Callide Legal Action and Regulatory Challenges

Safety worker in hard hat pointing at electrical transmission towers under a colorful sunset sky, highlighting energy infrastructure.

Callide is facing increased scrutiny as the Australian Energy Regulator (AER) is taking legal proceedings against Callide Power Trading due to an explosion at Callide C. In May 2021, an explosion at Callide C4 led to the tripping of multiple generators and high-voltage lines in Queensland, leaving nearly half a million homes to lose power.

The AER alleges that Callide Power Trading broke the National Electricity Rules (NER) by not adhering to its own performance standards for Callide C4. According to the allegations, the C4 unit lacked a protection system in place or having sufficient energy supply to suddenly disconnect the unit when the explosion occurred.

Justin Oliver, an AER board member stated that “Failure to comply with these standards can risk power system security, see consumers disconnected from power supply and cause wholesale energy prices to increase during and beyond these events”.

Callide C3 is expected to fully return on March 31st, with C4 following on July 31st. These are revised dates following various delays affecting both units.

In a separate incident, the Federal Court ordered IG Power, who owns 50% of Callide to appoint special administrators with powers to complete a new investigator into the incidents at the power station.

There is currently no date set for the AER’s matter to be heard at Federal Court.

This highlights the immense pressure on the energy industry and regulation to suppress spot prices in the NEM. This pressure has come in various forms including market directions, price caps on underlying fuel sources such as coal and gas, and retailer reliability obligation (RRO) being enacted in SA this summer.

This pressure has been evident in the spot price, as the spot price over the summer has been very soft, particularly in South Australia and Victoria, with prices being far below forecasted and previously traded levels.

This has caused issues for generators leading Engie to announce the early closure of two units in SA, removing 138MW of capacity from July 1, brought forward from an initial closure scheduled for 2028. This is due to financial reasons as losses have been mounting at the plants, unable to make a profit in the spot market.

There is currently a T-3 forecasted in South Australia from December 2025 to February 2026. Following the recent RRO witnessed over the summer in South Australia where spot prices have been low, volatility has been minimal, and there have been few system security issues in the state. Will we see any revisions or changes to RRO in the future?

Domestic Demand Management: Lessons to be Learned?

Smart energy monitor displaying real-time electricity usage in kilowatts and cost per hour in pounds on a desk with a coffee cup, smartphone, and money.

As the artic blast moves down throughout northern Europe and negative overnight temperatures are expected throughout the UK, including London. The UK’s National Grid, our AEMO, has activated the Energy Blackout scheme.

This was introduced in 2022 during the height of the Russia / Ukraine conflict and the idea was to allow demand side response from domestic participants who have smart meters installed in their properties. Once you have signed up, and 1.6 million households were in the first wave of signups, you receive a notification that states a date and time for the event which will be under the scheme – currently this tends to be around the peak of 17:00 – 18:30 on evenings. Participation provides a buffer for the grid in terms of capacity.

This doesn’t mean those household have to return to the dark ages with candles, you can keep lighting on, but you are encouraged to reduce high demand intensive loads such as washing machines which use high quantities of energy.

In the northern winter 2022 / 2023 period the scheme was so successful it was estimated by the Centre for Net Zero and the National Grid that 3.3GWh of power and 681 tonnes of CO2 were avoided over the 22 activations. Your retailer assesses your average use and the use over the “blackout period” and you are rewarded with a reduction in your bills for the energy not consumed.

Payments totalled £11m, or $21mAUD with one SME business saving $1,726 or $3,298AUD in one event and the average household will save around £100, $191AUD in total.

So, can the Australian grid benefit from these types of events? The answer is an an-doubtable yes, however with reports stating that outside of Victoria uptake of smart meters is at the 30-35% level, which is significantly below the AEMCs target for 100% upgrade by 2030 and a compulsory roll out to begin in 2025 being pushed at the moment, the likely introduction of these schemes is significantly behind those of the UK.

However, with increasing UFE charges, increasing home regulation systems, solar and batteries, and smart appliances the change could come from within consumers rather than via regulation. This would present challenges for retailers though, the traditional view of peak, off-peak and shoulder would need to have a dynamic element to allow these homes and businesses to take advantage of their flexibility and Time Of Use tariffs will need significant refinement.

