Businesses must address procurement needs as Hazelwood closure speculation causes severe price spikes

by Energy Action | Sep 27, 2016
We are encouraging businesses to urgently review their energy procurement needs after growing speculation about the imminent closure of Victoria’s Hazelwood power station caused forward electricity prices to surge on Monday.

Commenting on the price spikes, our Trading & Pricing Director said, “The wholesale contract price spikes we saw on Monday were almost unprecedented. We haven’t seen anything like this since the Queensland drought in 2008/2009 when capacity was withdrawn due to water supply issues.”

Forward wholesale contract prices for electricity from mid-2017 rose to around $62 per megawatt hour in Victoria on Monday, up from around $55 at the end of the preceding week. Queensland and NSW also saw price rises, albeit not quite so severe, of $2 to $2.50 per megawatt hour.

The volatile energy market conditions on Monday also caused most electricity retailers to suspend and withdraw their pricing offers that morning, causing further turmoil for Clients.

The coal-fired Hazelwood power plant is Victoria’s second largest, generating 1,600MW and only being eclipsed by the 2,200 Loy Yang A station. Built in the mid 1960s, Hazelwood is one of Australia’s most intensive CO² emitters due its use of brown coal. There has been growing speculation in the media that the plant will close in the first half of 2017.

A general upwards trend in Retail market prices across all states in the NEM has been apparent for over a year and, exacerbated by yesterday’s wholesale volatility, we anticipate that in the near term, Retail electricity prices will remain volatile and contract offer validities remain extremely short, in some cases 48 hours.

Unfortunately for energy users, we anticipate that forward Retail electricity prices for 2017 could continue rising as has been the case in Natural Gas market Retail prices on the East Coast, and accordingly we recommend that businesses act immediately in order to mitigate the risk of further significant energy cost increases.

David Rylah added, “The ‘market meltdown’ that occurred on Monday highlights the price risk to end users as the market rebalances Supply & Demand against the backdrop of decarbonising the electricity grid.  For those with contracts expiring between now and December 2016 – now is the time to act and address your future energy supply needs.”

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