Know your NEM: Waiting for the ISP

Figure 13: Baseload futures financial year time weighted average

The ISP report has been delayed. It’s not unusual for reports to be delayed but at the same time it’s easy to see that the report will be controversial.

It will have some implications for the electricity price, to the extent it’s a pathfinder for new investment in transmission but more importantly it will be the implied ambition of the report that will cause political ripples.

And when your boat is low in the water and some of the passengers are trying to get their hands on the tiller, ripples can lead to wet and even cold feet.

Still, we have no doubt the report will be released shortly perhaps after everyone has had a chance to craft the accompanying messages.

Similarly, the ACCC report is also likely to lead to some foot stamping and calls for more action.

We state again that essential service or not high prices are a natural and essential part of a well functioning market, just as low prices are.

Market power is one thing, but in ideal markets high prices provide investment, substitution and consumption signals. The rooftop PV industry has had huge benefit firstly from the high prices that come with regulated distribution tariffs and more recently from high pool and future prices.

Although the REC scheme has provided underlying impetus to the new investment in wind and Pv which will continue to commission over the next two years it would be stupid to ignore the impact that humble old baseload futures have had on incentivizing some of that investment.

Liberals start the nationalisation trend

Finally I’d point out that once you let the “socialization” or “nationalization” cat out of the bag it’s hard to put it back in. The Federal Govt by taking over Snowy, unilaterally declaring that Snowy 2.0 is an economic investment without calling for tenders, and becoming the 100% owner of the 4thlargest retailer in the land by customer numbers has signalled to all State Governments that the Liberal Party regards it as perfectly acceptable for Governments of any persuasion  to own and build electricity assets such as retail and generation that compete with the private sector.

No matter the “hands off” approach any private sector operator will have misgivings about this trend. The Government is the referee and the rule maker. It’s a bit much when it also owns one of the teams running round the paddock. We can see a role for Government as a low-cost provider of capital but also see risks of abuse.

The market action

Wind & PV are now providing a bit over 10% of supply. On a ten-day moving average the figures below show that combining wind and PV does tend to reduce at least seasonal volatility. Wind picks up in Winter as PV output is down and vice versa.

Figure 1 Wind & PV across the NEM includes rooftop. Source: NEM Review
Figure 1 Wind & PV across the NEM includes rooftop. Source: NEM Review

 

Figure 2 Source: NEM review (same date scale as Fig 1)
Figure 2. Source: NEM review (same date scale as Fig 1)

 

Figure 3: Summary
Figure 3: Summary

Elsewhere, warmer weather lead to markedly softer consumption than last year and softer pool prices. Gas prices are up but perhaps easing.  REC prices are very soft as expected in the out years. Futures were little changed. Cap prices in 2021 softened a touch but it’s really 2022 we are interested in.

Figure 4 Cap prices. Source: NEM Review
Figure 4 Cap prices. Source: NEM Review

 

 

Figure 5: Commodity prices. Source: Factset
Figure 5: Commodity prices. Source: Factset

Share Prices

Figure 6 Selected utility share prices
Figure 6 Selected utility share prices

 

Figure 7: Weekly and monthly share price performance
Figure 7: Weekly and monthly share price performance

Volumes

Figure 8: electricity volumes
Figure 8: electricity volumes

Base Load Futures, $MWH

 

Figure 13: Baseload futures financial year time weighted average
Figure 13: Baseload futures financial year time weighted average

REC Prices

Figure 14 Source: Mercari
Figure 14 Source: Mercari

Gas Prices

Figure 15: STTM gas prices
Figure 15: STTM gas prices

 

Figure 16 30 day moving average of Adelaide, Brisbane, Sydney STTM price. Source: AEMO
Figure 16 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.

 

 

David Leitch is a regular contributor to Renew Economy and co-host of the weekly Energy Insiders Podcast. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.

Comments

2 responses to “Know your NEM: Waiting for the ISP”

  1. Rod Avatar
    Rod

    Figure 12 is a duplicate of figure 11 David. QLD futures.

  2. RobertO Avatar
    RobertO

    Hi David Leitch
    This line “And when your boat is low in the water and some of the passengers are trying to get their hands on the tiller, ripples can lead to wet and even cold feet.”

    I love it for understatement, some of these idiots (RWNJ’s or coal ash group or just the Jackasses) will do everything in their power to sink it, no if’s, but’s or maybe’s.

    Thank you for the Solar and Wind TWh (fig 1 and the combined fig 2)

Get up to 3 quotes from pre-vetted solar (and battery) installers.