From a regulatory point of view, ensuring customer protections over those periods are kept, that the metering is fair and that they are fully aware of their responsibilities will no doubt cause some further concerns and delays, yet with numbers like 3.3GWh, $21mAUD and customer engagement on the table this can’t be an idea only for long.

Retailers, Retailers Everywhere, and not a Lesson Learned

In August, AEMO received five registrations for new customer status customers to come into the market as a Market Customer, the latest and most publicised of these being Tesla Energy Ventures Australia Pty Ltd. Now, this wouldn’t be their first foray into the energy markets, they already have their energy arm out of the US and are expanding rapidly within the Australian space.

But Tesla is not alone; the AER has seen 22 new electricity retail licence applications since 2020, including the newly formed Ampol Energy, Smartest, and Telstra.

Now whilst competition is great for any market, I am absolutely not a monopolist, I do view this market penetration with slight concern.

With the UK seeing over 27 Energy Suppliers going under since January 2021, unregulated and “low cost”, usually spot exposed participants, with little to no risk profiling, can cause burden and costs to our market, never mind eroding the confidence of consumers. The UK offers a valuable lesson in this space and is one I fear has not been headed by our regulators.

With the cost of Retailer of Last Resort passed through to consumers who have had no dealings with those companies, but the market operator forced to share the burden, where does the responsibility for the failure sit? I would note the AEMC have released improvements papers to try and address some of these questions, but with the increasing number of these retailers entering the energy markets is it going to be too little too late.

With this summer promising some significant volatility, between RRO in SA, the ESOO stating the risk of shortages in both Victoria and South Australia now exceeds the strictest benchmark this coming summer, an all but certain El Niño bringing heat and reduced wind generation, and AEMO searching for Reserve Energy Markets across the NEM, including TAS for the first time, the volatility could expose some of these participants to more credit calls than their cash flow can handle.

Only time will tell, and luckily most of these retailers do not have a significant market share at this time, but this summer could be the spotlight the regulators need to tighten the requirements for new retailers. Or maybe not.

Electricity price on the way down

Wholesale electricity prices have reduced in recent months however many end users are not seeing the benefits. It is expected the reduction in wholesale electricity prices will not flow onto household and businesses bills until 2024.

Federal treasury has analysed the wholesale electricity market in November 2022 and compared it with the prices we saw in December. Analysis showed wholesale prices dropped but Edge has previously shown renewable energy has not significantly increased, gas supply has not changed, thermal generation has remained unchanged so why the drop in the cost of electricity?

In late December the Federal government stepped into the energy market and intervened, essentially disconnecting the domestic energy market from the international energy market. This intervention put caps on the domestic price of wholesale gas and the price of coal.

Following these caps being put in place the domestic electricity market corrected, and both spot and futures contracts dropped to match an underlying cost of production for electricity based on these new capped fuel prices.

While the wholesale market dropped almost overnight it will take time for the lower costs to flow through to end users unless their load is spot exposed in Q123. Retailers had already locked in the majority of pricing for end users prior to the market dropping due to the intervention, so most end user electricity bills will reflect the historic high wholesale prices.

The federal analysis claims the price caps on coal and gas have dropped prices in QLD by 44% and 38% in NSW. Does this mean electricity bills are going to drop a similar amount? Well, the bad news is no. Retail bills are normally locked in well in advance so many large users have locked in pricing for 2023. The underlying energy costs are only part of the retail bill as other costs include transmission, distribution and AEMO charges which unfortunately have not decreased and have the potential to increase as the market evolves.

While the market intervention was a necessary step to insulate end users from the escalating international energy prices due to the war in Ukraine, the next step is to continue to drive down prices as the country transitions to renewables. We must keep in mind the transition to renewables will come at a cost. Renewable energy requires more transmission lines to connect the generators to the grid, they require specialised services to maintain the security of the grid and will also require a higher cost generation or storage to provide firming for around the clock supply.

While the underlying cost of electricity will drop with more renewable energy entering the market, the other costs on the electricity bill will now represent a higher proportion and are likely to increase.

