Australian Energy & Environmental Market Update - January 2024

Features

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Feature 1

Preliminary Marginal Loss Factors (MLFs): FY 2024-25

AEMO has released preliminary MLFs for 2024-25 ahead of schedule with the aim of allowing plenty of time for stakeholder feedback.

Preliminary calculations highlighted an on-average increase in generation MLFs in northern New South Wales due to decreased southerly flows.

In contrast the remainder of New South Wales, Victoria and South Australia have seen an on average decrease in generation MLFs.

• Notably the two areas with the largest predicted average change in generation MLF are south-west New South Wales and north-west Victoria with 4.16% and 4.18% decreases respectfully.
• Certain generators in these areas have seen MLF decreases of up to 10%.
• Both areas have seen notable increases to local generation, paired with increased flow from Victoria to New South Wales due to reduced consumption in Victoria and reduced network congestion in New South Wales, following grid improvements from TransGrid.
• With changes in generation patterns being the primary driver of MLF variations in recent years, AEMO highlighted that as new projects are committed in the coming months, there will almost certainly be further variation to MLFs prior to the final publication come April.
• This ongoing volatility and lack of predictability creates investment risk and is a voiced concern of AEMO moving forward.

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Feature 2

Quarterly Energy Dynamics (QED) Q4 2023

AEMO has released their report on the Quarterly Energy Dynamics for Q4 2023 highlighting a string of records for the quarter.

In Q4 2023, the NEM experienced the first year on year increase in Q4 demand since 2015. This was increased demand in Queensland and New South Wales. Conversely Victoria and South Australia experienced all-time lows in average operational demand.

The average wholesale electricity price dropped significantly to $48/MWh. A 48% reduction on the average price in Q4 2022.

• Negative or zero wholesale spot prices occurred in a record 20% of intervals.
• Notably there is still an evident north-south price divide reflecting higher operational demand in the northern regions and ongoing network congestion on northward flows on the Victoria-NSW interconnector.

A number of factors contributed to falling prices including:

• The continued growth in VRE, with grid scale output reaching an all-time quarterly average high of 5,168MW. This was 14% higher than Q4 2022.
• A reduction in the average price being set by coal fired generators from $113/MWh in Q4 2022 to $58/MWh in Q4 2023. The change in coal bidding has driven by changing market conditions and policy interventions.

Coal fired generation still plays an important role in setting prices, with coal fired generation setting the price in 28% of intervals in Q4 2022 and 30% of intervals in Q4 2023.  Despite this, the increase in VRE generation has seen a decline in reliance on coal with a new quarterly low average output from coal of 9,189MW. The changing generation mix lead to a record low Q4 emissions intensity of 0.59 tCO2-e/MWh.

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What this month’s developments mean for Australian business

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• The Australian energy market saw greater volatility in January, compared to December.
  
  Hot weather in Queensland from mid-January onwards resulted in record demand, multiple days of high prices and ultimately a significant increase in the monthly average wholesale price for electricity in Queensland and (to a lesser extent) New South Wales.
  
  Meanwhile the monthly average wholesale price for electricity fell in Victoria, South Australia and Tasmania with multiple days with an average price of $0/MWh or below in Victoria and South Australia.
  
  January could be taken as a reminder that volatility continues to be an important consideration when negotiating contracts to buy or sell energy in the NEM.

• In the Australian carbon market, the generic ACCU spot price continued to rise in January. The value of ACCUs continues to be strongly dependent on their method of creation.
  
  As the market awaits the impact of the expected growth in demand from Safeguard Mechanism participants, our transactions and advisory teams are here to help you navigate the changing dynamics.
  
  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.

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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.