader market averages but with the exception of Infigen (IFN) (down 15% on the week) not that significantly.

During the week we saw results from Origin, which were taken neutrally by the market, and the Duet results, which were taken slightly more positively. Looking forward Spark Infrastructure was due to report today with a focus on its Transgrid investment. Transgrid stands to benefit from new transmission that will be built in the NEM in future years including a potential fast tracking of a new South Australia interconnector. APA will report later in the week and we expect to hear how in APA’s view any change in gas transmission regulatory arrangements will not be to consumers’ advantage.

Volumes

Base Load Futures

Gas Price

                                   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.