Power prices in NSW, Qld spike amid coal, gas pressure
Electricity futures for the second quarter of 2022 have jumped amid generator outages and rising coal and gas prices.
Wholesale electricity prices spiked in NSW and Queensland on Friday as generator outages and high coal and gas prices lifted futures markets for the June quarter of 2022.
After several years of rock bottom prices which has piled pressure on the balance sheets of big utilities including AGL Energy and Origin Energy, futures in NSW and Queensland have soared past $170 per megawatt hour for the second quarter although Victoria remains at roughly half those levels.
Queensland futures for the second quarter of 2022 jumped by $28MWh on Friday to $188MWh while NSW lifted $19 to $175MWh with Victoria at $91MWh, half those levels.
The Morrison government has a target for wholesale power prices of below $70MWh in 2022 but a trio of market forces have dramatically lifted pressure on the market.
One reason for the spike was the so-called dark spread, which refers to the gap between the price received by a generator for electricity and the cost of coal to supply that power, consultancy EnergyEdge said.
Russia’s invasion of Ukraine has seen Newcastle thermal coal prices soar to an all-time record which has pressured the market.
“Primary drivers behind the market appears to be (a) the impact of the “Dark Spread” – which is the value proposition of coal fired generators against the international parity price of coal (which is substantially up due to Russia‘s invasion of Ukraine); continued outages across the coal fleet and the implications of the netback price of gas generation if coal is unavailable to meet the energy requirements of the Australian market,” Energy Edge managing director Josh Stabler said.
The loss of one of AGL Energy’s Liddell coal units and reduced output at Gladstone had contributed to the squeeze along with planned outages at Eraring and Vales Point in NSW in the second quarter, Mr Stabler added.
The national electricity market average for the first quarter of 2022 was above $100MWh, according to Dylan McConnell, a research fellow with the University of Melbourne’s Climate and Energy College.
“The general increase in the last couple of months is in part explained by the increase in increased thermal coal prices (and domestic gas prices – which have actually gone up a bit in the last few days). The forward price of NSW was up about $50/MWh since the start of the year,” Mr McConnell said.
AGL on Friday started the staggered process of closing the Liddell Power Station – closing the first unit of the coal plant in the NSW Hunter region.
Liddell is expected to be completely shuttered by April 2023, and the company says the site will be converted into an integrated, low-carbon industrial energy hub.
As part of the new energy hub, AGL has announced a memorandum of understanding with Andrew Forrest’s Fortescue Future Industries to explore green hydrogen, a 500MW grid-scale battery and a hydro power station.
AGL earlier this year said it would also bring forward the closure windows for its other coal-fired power stations – Bayswater and Loy Yang A.