Power price shock for NSW and Victoria

The above chart from an article in the Australian by Matt Chambers ($) says it all.

The days of affordable electricity are quickly becoming a distant memory.

Notably, Victoria’s comparative advantage – low-cost brown coal – saw prices below $40MWh during 2016 & 2017. That’s set to hit $80 by 2020 according to the Goldman Sachs report, notwithstanding the fact that Victorian wholesale prices hit $95.54 last month.

The article highlights the following:

  • Recent softening in electricity futures prices is underestimating a coming price shock by 20-30 percent
  • Even if the National Energy Guarantee is put in place wholesale electricity prices will rebound towards a new peak of between $120 and $130 per megawatt hour
  • In South Australia, prices are forecast to average $150, while in Queensland, which has state-owned coal generators, prices are forecast to fall to about $50.
  • Retail electricity prices will not be dictated by the cost of power, they will be driven by market conditions that require high prices — sometimes spiking to the maximum $14,000 per MWh — to activate the increasingly frequently needed gas peaking power.
  • In 2016-17, wholesale power prices averaged $88 per MWh in NSW, $70 in Victoria, $123 in South Australia and $103 in Queensland
  • Since the closure of Hazelwood (brown coal power station), average prices over this financial year so far have jumped to $95 in NSW and $103 in Victoria but fallen to $82 in Queensland and $102 in South Australia.

Our take?

We should be asking how Queensland’s state-owned power generators can deliver wholesale power prices cheaper than South Australia, NSW and Victoria, given privatisation was meant to drive competition, and wind power is claimed to be cheaper than coal (but don’t take away the subsidies).

We know the recent price jump in Victoria is due to relatively high-priced gas power generation stepping in to fill the gap left by the exit of 1600MW of capacity when Hazelwood closed last March.

The solution?

We think this quote from the article by interim CEO of the Minerals Council of Australia, David Byers, gets it right:

“Policy settings need to ­ensure that ageing baseload ­generation is replaced with low-cost, reliable energy,” council interim chief David Byers said. “As a country, we should be focusing on how to reduce energy costs…”

Read more…

 

AGL environmental manager Morgana Gidley-Baird and contractor Dave Smith at the Liddell Power Station in the Hunter Valley. Picture: Jane Dempster.

 

NSW, Victoria brace for power price shock

The Australian | 12 December 2017 | Matt Chambers

NSW and Victorian wholesale power prices are set to rise as much as 50 per cent in coming years, boosting profits at energy giants AGL and Origin, as peaking power that requires high prices to start is increasingly required to back up renewables.

Source: NSW, Victoria brace for power price shock