2018 tipped to be SA’s toughest energy year yet

South Australia’s energy prices may have reached record highs this year, but analysts expect next year to be even worse for the state.

The market believed 2018 would be the real pinch year for South Australia and it wouldn’t be until 2019 that assured supply would finally re-enter the market to address high demand, Energy Action general manager of market solutions David Rylah said.

“The volatility in prices will be more pronounced.”

He said South Australia had enormous backwardation – when futures contracts trade at a higher price the closer they get to expiration – and 2019 forward contract prices were significantly lower than for 2018.

The ASX future contracts have already set bidding prices for the 2018 first quarter at $169 a megawatt hour, and bids have even reached $173.25 a megawatt hour, whereas its 2019 first quarter price is only two-thirds the price, at $116 a megawatt hour.
“The first quarter [of 2018] has gone berserk,” Mr Rylah said.

By comparison, the 2018 first-quarter future contracts in Queensland are currently at $99.50 a megawatt hour, and Victoria at $143 a megawatt hour.

The closure of Victoria’s Hazelwood brown coal-fired power station has played one of the largest roles in pushing up South Australian prices, as the state could no longer rely on imported power from Victoria.

Due to the closure, Victoria turned from a net exporter of power into a net importer, causing a price increase.

As South Australia was reliant on additional Victorian energy, and its prices tied to the state, Victorian price increases had a major flow-on effect on South Australian prices.

Mr Rylah said while the newly installed Tesla battery was providing increased security and reliability for South Australia, it hadn’t been reflected in the markets yet as did coal-fired power coming back online in Queensland.

“When the Queensland government announced that Swanbank E came back into the market, the calendar ’18 financial year contract in Queensland dropped $10 a megawatt hour in about three minutes,” he said.

“I don’t think the batteries have been factored in, as soon as the batteries were charged we didn’t see the forward market drop by $10 as we saw with Swanbank E. The market absorbed that news, and prices haven’t really changed.

“What the market pricing is saying is ‘we’re in for a rough ride this summer, but we think things will get sorted out by the time we get to the following summer’.”

Mr Rylah said the public view of the energy market needed to change, which would remove some of the energy shock at massive price movements.

“The energy market, particularly the electricity market, has always been a commodity market; when we started the NEM it was a spot market and a hedge market, it has always been a commodity market, just with extremely low volatility,” Mr Rylah said.

“What we’re seeing now is a commodity market with true volatility. Everyone has been quite complacent as we have been living in a world of low volatility … we’re now dealing with the real volatility of the market.”

COURTESY BY: http://www.smh.com.au

 

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