Edge2020 have an eye on the energy market, enabling us to support price  benefits as well as customer supply and demand agreements. Our clients rely on our experts to ensure they are informed, equipped, and ideally positioned to make the right decisions at the right time. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Is UFE the UIG of Australia?

Anyone who knew me in my past life in the UK knows that I harped on about Unidentified Gas (UIG) A LOT!

The idea behind UIG is simple, allocate the gas which couldn’t be attributed to a meter in an area across all end users in that area, in which it was used (off-taken). Seems simple right. But when was the last time you actually gave a meter reading? Possibly six months to a year ago? Well that means your off-take (unless you are on a smart meter) is estimated and you will be either over or under on allocated unidentified gas.

Although this seems sensible with everyone eventually giving a meter read and therefore it will all work out in the wash, what exacerbates the issue, especially at the moment, is the extreme increase in the gas price at which these charges are now passed through to retailers and then in turn our bills.

Now what does understating this UK gas usage or allocation have to do with Australia? Well, quite a lot. The system is similar, but not the same.

Following Global Settlements being introduced by AEMO we have started seeing Australia’s version of these charges coming into our bills. We allocate the unidentified – called Unaccounted for Energy (UFE) within each region by the off-takers in that area.

What we are not doing yet, which in the UK’s defense they do there (through XOServe), is take into account those meters which are half hourly ready (smart(er) meters) and therefore their usage should be known. Currently in Australia the offtake in a region will be directly linked to your proportion of an energy being allocated to you and you literally have no say in these charges, despite having updated metering capability.

The sore point of it all is that this is occurring at a time when our electricity market is extremely high and therefore there is a possibility of the combination of large UFEs  being passed through to end users at high prices, with companies having no control over the volume or price it is passed through at. This is leading to significant shocks to companies’ outgoings, as there is little to no visibility on the charge on any given month, and no way to forecast them to budget.

I fear that UFE will become my new soap box issue, and I can guarantee this isn’t the last anyone will hear on this. I am pretty sure I won’t be the only one who will be making noise.

Is this happening to your business? If you feel you need more control of your company’s energy spend, please reach out to discuss joining our Edge Utilities Power Portfolio (EUPP) where we use the power of bulk purchasing to help Australian businesses of all sizes save on their energy bills. Read more: https://edgeutilities.com.au/edge-utilities-power-portfolio/ or call us on: 1800 334 336 to discuss. 

 

Future of Contract Markets and the Baseload Swap

It is no surprise, when I say the National Electricity Market (NEM) is going through a vast transition and transformation, with an ever-increasing penetration of renewable generation, in the form of both utility scale renewable generation and household installations.

The world as we know is also battling the global pandemic that is Coronavirus. This has had a significant impact on people and their livelihoods and health.  along with a significant impact on energy markets around the globe. To top it all off, energy markets have had to endure a supply price war recently, between OPEC’s unelected leader, Saudi Arabia and non-OPEC oil producer, Russia.

With a rapidly evolving and ever-changing energy landscape, what should our contract markets look like? Are the current products fit for purpose or offer value in an energy landscape like the NEM? As a generator, the days of capturing value and running flat out all hours of the day, are indeed starting to dwindle, with quick, nimble, and easily dispatchable fast-start generation likely to excel in the near to longer-term landscape. Take South Australia (SA) as a good example, as to the success of fast-start plant. On the 04/04/2020 at 12:00pm, the 5 minute spot price was down at -$1,000/MWh, which is where it stayed the majority of the morning, due to low demand and strong generation, trying to send megawatts into Victoria (VIC), maxing out the interconnector. Shortly after that, at 12:20pm, prices spiked to above $300/MWh for the next 30 to 40 minutes or so, with fast-start gas generation swooping in and capturing this short-term high price period.

If this type of generation is the key to success in this new look NEM that we operate in, where fast-start, short burst generation is taking its place to complement the intermittent renewable generation in wind and solar, utility or household, that continues to penetrate the market, why are our contract markets continuing to predominantly offer baseload swaps?

