It’s never easy to predict how prices will move but there are some key drivers behind the downward trend we’re seeing.
Before we take a closer look at those factors, let’s take a look at what’s actually happened to energy prices in the last few months:
- ASX Energy futures hit high prices in October 2019;
- Since October 2019 ASX Energy futures have generally trended lower, through late last year and the first months of 2020;
- Wholesale spot market prices across the NEM have declined in recent months, on a month over and month and year over year basis.
Until now, energy prices have steadily moved up. So, why are we seeing prices fall?
We’ve broken down the factors at play in each NEM state that may have influenced this trend. Let’s take a look…
In the NEM
In the months leading up to summer 2019, energy contract prices peaked as the market prepared for a hot summer and potential blackouts. If you were looking to sign onto a new energy agreement, you may have seen these expectations reflected in high Q1 2020 rates.
While we saw peak demand result in some short-term high price events over summer, average demand was lower. Sunnier conditions made the most of record amounts of rooftop solar installations in 2019, and a cooler February took pressure on the grid.
To put it simply, the sustained high prices of the 2019 summer did not quite eventuate in 2020, which has been a key factor in pushing ASX Energy futures prices lower.
Want more information? We took a closer look at how this summer stacked up against its predecessor here.
In New South Wales
Despite warmer summer temperatures, average demand levels over summer were ~3-5% lower than in 2019. Despite periods of extreme volatility in January, the NSW market settled in the later summer months allowing the average quarterly price to trend lower, reducing the initial impact of January.
Like New South Wales, Victoria saw higher average maximum daily temperatures over summer but demand for energy was ~4% lower than last year.
While maximum demand during summer slightly surpassed last year’s peak, this could have been much higher if businesses, including the Portland aluminium smelter, hadn’t powered down during the extreme weather and market conditions on 31 January.
In South Australia
While the loss of the Heywood Interconnector islanded South Australia from the NEM in late January, it has now returned to normal operating conditions.
With Heywood back to normal transfer capability, the chance of high spot prices (and FCAS prices) occurring in South Australia over the coming quarters has been reduced
Maximum and average demand is expected to decline this quarter thanks to milder weather conditions.
Like New South Wales, warmer temperatures are forecast for the April-June period.
In Queensland, energy contract prices for CY21 have been in decline since August 2019, when the impact of large-scale solar and rooftop solar on spot prices became apparent.
While the evolving COVID-19 situation is impacting individuals and businesses on a global scale, it’s too early to say what the long term impacts to the energy market will be.
As businesses take onboard government advice and shift working arrangements, we may be seeing some early impacts on the market. Last month, demand hit historic lows in South Australia and New South Wales.
It’s expected demand will continue to reduce until the end of the financial year.