Feb 2 2017

SEMMA Electricity Deal Update

The 2016 electricity market has operated at levels well above the levels within 2012 through to 2015. This is due to various issues, including:

  • Base-load generator closures in South Australia, resulting in increased interstate demand for Victoria generation.

  • Reduced manufacturing activity, allowing generation to anticipate a more volatile Load Factor with reduced demand, resulting in higher average pricing.

  • The planned closure of Hazelwood Power Station, allowing remaining base-load generators to factor a tighter supply / demand trading balance in forward pricing.

  • Increased subsidisation of renewable energy, allowing traditional generation to uplift pricing, and maintain a relative price advantage.

  • Increased reliance upon non-coal generation, allowing coal generation to uplift pricing, and maintain a relative price advantage.

  • The anticipated impact of the closing Automotive industry, causing generation to anticipate diminished demand and higher average forward pricing.

  • The recent repair of the Bass link cable, allowing Tasmania to draw on Victorian generation, whilst Tasmanian water storages recover.

  • Increasing solar generation output, resulting in less price volatility on hot days, that in turn takes premium away from traditional generation.

  • Increase in thermal coal commodity pricing.

  • Increase in gas pricing, leading to increased gas-generated electricity costs.

  • Increased renewable targets, placing uplift on renewable certificate pricing.


Please note that we acknowledge that some of the issues raised above appear to be contradictory in nature and do not say these should all result in higher pricing.  The real costs of mining, transporting and processing coal, and generating electricity have not significantly changed.  However, generators tend to interpret all market signals to their advantage, and will continue to do so whilst market conditions allow.

They now enjoy a combination of factors that allow them to transition the market to a higher price range, the permanence of which remains unknown.
 

SEMMA contract update….

The current SEMMA Group Contract runs to 30 June 2017, and is struck at rates of around
Peak = 4.6, and Off-Peak = 3.0 cents per kWh.

 

By contrast, current VIC market electricity pricing is now in the order of:
Peak = 9.0 to 10.5, Off-Peak = 5.0 to 5.5 cents per kWh (excluding GST and Loss Factors).

 

So we anticipate that SEMMA members (in the current contract) will face a price increase when we tender for a new contract in Autumn next year.


We therefore encourage all SEMMA members to be ready to respond to the 2017 SEMMA tender invite when issued, as early and quick action may be warranted in 2017.