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Australian Energy & Environmental Market Update - December 2023

Australian Energy & Environmental Market Update - December 2023

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.

Australian Energy & Environmental Market Update - December 2023

Australian Energy & Environmental Market Update December 2023 - summary edition

This month we cover energy and environmental market movements, AEMO’s release of the 1st draft of the 2024 Integrated System Plan, the CSIRO’s release of their draft FY24 GenCost report, and AEMO’s announcement of the results for round 3 of the LTESA tenders.

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 December 2023

Australian electricity and gas pricing

  • The NEM experienced lower daily average Spot prices and volatility in December compared to November in all states except Queensland.
  • Monthly average prices decreased in December across the NEM except QLD, driven largely by slight increases in renewable penetration and lower gas prices.
  • The Futures market witnessed price softening across all states with SA showing the largest decrease at 6%, while volatility subsided across the board.
  • Average gas prices for all states were lower in December than in November. SA although down, remained relatively flat, dropping 1% on average when compared with November.

Carbon and environmental markets

  • ACCU prices rebounded in December, with all vintages trading at higher prices compared to November by ~3% (on average). Additionally, ACCUs providing additional co-benefits continued to trade at a notable premium to the Generics.
  • LGCs strengthened across the Spot Cal23 and 24 vintages in December, with post-Cal26 vintages all witnessing price softening through the month before ending the month higher.
  • STCs ticked up slightly from November close to $39.30, remaining flat for the entirety of December.
For a comprehensive update on the ACCU market, read our ACCU Monthly Market Report here.

In other news

  • AEMO has released the 1st draft of the 2024 ISP, predicting a full coal phase-out by 2038.
  • The CSIRO released their draft FY24 GenCost report, reaffirming variable renewable energy is the cheapest pathway for Australia’s energy transition.
  • AEMO announced the results for round 3 of the LTESA tenders, awarding two generation agreements and three long duration storage agreements, which included a long duration compressed air energy storage project.

Features

Feature 1

2024 Draft ISP released by AEMO

AEMO has released the 1st draft of the 2024 ISP, predicting a full coal phase-out by 2038.

Every 2 years, AEMO updates the Integrated System Plan (ISP), a comprehensive roadmap for the NEM to assist all stakeholders in the transition to net zero emissions.

The latest update, the draft 2024 ISP, was released on 15th December 2023, where the central scenario predicted all coal to have exited the NEM by 2038.

This is an acceleration of 5 years for coal closures from the 2022 ISP.

The role of rooftop solar and distributed energy resources (DER) has seen a considerable increase when compared to the 2022 ISP, as the electrification of homes has moved faster than once predicted.

AEMO predicts 18GW more rooftop solar by 2050 compared to the 2022 ISP.

The 2024 ISP outlines the need to build approximately 6GW of new renewable energy per year, compared to a current rate of almost 4GW.

Transmission costs have increased 30% in recent years and AEMO expects these trends to continue beyond the rate of inflation as the sector adapts to market pressures.

The draft is out for consultation, with the final ISP to be released in July 2024.

Feature 2

CSIRO GenCost 2023-24

The CSIRO released their draft FY24 GenCost report, reaffirming variable renewable energy is the cheapest pathway for Australia’s energy transition.

The CSIRO GenCost report is an annual collaboration between Australia’s national science agency, CSIRO, and the Australian Energy Market Operator (AEMO), focusing on updating the costs of new-build electricity generation, storage, and hydrogen production, emphasising stakeholder engagement. Noteworthy points in the draft include:

Annual change in capital costs: New build costs have generally stabilised across various sectors as the impacts of inflation ease. However, gas, onshore wind, and nuclear Small Modular Reactors (SMR) face continued cost pressures.

Pre-2030 integration costs included: The draft incorporates integration costs, including new transmission lines, before 2030.

Variable renewables remain cost-effective: Despite adjustments, variable renewables still exhibit the lowest cost range among new-build technologies. Initial analysis attributes the inconsistent impact of global inflation to the unique material inputs and supply chains associated with each new build technology.

Inflation impact easing: The report notes a reduction in the impact of inflation, following a 20% increase reported in the previous year. Notably, onshore wind costs rose by 8%, large-scale solar PV costs decreased by the same proportion, and gas turbine technologies experienced a 14% increase.

Large-scale solar costs decrease: The cost of large-scale solar photovoltaic (PV) has seen a reduction.

Persistent challenges for gas, onshore wind, and nuclear SMR: Despite general stabilisation, these sectors continue to face cost pressures.

Feature 3

AEMO Long Term Energy Service Agreements

AEMO announced the results for round 3 of the LTESA tenders, awarding two generation agreements and three long duration storage agreements, which included a long duration compressed air energy storage project.

On December 19, 2023, AEMO Services made a significant announcement regarding the issuance of Long-Term Energy Service Agreements (LTESAs) in Tender Round 3, focusing on the development of generation and long-duration storage (LDS) infrastructure. The awarded agreements include two Generation LTESAs, contributing to a total capacity of 750 MW and an expected annual generation volume of approximately 2,099 GWh. Additionally, three LDS LTESAs were granted to projects representing 524 MW and over 4.19 GWh of energy storage.

These agreements were recommended to the Scheme Financial Vehicle (SFV) after a rigorous competitive tender process. The selection criteria prioritised projects that not only align with the long-term financial interests of New South Wales (NSW) electricity customers but also deliver substantial benefits to the communities hosting these projects. The SFV subsequently entered LTESAs with a diverse array of projects, encompassing a solar farm, a wind farm, two lithium-ion battery energy storage systems (BESS), and an advanced compressed-air energy storage project (A-CAES).

It's noteworthy that one of the BESS projects awarded an LDS LTESA is part of a hybrid system featuring a solar plant. However, it's essential to clarify that the LTESA specifically covers the BESS portion, with the solar component not contracted under an LTESA. These awarded projects span various stages of development maturity, with most anticipated to reach financial close between 2024 and 2025.

The market briefing note aims to provide readers with valuable insights into the successful bids in Tender Round 3. It also sheds light on how AEMO Services strategically makes tender decisions, prioritising the long-term financial interests of NSW electricity customers and actively supporting the dynamics of the National Electricity Market (NEM), including the wholesale contracts market.

What this month’s developments mean for Australian business


An increase in renewable energy penetration
and a seasonal reduction in energy demand for December were the key drivers in lower electricity prices across most parts of the NEM.

While seasonal factors will always be an important consideration, growth in renewable energy penetration needs to be factored into energy sourcing contracts and negotiations.

This starts with setting an energy sourcing strategy that is based on a sound understanding of current and forecast market dynamics.


In the Australian carbon market,
the spot ACCU price increase is likely to due to the beginnings of engagement from Safeguard Mechanism liable entities.

While December saw lower trading volumes to the previous month, this was likely due to the holiday period.

Our transactions and advisory teams, however, continue to see significant interest on the primary market as a growing number of organisations look to secure long term supply to quality projects.

Forward-looking organisations, particularly from hard-abate sectors, are encouraged to develop their carbon procurement strategy early, even while their emissions reduction efforts are still underway.

Do you need help navigating renewable energy and carbon markets?

The events outlined in this month's update highlight the evolving nature of carbon 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.

Table of Contents

Australian Energy & Environmental Market Update - December 2023

Author
January 15, 2024

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