A baseload swap is a contract for energy, say 5 MW for $70/MWh, for a defined period, for a month, a quarter, a calendar, or financial year. The way a swap works is the $60/MWh becomes the strike price in which the seller of the swap pays the floating price (the price of the underlying wholesale product which is electricity in this instance) and the buyer pays the fixed $70/MWh.

Say you have contracted a baseload swap for 5 MW for the entire calendar year of 2020, this would mean that for every half hour (with electricity settling every half hour as per the underlying wholesale market settlement regime in the NEM), of the entire 2020 calendar year, the buyer will pay the seller $70/MWh, and the seller will pay the buyer the underlying wholesale or spot price. For example, say this morning the wholesale or spot price for electricity for the half hour ending period of 9:30am was $40/MWh; this would result in the buyer paying the seller $70/MWh for 5 MW, whilst the seller would pay the buyer $40/MWh for 5 MW, resulting in a $30/MWh contract for difference (CFD) payment going from the buyer to the seller.

However, think about this, the baseload swap is exactly that, baseload. So, a contract for calendar year 2020 means you are locked into that same position (unless you sell out of the position) 24 hrs, 365 days.

So, do baseload contracts offer appropriate value anymore, in a market which are short-lived upward volatility and recently longer periods of downward volatility?

Mid last month, Snowy Hydro struck a contract defined as a ‘super-peak’ swap, which will cover what has been defined as the “super peak” periods of the day, generally morning and evening peak usage when solar is ramping up or down. The trade was brokered through an over-the-counter (OTC) trading hub operated by Renewable Energy Hub, and it is believed, similar deals will be a gateway to funding and bringing into the market technology such as batteries and demand-response into the energy markets.

Snowy Hydro has been procuring renewable PPA’s for a while, through wind and solar generation, including the 90 MW it procured from the Sebastopol Solar Farm in NSW. They are looking to use the renewable generation and back it with their significant hydro fleet, to sell a new range of products to its customers.

With wholesale energy prices reducing significantly since September 2019, and the overabundance of generation in states such as QLD and SA, and with the rapid introduction of new technology, it is likely a significant number of customers will choose to take more wholesale/spot price exposure, rather than contracting ahead of time.,

This fuels the argument for the need to have more flexible and robust products, ones that are for particular trading intervals, perhaps in the day, day-ahead products, week-ahead products, or perhaps more products like Snowy’s ‘super peak’ product?

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.

What’s Oil got to do with it?

There is no doubt that energy markets and the energy industry itself are rapidly evolving and moving away from fossil fuels. The evolution of energy seems to be coming, and only coming faster given this tumultuous time the people and countries across the world have endured. Lets start with oil; Australian’s across the nation are very aware of the recent global oil price crash to new historic levels, particularly when it is reported in the news headlines that Australian’s are seeing almost 15-year lows at the petrol bowser. The impact of the recent oil price crash however does not stop at the bowser, it has and will continue to have significant impacts on energy markets across the globe including in Australia.

Oil prices have been hit recently due to two major events; one being the global epidemic of COVID-19, resulting in a significant reduction in demand for oil across the globe. The International Energy Agency’s (IEA) April 2020 reports an expected drop in demand of global oil of 9.3 million barrels(mb)/day year on year for 2020, with April 2020 demand estimated to be lower than 2019’s demand by 29 mb/day. The second impact to oil markets has been the oil price and supply war between OPEC’s pseudo leader Saudia Arabia and non-OPEC nation, Russia, two of the largest global oil exporters. Saudi Arabia and Russia could not agree levels of supply, leading to Saudia Arabia flooding the market with oil and prices, both spot and futures, reaching new lows. The quarrel between the two global oil market power-houses and the impacts of the COVID-19 on demand for oil has led to the historical event where the West Texas Intermediate (WTI) oil price index fell into negative price territory, with May 2020 future prices settling at -USD$37.63/barrel on the 20/04/2020, after reaching a low of -USD$40.32/barrel earlier that day.

