Market update
The National Electricity Market (NEM) is one of the most volatile markets in the world, being a “merchant market” with wholesale prices settled on a half hourly basis.
Volatility of energy prices in the NEM can be caused by numerous factors: weather, load, generator and fuel availability, amongst others.
Some recent influences on NEM prices include:
- The notice of closures of the Hazelwood and Northern power plants has seen these baseload generators withdrawn from the NEM without replacement. Concerns around security of supply and network stability have been reflected in volatile and rising prices.
- Bushfire damage to rail infrastructure and disruption to coal deliveries to NSW assets has contributed to generation curtailment. This constraint, coupled with other market generator issues, has placed strain on the availability of baseload generators, which has translated to volatility in retail prices.
- The lack of domestic gas supply has increased the marginal cost of gas-fired generation for peaking (high-demand) requirements, which is being reflected in the bid price for this firm peaking generation capacity.
- In markets where there is no baseload coal and intermittent generation (renewables), i.e. SA, the lack of gas and requirement to import any shortfall in energy from neighbouring States contributes to volatility generally across the NEM.
- Intervention and policy uncertainty is doing little to contribute to price stability between regions.
Figure 1 Historic energy futures price contrasted against key generator events (source HVBroker).
Figure 2 Example of change in energy generation mix in SA relative to energy demand.
Figure 1 highlights some of the key events against energy futures pricing, with Figure 2 illustrating the energy transition that is occurring in South Australia (and being seen across other states).