Temperature and demand in the NEM
This November, temperatures began to gear up for summer. Across the National Energy Market, average apparent temperatures rose by between 0.8 and 2 degrees.
While Queensland and New South Wales residents got an early taste of summer, with higher maximum temperatures across both states. Queenslanders also experienced higher minimum and average temperatures throughout the month, as well as heatwave conditions.
Despite the warmer temperatures in the northern regions of the NEM, its southern states kept cool with lower average temperatures when compared with the same time last year. Average apparent temperatures in Victoria, South Australia, and Tasmania were between 22% to 25% lower than the previous November.
These lower temperatures correlated to a 74MW or 6% reduction in average demand for South Australia and a 533MW or 11% reduction in demand for Victoria. Despite this, demand increased from October across all states except Victoria. Queensland counted the highest increase in demand at 5.3%.
November’s warmer temperatures led to increases in maximum demand, which typically occurred on warmer days in all states but Tasmania.
Supply side factors
New South Wales and South Australia enjoyed an improvement in average generation availability of 765 MW (7%) and 64 MW (3%) respectively, while Queensland’s average availability decreased by 170 MW (2%) due to planned and forced outages.
This was a welcome reprieve for New South Wales, which has experienced several months of low availability due to planned outages.
Moving south, Victoria saw significant decreases in coal-fired generation but this did not impact average availability, which remained the same compared to October. Victorians and South Australians would have felt the reduced supply of coal-fired generation in the form of higher prices, as units at Loy Yang A, Loy Yang B and Yallourn went offline.
From October to November 2018, generation from renewable sources continued to increase, posting 10% growth month on month. Since last November, renewable generation has increased by 90% or 828MW. Despite these increases, Snowy Hydro’s output dropped from 110 GWh in October to 96 GWh in November. This decline follows a similar pattern from 2017, when overall generation dramatically reduced during the months of September to December from the highs over the winter months.
NEM Spot Price Outcomes
For spot price outcomes, November’s generally cooler temperatures and increased availability meant that most states enjoyed lower average spot prices, with the exception of Queensland. Prices across New South Wales and Victoria were reduced by $3/MWh, while Queensland saw an increase of $9/MWh, due to its higher prices and increased demand.
Increasing solar PV across the NEM has helped keep prices down during the day, contributing to a low cost dip in the middle of the day. As solar generation rolls off towards the end of the day, evening spot prices regularly approached peaks of $300/MWh but peaking hydro and gas-fired generation capped potential for extreme prices.
Bid stacks of coal-fired generators in New South Wales and Queensland, combined with the higher cost of gas-fired generation, set prices from $60/MWh overnight and up to $100/MWh during the day.
Average Recommended Retail Price by Region
Month/Region QLD (c/kWh) NSW (c/kWh) VIC (c/kWh) SA (c/kWh) Sep – 2018 8.1 9.3
9.2 9.0 Oct – 2018 7.8 8.8 9.9 9.8 Nov – 2018 9.7 8. 4 9.6 9.7
A look forward to December
When the summer mercury rises, so does Australia’s energy consumption. The Bureau of Meteorology is forecasting a warmer than usual summer across Australia, which will push up demand, especially during the day.
This will be supported by extended outages at Loy Yang A and Yallourn power stations, which will continue to push prices upwards.
As summer rolls in, the risk of high price events will increase. AEMO has flagged that it expects Victoria and South Australia will be most vulnerable to higher prices, due to the tighter demand and supply balance in these regions.
We can expect demand response, and hydro and gas-fired peaking capacity to contain prices below $300/MWh across all regions, although unit trips, inter-connector constraints or generator bidding behaviour could result in sporadic high price events if the timing coincides with high maximum demand.
Although large scale solar has increased significantly this year, its effect on moderating spot prices is limited to Queensland and New South Wales, where maximum daily output in these regions reaches 600MW and 470MW respectively.
Relief will come from mid-December onwards, when school and industrial demand will decrease ahead of the holiday period. Nevertheless, businesses will need to remain vigilant even in the low demand periods.
Although spot price outcomes over the month will be heavily weather dependent, we expect Victorian and South Australian daily average prices to sit in the $90-$120/MWh range, with New South Wales and Queensland spot prices slightly lower in the $80-$110/MWh range.