The major oil index, WTI, saw futures prices for June 2020 contracts settling at around USD$17/barrel on the 29/04/2020, whilst Brent Crude, another major oil index also felt the pain of slowing demand, with prices dropping below USD$20/barrel on the 27/04/2020. But the impact of tumbling oil prices reaches far and wide, particularly here in Australia. Australia has a booming natural gas industry and was the largest exporter of liquified natural gas (LNG) as of January 2020. A significant number of gas sales agreements are linked to the crude oil indices, with Australian gas companies feeling the hurt given the tumble in oil prices. Brent Crude oil futures for June 2020 contracts settled at around USD$24/barrel on the 29/04/2020. At these prices, the likes of Santos and Oil Search will be hurting given both flagged a cashflow breakeven oil price of ~USD$25-29/barrel, and USD$32-33/barrel, respectively. Demand for natural gas in international markets has also tumbled, and due to the linkage between oil prices and gas contracts, spot contract prices have shifted down, with June 2020 contracts settling at AUD$2.87/GJ (~USD$1.88/GJ) as of the 30/04/2020, again a far reach from prices seen in November 2019 of ~AUD$7.30/GJ (~USD$5/GJ).

Further impacts of the oil market crash on gas markets has been cheaper domestic gas prices for consumers. Queensland, the largest gas extractor and exporter on the east coast has seen prices in its short-term trading market (STTM) in Brisbane reach as low as AUD$2.31/GJ in March 2020, a significant drop from AUD$9-11/GJ we witnessed the same in 2019. Other energy commodities have also seen a decline off the back of the oil price tumble, including thermal coal. As stated above, with gas prices domestically and internationally falling away, thermal coal prices have come off due to energy users opting for cheaper fuel sources such as oil and gas. Spot thermal coal contracts for the May 2020 settled at USD$52.35/metric ton(mt) on 30/04/2020, far softer than spot prices a year ago at ~USD$90/mt.

This brings us to the all-important energy market and commodity, electricity, which with all the above combined has seen electricity prices fall off a cliff. The National Electricity Market (NEM) in the last few years has been on a renewable power growth spurt. Queensland for instance has the highest penetration of large scale solar generation of approximately ~2,400 MW and a significant penetration of rooftop solar reaching ~2,100 MW, combine them together and on a mild April day in 2020, you have almost 2 thirds of maximum demand. With renewable energy displacing thermal/fossil fuels, off the back of reducing pricing for the technology and subsidies in the form of renewable energy certificates (RECs), combined with both far cheaper gas prices allowing gas plant to bid in and capture price spikes due to their fast-start and intermittent operating capabilities, and reduced demand for electricity due to the impact of COVID-19 with business and industry operating skeletally, electricity prices continue to sit at prices not witnessed since 2016.

All the above has been caused by two events, both significant to the global economy, and the energy industry in their own rights. One thing is for sure, the events have helped push the electricity market on the East Coast of Australia into a new direction far quicker than it may have if the two COVID-19 and the oil price crash did not occur. We are seeing new market design concepts (ie. capacity markets, two-sided markets) and new contract market products (ie. super-peak swap) coming to light, that give way to new technologies and greater competition. The abundance of natural gas in Australia is affordable for households for heating and is finally being utilised as the ‘transition’ or bridging fuel it was always pegged as, to renewable energy in the wholesale market. One thing is for certain, change is afoot, and it definitely has me excited.

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.

History making Oil price – what it means for Energy in Australia

Overnight the major oil price index, the West Texas Intermediate (WTI) Crude Oil Index fell from trading at USD$20.97/barrel to enter negative price territory for the first time in history, with May 2020 future prices settling at -USD$37.63/barrel on the 20/04/2020, after reaching a low of -USD$40.32/barrel. The event was sparked off the back of increasing storage concerns given excess supply build-up brought on by suppressed demand as a result of COVID-19. The recent announcement by OPEC + to cut demand by 9.7 million barrels a day in May and June months, and the additional 5 million barrels per day to be cut by other nations outside of OPEC and Russia, including the US, Canada and Brazil has done little to quash concerns of an oil supply glut with consultancy firm Rystad Energy estimating demand will be cut by 27 million barrels a day in April and 20 million into May as a result of COVID-19’s impact on global usage.

