No respite from high power prices: Moody’s

Australians are unlikely to enjoy any early respite from high power prices amid a turbulent market, warns Moody’s.

Not only will power prices not drop but gas prices will also remain excessive, says Moody’s. Pic: Kelly Barnes

Australians are unlikely to see any respite from high power prices over the coming 18 months as the market remains exposed to violent price swings, Moody’s has warned in a report on the local utilities sector.

The ratings agency said the continued volatility would have a significant impact on the industry, with opportunities presented to the most flexible utilities.

Underpinning its assessment of the sector was the expectation prices would remain elevated as baseload capacity is withdrawn, structural market changes — including the expansion of renewables — are seen and as gas prices are pressured by a focus on exports.

“These developments, combined with the limited interconnection capacity between Australian states, will underpin energy prices,” Spencer Ng, a Moody’s vice president and senior analyst, said.

“And, the evolving generation mix will limit the market’s ability as a whole to adjust to supply and demand shifts, leading to increased price fluctuations.”

The report said the turbulent conditions would benefit some in the sector, while the inflexible would be quickly cast aside.

“Individual generators that can rapidly adjust their output in response to price swings will likely benefit, but those that cannot could prove commercially unviable over time,” Mr Ng said.

The commentary casts further doubt on the sustainability of some coal-fired stations, with Moody’s saying baseload generators powerless to adjust output will “increasingly be forced to scale back production permanently”.

Energy retailers — such as the ASX-listed Origin Energy and AGL — will see a mixed result depending on individual supply circumstances, the ratings agency added.

“A more volatile wholesale market makes managing power procurement costs riskier,” Mr Ng said.

“Retailers that can match customer demand from their own generation fleets or benefit from a more diversified income mix are better positioned to manage higher power prices and increased price volatility.”

Moody’s added gas prices would remain excessive amid an ongoing debate about east-coast gas supplies, with a year-long assessment from the ACCC recently warning of “uncertainty” following a shake-up driven by the development of three massive LNG export projects in Gladstone.