Market update – October 2021

By Stanwell Trading Manager, Financial Markets – Mike Cave

The spot and contract markets

October saw the Queensland (Qld) and New South Wales (NSW) forward curve prices increase.

Q421 Qld and NSW had a bull run at the start of the month, with volatility transpiring in the spot market, which fed through to contracts pricing. It seemed there were more buyers than sellers of this contract in Qld, pushing the price up even further. Worries about the Queensland-New South Wales Interconnector (QNI) outages, as well as constraints, spread some fear into the Q421 Qld and NSW contract market in October.

Victoria’s (Vic) spot price has been very low with strong wind across Vic and South Australia, as well as low demand across the state, due to COVID-19 lockdowns. With spot prices being so low, and so much wind in the southern states, the contract market has been on a gradual decline.

Q122 Qld and NSW also went on a bull run with Qld spiking to more than $90/MWh and NSW to more than $75/MWh. The Q1 bull run seems to be on the back strong spot prices, in addition to the supply versus demand tug of war that happens in the lead up to most first quarters.

The introduction of five-minute settlement has also perceived the market to be more volatile at the $300 and above price bands. Q122 Qld CAPs have also been trading around $10 higher than September.

Network constraints

October was also interesting from a constraint and outage point of view in Qld and NSW.

Work on the Muswellbrook-Tamworth line continued during October, with QNI flows reduced on the northern limit to a range of -100 to 100 MW (normally 400 MW) and the southern limit to -300 MW (normally -1000 MW).  The Muswellbrook-Tamworth line work occurred most days in October, except for between 10 to 15 October.  Typically, work commenced at 6.00 am and ends at 5.00 pm each day.

The QNI constraint restricted the available flow from NSW to  Qld. This resulted in some high Qld prices when demand increased faster than the available ramping capacity of Qld plant (such as in the evenings when we all arrive home from work).  Some high prices also occurred early in the morning, when the constraint first gets invoked. It is difficult to quantify the dollar impact of the QNI constraints on the Qld spot price, but it would be fair to say most of the high prices in October occurred when the QNI was binding north (and the northern limit was reduced) or when the constraint was first invoked in the morning.

There was a significant Frequency Control and Ancillary Services (FCAS) event in Qld on Saturday 16 October, when very low energy demand during the day and excess supply from rooftop solar caused energy prices to drop to -$1000/MWh.  The very low energy price pushed all Qld units that were generating down to their minimum load (essentially making generators pay $1000/MWh to generate).  The QNI was binding north. which caused a local requirement for lower FCAS services.  Normally there is a mainland requirement for lower services which can be met by participants in any state (example NSW can help Qld).  When the local requirement for Qld increased, and that requirement could only be sourced in Qld, the lower prices in the Sunshine State went to $15,100/MWh for around two hours due to the pricing of the available supply in Qld.

The global energy crisis

A global fuel crisis has been unravelling due to the sharp increase in natural gas and coal prices and, while Australia has been sheltered so far, it is causing concerns. The UK and European energy markets are in crisis due to spiralling gas and electricity prices, as their system is reliant on gas and interconnection to provide dispatchable capacity. UK gas reserves have been depleted and the cross-channel interconnectors may be curtailed as Europe faces power blackouts and serious industrial stoppages. Some coal capacity has been required to restart, leading to a surge in European carbon prices to €60/tonne which has compounded the shock. Meanwhile, China has had to cut production of smelters due to commandeering the coal for power generation use. As well as sourcing coal internally, the country is procuring gas worldwide adding to global price pressure. You can learn more about that the global energy crisis on Stanwell’s energy explainer website, What’s Watt.

While domestic prices have not followed international prices to date, the continued elevation of coal and gas prices increases the chance of fuel being diverted from domestic use to export markets, particularly Qld gas and NSW coal.

Environmental market

There was strong demand for purchase of longer dated Large-scale Generation Certificates (LGCs), with 2024 and 2025 LGCs trading $2.00 higher. There was also buying interest in 2026 LGCs which opened the month at $12.60 and traded up to $16.50.

The Small-scale Technology Certificate (STC) market opened the month at $38.75 and as the surrender deadline for Q321 approached and demand intensified, price gradually rose to a high of $39.40. With Surrenders completed on 28 October, buying interested slowed and the Spot STC market closed lower at $38.95.

Market facts for October:

Queensland saw its lowest October minimum demand for the past 19 years. The time of this minimum has shifted from overnight to midday with the impact of rooftop solar (5:00am in Oct 2002;  11:30am Oct 2021).

New South Wales had its lowest minimum demand (of 4,286 MW) day since the beginning of the millennium, on Sunday 17 October at 12:20 pm.

Across the broader National Electricity Market (NEM), the lowest NEM-wide demand ever, of 12,536MW occurred on Sunday 17 October at 12:55 pm.

Queensland, Victoria and New South Wales all experienced their highest rooftop solar PV levels in history, in October:

  • Qld: Reached 3,063 MW on 16 October at 12:00 pm
  • NSW: Reached 3,002 MW on 17 October at 11:30 am
  • Vic: Reached 2,194MW on 27 October at 12:30 pm
  • NEM-wide: Reached 9,104 MW on Wed 6 October at 12:00 pm.