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Australian Energy & Environmental Market Update - August 2024

Australian Energy & Environmental Market Update - August 2024

The latest summary edition of our monthly Australian energy & environmental market update is now available. Keep reading for energy and carbon pricing movements, policy updates and other news.

Updated
September 11, 2024
Published
September 4, 2024
Australian Energy & Environmental Market Update - August 2024

Australian Energy & Environmental Market Update August 2024 - summary edition

This month we cover energy and environmental market movements, AEMO’s Engineering Roadmap for FY25, its 2024 Electricity Statement of Opportunities, and Transgrid's proposed new inland REZs that could deliver 14 GW of renewable generation over the next decade.

Keep reading for an overview of key market developments and a discussion of the impact of these announcements. 

A comprehensive report with additional insights, charts and commentary from our industry analysts, is available to paid subscribers. Contact our team to find out more.

Highlights for August 2024

Australian electricity and gas pricing

  • NEM wide, spot prices remain at elevated levels compared to the start of the year. High price outcomes in August were primarily driven by cold temperatures and unplanned outages of coal units. The highest prices outcomes occurred on August 5, when the outage of 7/44 coal units coincided with colder weather. Prices were relatively more moderate throughout the rest of the month.
  • Futures prices generally softened across all regions in August. This trend appears to be related to greater renewable energy penetration suppressing spot pricing, particularly in Victoria and NSW.
  • Gas prices softened steadily across August, as lower heating demand drove prices to their lowest since April of this year.

Renewables market

  • Month-on-month NEM-wide RE penetration increased by 4.4% on the back of increasing solar and wind generation and an 8.5% drop in total demand.
  • Utility solar generation increased by ~146 GWh NEM-wide from July to August. Solar DWAPs increased in NSW, but dropped significantly in VIC and SA, and less significantly in QLD
  • There was a large spread in wind asset performance in August, with multiple assets recording capacity factors > 60%. All QLD wind asset recorded DWAPs >$100/MWh.  
  • Increased solar irradiation and wind availability lead to greater intra-day price spreads and hence significantly greater BESS arbitrage potential in August, particularly in NSW, VIC and SA.

Carbon and environmental markets

  • ACCU prices increased in August, with several Safeguard entities coming into the market, but large supply volumes suppressed any sizable price increases.
  • LGC market engagement for the month of August was heavily weighted to the later-dated tenors, notably the Cal27s that saw 800k certificates traded and the price rise from $28.25/certificate to $30.75/certificate.
  • STC spot prices remained stable at $39.90/certificate, which is just 10 cents short of the price cap. The volume of STC registrations increased by 17.6% compared to last month.
  • The New South Wales Energy Efficiency Market saw another strong month of creation with over ~1.3mil certificates registered, up from ~0.6mil in July, the price once again softening across the month.
  • Following a volatile conclusion to FY24 the PRC market saw drastic increases in weekly registration for with more 3.4mil certificates becoming active in just the first week of August, a historic high.

For a comprehensive update on the ACCU market, read our ACCU Monthly Market Report here

In other news

  • AEMO published its annual Engineering Roadmap, outlining its priorities as supporting DER uptake, improving visibility of system needs and increasing readiness for additional renewable and BESS capacity.
  • AEMO released the 2024 ESOO in August, forecasting that if current state and federal schemes are met, reliability standards will mostly be met over the next 10 years. If delays occur, reliability standards may not be met in NSW, VIC and SA.
  • In-light of looming energy security gaps and uncertainty in offshore wind developments, Transgrid has proposed new inland REZs that could deliver 14 GW of renewable generation over the next decade.

Features

Feature 1

AEMO’s Engineering Road map for FY25

AEMO published its annual Engineering Roadmap, outlining its priorities as supporting DER uptake, improving visibility of system needs and increasing readiness for additional renewable and BESS capacity.

The Engineering Roadmap outlines the activities that AEMO will undertake to advance operational capabilities at times of high renewable penetration.

For FY25, AEMO’s key priorities include:

  • Supporting efficient and compliant distributed energy resource (DER) integration.
  • Launching programs that enable system operation during periods of high DER penetration.
  • Investigating new behaviours and system phenomena like inverter-based resource (IBR) dynamics.
  • Utilising new technologies, like grid-forming batteries, to meet the needs of a high-IBR system.

System security needs emerged as the overarching theme across both distributed and utility-scale renewables, with AEMO looking for ways to manage an increasingly IBR-dominated grid.

  • In doing so, investors would receive timely clarity on system security expectations of planned renewable energy projects.

On the back of this Engineering Roadmap, the AEMC’s final determination on the Improving Security Frameworks rule change provides AEMO with tools to manage system security, which includes incentives for participants to invest in the provision of long-term security services.

