Wind and solar start to pull prices down as average share rises to 20 per cent

“There’s a fraction too much friction, yeah

Don’t believe in opposing factions

What we need is some positive action”  Tim Finn

Variable renewable energy – wind and solar – has reached more than 20% on a 30 day moving average for the first time.

Figure 1NEM Demand & supply by fuel . Source: NEM Review

This is due not just to the rise of wind and solar, which is certainly strong and will continue to increase for at least the next two years.

It’s also due to the seasonally soft nature of demand and the impact that rooftop solar is having on in front of the meter demand.

The weakness of demand for utility scale electricity seems to be getting more pronounced every week:

The increase in supply compared to demand is finally starting to impact prices.

Figure 3 4 quarter average base load futures quotes. Source: ASX

Comparing FY22 futures with FY20  shows the fall market participants are expecting.

This will matter more to business buyers because for households network costs are essentially flat and represent about 50% of the price paid.

I’d especially draw readers’ attention to South Australia fiscal year 2022 price, which at $67.4/MWh is below NSW and Victoria. FY23 can be ignored as untraded.

It’s easier though perhaps to see why futures prices are falling by looking at the half hourly daily average price profile for the last 40 days compared with the previous corresponding period a year ago. In looking at the charts bear in mind that:

Firstly, NSW is transmission constrained so QLD can export all the power to NSW it would like to.  This means lower prices for Queenslanders and higher prices for NSW and perhaps even Victoria.

Similarly, as a result of  constant work on the South Australia-Victoria  transmission link it, too, is often constrained just now and that pushes down prices (and constrains output) in South Australia, and raises prices in Victoria.

Even so, as big wind farms in Victoria come on line (Stockyard Hill and Mooranbol for instance) and that transmission line work comes to an end you can expect to see Victorian prices ease.

Secondly the price suppression has been seen despite the clapped out NSW coal generation sector basically chugging along at half pace. Replacing some of the coal has been high priced gas.

Things will be different in the March quarter no doubt when demand is seasonally a lot higher.

Figure 4 Average electricity price $/MWh 40 Days to Nov 10 2019 compared to PCP. Source: NEM REview