The market for WTI Crude Oil entered con-tango yesterday (20/04) with spot prices significantly lower than future prices for the commodity, however today (21/04) it has bounced back breaching positive price territory sitting above USD$1.00/barrel at 3:30pm (EST). Brent Crude Oil prices however remained relatively static on the 20/04, ending the day in the mid $USD20/barrel range at USD$26.04/barrel, despite the traditional correlation of trading between WTI and Brent Crude oil prices. So why is the oil price so important to Australia, well as Edge has previously pointed out in the past, a significant number of long-term gas deals are linked to an oil price index, likely Brent but also WTI. This has huge ramifications for Australia who became the largest exporter of liquefied natural gas (LNG) as of January 2020 this year, a commodity and industry which also contributes massively to the Australian economy.

With LNG sales effectively hitched to oil prices, I can only imagine what the contract price for some of the underpinning investment and long-term contracts of domestic and international gas looks like! We have witnessed that domestic gas prices across the NEM and international LNG Spot market prices have both taken a dive off the back of the recent oil price and supply war and the impacts to demand from COVID-19. Currently the ACCC has calculated LNG netback contract prices of gas to the Wallumbilla Hub (domestic gas hub connecting gas from QLD to southern states) at prices of AUD$3.73/GJ and AUD$3.60/GJ for April and May 2020, the cheapest price the commodity has been in the last 4 years, with future prices looking likely to hit $3/GJ. Currently the JKM (Japan Korea Marker) spot LNG market index for Asia – which is a significant demand hub for Australian spot LNG cargoes – is depicting prices of AUD$3.39/GJ for future contracts for June 2020 as of 20/04/202, however given the recent negative price event in international oil prices it is likely these future contract prices could fall further.

With LNG markers like the JKM heavily correlated to movement of oil prices it is likely we will not see a return to the AUD $8/GJ JKM Swap price for some time. The oil price slump is also expected to impact investment decisions, as once again the gas industry and heavily correlated to global oil prices. Majority of the domestic gas players including Oil Search and Senex Energy are gearing up for extended periods of reduced returns and cheaper gas prices due to a significant number of gas sales contracts linked to the Brent Crude oil index. Oil Search indicated to the market its break-even oil price range of USD$32-33/barrel, without funding growth projects, well above the current future oil contract prices; whist Senex Energy’s Chief, Ian Davies stated that “Demand has fallen off a cliff,” and that they were “planning for fairly soft prices for a while.” Even the likes of Santos flagged they are aiming for a free-cash flow break-even oil price of USD$25/barrel in 2020, however needs a price of USD$60/barrel to fund new growth projects, which could see the Narrabri project in jeopardy.

What is incredible to see is investment decisions like Arrow Energy’s Surat Gas Project still going ahead even when energy markets are entering unchartered territory. Arrow Energy’s joint owners, Shell and PetroChina have finally given the go ahead to the $10 billion development of Arrow’s vast gas resources located southern Queensland’s Surat basin, sanctioning the commencement of phase 1 of the Surat Gas Project on 17 April 2020. Arrow’s joint owners have decided to push forward with the expansion despite the recent downturn in oil and gas prices felt across the globe due in part to the COVID-19 outbreak and the recent oil price war. The Surat Gas Project is expected to bring on 90 billion cubic feet (~95 PJ) of gas a year, with 600 phase one wells set for construction this year with first gas expected in 2021, according to Arrow’s announcement.

The Surat Gas Project also comprises some big steps for the industry, with the deal underpinned by significant infrastructure collaborations and gas sales agreements which will see Arrow gas compressed and sent to market via Shell’s existing QGC infrastructure (including existing gas and water processing, treatment and transportation infrastructure). Good news for these gas volumes is that part will be allocated for sale into the domestic wholesale gas markets on Australia’s east coast, and part will be allocated to be converted to LNG via QCLNG’s liquified natural gas infrastructure located on Curtis Island, near Gladstone port. This is welcomed news with manufacturing firms across the east coast screaming for further domestic gas reserves to be developed in order to keep domestic gas prices at reasonable levels and increasingly de-linked from international LNG prices and indexes, such as the Japan Korea Marker (JKM).

