06 July, 2017
Courtesy of the AFR
The normally meek June quarter for electricity markets has been turned on its head with wholesale prices breaking records to an extent that is appalling experts and should scare energy users, regulators and governments.
Market trader and analyst Global-ROAM has described the price surges as “gut-wrenching” for energy users in states such as Victoria, where the average price broke the $100 a megawatt-hour barrier.
That’s up a painful 64 per cent from the second quarter last year, which the analyst notes was already historically high.
The average June quarter wholesale price in the country’s manufacturing heartland state reached $104.92/MWh, beating the extreme prices seen in the 2007 drought and the highest in the 19 years of the National Electricity Market’s history.
South Australia was even worse, however, with the average price reaching $115.93/MWh again a record and up almost $35 from the second quarter last year.
Queensland and NSW also saw a surge in average prices, although in those states the record set in the drought-stricken June quarter of 2007 stayed intact.
Despite relatively benign peak prices in both states, the average climbed to $85.83/MWh in Queensland, and to $93.62/MWh in NSW.
It would be easy to blame the shocking numbers on the removal of the 1600-megawatts of low-cost baseload capacity at Hazelwood, where the last turbine stopped spinning on March 31.
Range of factors
But Global-ROAM’s Paul McArdle says that would be simplistic and a mistake, as would singling out any one factor that interest groups might point to, including high gas prices, the rise of intermittent renewables generation, “greedy” generator-retailers, the “drought” in wind levels in May-June or regulatory uncertainty and change.
It is the confluence of several factors – with some more serious in different regions – that is plaguing the market, creating a situation that McArdle believes will have huge implications throughout the energy supply chain.
That’s not to mention energy users, with commercial consumers immediately feeling the hit as they go to renew contracts.
The example of Victoria’s Wilson Transformer Co, which has seen an 83 per cent surge in its power bill this year including a tripling in the energy component, will unfortunately be far from a one-off.
As ERM Power boss Jon Stretch has explained, moves in the wholesale market translate straight through to power bills for commercial customers, with no chance of escape.
Households have also seen the hit, with the July 1 round of up to 20 per cent price hikes from the major retailers, or up to 39 per cent from some juniors. But while the increases are large, they are still being cushioned from the full impact from the wholesale price surge.
MYOB chief executive Tim Reed is warning the price jumps will have a “material impact” on many small business owners and has issued a plea for energy suppliers to “provide flexibility” on payment when it is needed.
‘Truly horrendous’ picture
It’s not just the average price movements in the wholesale market, however, that have alarmed Global-ROAM. The firm’s analysis also highlights the sharp jump in the frequency of higher prices across the half-hour trading intervals in the NEM.
The number of half-hours with prices below $50/MWh has dramatically shrunk, while the frequency of prices north of $100 has surged.
In South Australia, Tasmania and Victoria, prices were above $100/MWh for most of the 4368 half-hour periods in the quarter, sending two of those states literally off his chart.
The “truly horrendous” picture in South Australia saw triple the incidence of $100-plus prices compared to last year, at 67 per cent of the time.
The change in the market is extreme, even in comparison with the already-startling prices seen in the June quarter last year and in the 2007 drought conditions, says McArdle, who describes the pattern as “mind-blowing”.
All this in a three-month period that typically demonstrates little in the way of volatility and price spikes caused by demand.
The particular worry is that while the earlier records in second-quarter prices set in 2007 were temporary due to the dry weather, with patterns soon returning to more normal levels, it looks very different this time round.
“It is looking like what’s affecting prices in the NEM is now more deep-seated, multi-facted, and systemic,” McArdle says in his sobering assessment.