Feature 2

2024 Electricity Statement of Opportunities

AEMO released the 2024 ESOO in August, forecasting that if current state and federal schemes are met, reliability standards will mostly be met over the next 10 years. But, if delays occur, reliability standards may not be met in NSW, VIC and SA.

Every year, AEMO releases the Electricity Statement of Opportunities (ESOO), whereby AEMO’s modelling assesses the likelihood that reliability standards will be met.

  • The latest 2024 ESOO shows an improved forecast compared to the updated 2023 ESOO. This is driven by the extension of the life of Eraring in NSW, and an additional 5.7 GW of renewables, BESS and gas progressing towards commissioning.

The report concludes that current state and federal schemes, if delivered, would provide sufficient capacity to meet most reliability standards over the next 10 years. The report also flagged that delays to these investments may impact this.

However, the report forecasts some reliability gaps in:

  • Victoria for the summer of 2024/25, 2027/28 and 2028/29 after Yallourn Power station closes.
  • NSW for this summer (2024/25), summer of 2027/28 after Eraring closes, and after 2031/32.
  • SA for this summer (2024/25), 2026/27 when Torrens Island B and Osborne Power Stations close.

In response to this upcoming summer’s gaps in reliability, the AER will require retailers to enter sufficient contracts to cover peak demand under the retailer reliability obligation (RRO).

Unserved Energy (USE) events typically occur in periods of maximum demand, and the report highlights the high correlation between wind unavailability in periods of maximum demand and USE events.

In the figures to the right, the above scenario forecasts reliability if all state and federal schemes are met, and the lower figure accounts for only projects that are existing, in commissioning, committed or anticipated, and accounts for observed commissioning delays.

Source: AEMO, Electricity Statement of Opportunities (ESOO) 2024.

Feature 3

Transgrid identifies potential inland REZs

In-light of looming energy security gaps and uncertainty in offshore wind developments, Transgrid has proposed new inland REZs that could deliver 14 GW of renewable generation over the next decade.

In their latest Transmission Annual Planning Report (TAPR), Transgrid suggested that NSW electricity demand would increase steadily year-on-year over the next decade.

In this time, the network operator expects substantially volatile power-flows, increases in peak demand, and sharp drops in minimum grid-supplied demand.

Among previously deployed technologies, offshore wind is also expected to play a role in addressing these challenges, but there is uncertainty regarding project delivery timelines.

In acknowledging this, Transgrid has planned for a scenario wherein offshore wind is not critical to NSW energy security – this scenario introduces the possibility of new renewable energy zones (REZs) that are remote and located inland:

  • Broken Hill REZ
  • Northwest REZ
  • Noona REZ

While this alternative scenario requires substantially more transmission infrastructure, Transgrid maintains that the new REZs sit on under-utilised, low-density land with favourable conditions for both solar and wind generation.

If not for new inland REZs, there would need to be other solutions – potentially those that are non-network like synchronous condensers and grid-forming batteries, which may help provide system strength support.

Source: Transgrid’s TAPR 2024


What this month’s developments mean for Australian business

Energy market

As demonstrated in August, wholesale energy prices are increasingly correlated with weather patterns. This is due to the increasingly unreliable coal generators and, at times, variable nature of renewable energy.

Energy buyers can manage this volatility risk through tools such as Power Purchase Agreements (PPA) and Battery Energy Storage System (BESS) offtake contracts. These tools help to ensure an annual volume of renewable energy and/or hedge the most volatile periods of the day. Our advisory team can help you work through the various options.

The August report includes an updated analysis of BESS performance in the NEM. It demonstrates that batteries can defend both the morning and evening peaks and serve as a good hedge against spot price volatility.

Although spot pricing in August was elevated in all NEM states, all futures markets are now in some level of backwardation. This indicates the market anticipates that the incoming renewables supply, coupled with no sizeable coal closures in the next 3 years, should begin to suppress wholesale electricity pricing and may provide a reduction in electricity costs for consumers in years to come.

Carbon market

The ACCU market saw a notable increase in reported trade volume, marking a return to levels seen earlier this year. The price for Generic spot ACCUs hit $35.60 toward the end of the month, its highest price since March, before closing at $35.25, up 2.2% for the month.  

The increase in interest in the ACCU market is also seen through primary market engagement where buyers engage with project developers as part of their strategic carbon procurement. This may be through carbon offtake agreements, co-investment or partnership opportunities with values-aligned projects.

To explore your carbon procurement strategy and market engagement mix, get in touch with our advisory team. We can support you in structuring a plan that supports your overall decarbonisation roadmap and commercial goals.

Do you need help navigating renewable energy and carbon markets?

The events outlined in this month's update highlight the evolving nature of carbon, environmental and energy markets and the complexity of the net zero transition.

To discuss your unique requirements, get in touch with our team today to see how we can help.

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Australian Energy & Environmental Market Update - August 2024

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September 11, 2024

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