In addition, it was also announced the Andrew “Twiggy” Forrest-backed LNG import terminal located at Port Kembla in NSW has been given the tick of approval by the NSW State Government. The Australian Industrial Energy venture which is co-backed by the Japanese firm Marubeni and global trading shop JERA in continuing forward with plans to build and operate the Port Kembla import terminal with a likely final investment decision expected later this year and first gas imports in 2022, with customers and the Australian Energy Market Operator (AEMO) reporting expected shortfalls of the commodity in regions such as Victoria and New South Wales could come as early as 2023, with shortfalls especially apparent into and beyond 2024.  

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.

Infigen want an Operating Reserve Market

Infigen have submitted a letter to the Australian Energy Market Commission’s Chairman requesting the introduction of an Operating Reserves and Fast Frequency Response rule change. Infigen state in their letter that this market proposal they have put forward would “relatively simple to implement and would provide added confidence that sufficient resources to respond to unexpected changes in supply or demand would be available”, as stated in their letter.

Most importantly, Infigen have stated a rule change such as this would remove the reliance on and provide an alternative to the RERT (Reliability and Emergency Response Trader) procurement and contracts of which cost consumers $34.5 million, and avoid further intervention in the market by the market operator. Infigen believe that a “free-rider” problem may occur under tight capacity scenarios in the market increased risks of random government interventions to avoid adverse market and operational outcomes.

As such, they believe “marginal value of incremental capacity is by definition very high and delivers considerable benefits to the entire market’” calling out that raising the market price cap does not solve the issue with systemic risk to portfolios/participants caught short due to plant outages or network failures. Instead, Infigen have called for the introduction of a Operating Reserves market for near term to avoid increasing the market price cap and increase the reliability and security of supply to consumers.

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.

5 Minute Settlement could slide 12 Months

On the 26 March 2020, the energy market bodies including the Australian Energy Market Commission (AEMC), Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER) wrote a letter to the Australian Federal Government’s Energy Minister, Angus Taylor which advised and sought  for the consideration to consider a longer implementation time-frame for the market’s transition to the 5 minute settlement regime which was pegged to begin on 1 July 2021.

The Market bodies have stipulated the reasoning for this is due to the vast impacts to industry and the workforce that have occurred due to the COVID-19 outbreak. The letter to Mr Taylor proposes delaying the start date of 5 minute settlement by 12 months so industry can defer further/remaining expenses associated with preparing for 5 minute settlement.

It also states that AEMO will still work to the same deadline, albeit 12 months would provide AEMO with extra time to ensure 5 minute scheduling and dispatching engines are sound at least in a development environment. As yet we do not know if the 5 minute settlement will get the go ahead to be delayed, with market bodies still reaching out to market participants to advise as to whether this will be advantageous or not.

The impact of a 5 minute settlement delay to the market will be impact all participants and investment decisions, there are some calling out this only extends coal-fired generation’s life-span, but if you have been watching the futures prices and spot prices of late, coal-fired generation is already in a world of hurt with no doubt a lot of questions being raised about the remaining lifespan of some coal plant in both QLD and NSW. Should 5 minute settlement be delayed by 12 months, there is the likelihood we see the slide of investment in some fast start plant, such as new batteries and hydro.

Gas-fired generators who have not re-tuned/upgraded their synchronising and start time to less than 5 minutes will still have the 30 minute settlement price to fall back on at least for another 12 months and be able to capture any value the 30 minute average settlement price may represent. The flip side of 5 minute settlement is that it would be very good for renewable generation as it would make the thermal plat operators reassess their operating philosophies with gas likely more removed from the market, and propping up the price.

The 2021/2022 financial year was likely to be a more costly financial year given the introduction of 5 minute settlement, which would effectively mean a vast majority of gas plant would not be able to curb price spikes as effectively under the new settlement regime, resulting in a change to their operating philosophy, however both the impacts of COVID-19 an the recent oil price collapse has significantly changed this stance.

Unfortunately, there is no real way to know how much of an impact globally it will have, and how long the impacts of COVID-19 will last. Similarly, with Saudi-Arabia and Russia both engaged in a price/supply war over Oil (two of the largest producers of oil) it is all hard to depict how long the extremely cheap domestic gas prices will last, particularly with investment decisions in new domestic gas likely put on hold.

If you have any questions regarding this article or the electricity market in general, call Edge on 07 3905 9220 or 1800 334 336.