Australian Energy & Environmental Market Update - November 2024

Features

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Feature 1

NSW Heatwave Drives Energy Surge Amidst Multiple Offline Coal-Fired Units

A severe heatwave in NSW put intense pressure on the power grid causing a surge in electricity prices and prompting AEMO to secure additional energy reserves.

On November 27th, a severe heatwave hit NSW, making Western Sydney the hottest place in the world on that day. The intense heat caused a surge in energy demand, putting significant pressure on NSW’s already strained power grid. At the time, more than 3 GW of dispatchable generation capacity in NSW was offline, including 4 of NSW’s 12 coal-fired units and Tallawarra A gas-fired power station.

In response, the NSW government ordered the public sector agencies to reduce electricity usage, hoping to alleviate demand. AEMO initially forecasted a Lack of Reserve Level 3 (LOR3) warning, but this was downgraded to LOR2 after some transmission outages were cancelled later in the day.1

Ultimately, a LOR2 was declared at 3:30pm avoiding the need for load shedding. This continued for over an hour, with the dispatch of 65 MW of Reliability Emergency Reserve Trader (RERT) capacity before being downgraded to an LOR1 through to 8pm.

The high demand and lack of supply led to a sharp rise in wholesale electricity prices, with prices peaking at the market cap of $17,500 MWh for an hour in the afternoon. This episode highlighted the ongoing risks to system reliability during extreme weather events, stressing the importance of improving energy reserves for future challenges.

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Feature 2

Review of NEM Wholesale Market Announced

The government has announced a review of NEM wholesale market settings to support the renewable energy transition and manage growing demand.

This month, the Albanese government announced plans for a new review of the NEM wholesale market settings, which will be led by an independent expert panel chaired by Associate Professor Tim Nelson. The review aims to provide a comprehensive assessment of the market's future direction. Historically, the NEM has been dominated by coal-fired power generation and the rules have largely remained unchanged despite the rapid growth of renewable energy.

The purpose of the review is to promote investment in firmed renewable generation and storage in the NEM following the conclusion of the Capacity Investment Scheme (CIS) tenders in 2027. The review is expected to result in actionable recommendations and the preparation of a roadmap for stage reforms to support the achievement of Australia’s National Electricity Objectives.

The expert panel has 12 months to deliver a strategic pathway for achieving a fully functional, renewable dominated grid, whist considering the planned decommissioning of coal-fired power stations.

Dr Nelson has indicated that ideas such as a reserve of generation capacity operating outside the wholesale market and concepts used overseas and in other industries will be considered.

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What this month’s developments mean for market participants

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Energy market

Heatwaves, generation outages and network constraints lead to higher prices across the NEM in November. The higher prices resulted in a higher dispatch weighted average prices for solar farms and wind farms across the NEM. BESS revenue also increased. Despite Queensland having less BESS capacity than any other mainland NEM region, Queensland BESS made up over 50% of NEM wide BESS revenue for the second month in a row.

LGC prices continued to slide downwards in November, reflecting the general oversupply seen in the market. Many market participants are waiting to see if prices rebound after the February surrender deadline or whether current pricing reflects a new normal. Buyers looking to offset emissions or lock in green energy should consider leveraging current supply conditions to secure favourable terms in their LGC purchases.

Regional variances in asset performance also persisted, emphasising the need for localised insights when making investment decisions. The CORE Markets team partners with renewable energy developers and corporate buyers to support strategic planning and effective risk management. Reach out to discuss how we can help optimise your strategy in this evolving market.

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Carbon market

November was another record-breaking month for trade volumes in 2024, with a 25% increase in the trading volume record set in October.

Spot Generic units reached their highest price since the Carbon Abatement Contract rule change in March 2022. The price of HIR and Plantings ACCUs also increased, whilst the price of Savannah Fire Management and Soil Carbon ACCUs remained steady.

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.

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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, 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.