The impact of the recent weather events on energy markets

Written by Energy Action

The impact of catastrophic bushfires across the country continue to be felt by many Australians who are battling against severe conditions to preserve lives, property and local flora and fauna. It’s fair to say that the effects have, and continue to be, devastating.

For those in fire-affected areas, there are myriad challenges to contend with. One of those includes frequent power outages as the transmission and distribution infrastructure comes under pressure either from the fires themselves, or due to the grid trying to accommodate demand fluctuations.

The same can be said of recent storms lashing New South Wales that have damaged distribution lines and continue to leave thousands of people without power. Positively though, heavy rainfall has helped ease fire conditions across the east coast.

On top of this, we have seen the consequences of the fires support higher electricity spot prices and expect potential future impacts should the severity of fires remain a feature of future Australian summers. For the storms, widespread blackouts served only to reduce demand and are likely to put downward pressure on energy prices in the short term.

To better understand these events, let’s look at the major impacts of the bushfires on the National Electricity Market (NEM).

The first was that the Australian Energy Market Operator (AEMO) shut down the interconnector between New South Wales and Victoria on 4 January 2020 at a time when soaring temperatures meant Australia was the hottest place on the planet.

As a result, the spot price for electricity in New South Wales leapt to $14,700 per MWh for an hour. At the same time, consumers relied on Queensland to meet demand in New South Wales which propelled its spot price to $2,017 per MWh.

This impact is best highlighted through looking at the average summer demand in the two states. In New South Wales, demand dropped by 314 MW while Queensland increased by 162 MW.

Conversely, as prices were peaking in NSW and QLD, SA and VIC were experiencing negative price events. This highlights the dislocation of energy supply and demand that results from having just one interconnector, and for many pundits, has called into question the structure of Australia’s energy system.

The fires also destroyed or threatened a significant number of the poles and wires that support electricity distribution and transmission across the south-east of Australia. The likelihood of unserved energy events increased as a result. The widescale evacuations across New South Wales and Victorian townships also reduced demand in those locations, as was the case for the recent storms with less households and industrial users connected to the grid.

Looking further ahead, there are other potential impacts that could influence electricity prices. For example, if the severity of the fires is expected into future summers, we may see this start factoring into futures markets from 2021.

That said, prices are currently reducing, so there are no early signs of that occurring. Energy Networks Australia also said that generally, electricity could get more expensive as a by-product of rising insurance costs during upcoming fire seasons.

Managing the impact and accessing support

While the threat of bushfires continues, there is an increasing number of options available to businesses that are seeking support in relation to their energy needs.

This includes the offer from retailers to provide relief from bill payments through to state Government initiatives to help business plan for future fire events.

Many major retailers have put bills on hold for affected customers, waived outstanding charges and offer further assistance for those experiencing hardship.

The various state governments also have a range of initiatives in place that can help businesses and communities withstand adverse impact on the energy grid. This includes the Victorian Government’s $750m Stand-Alone Power System (SAPS) grant program established in 2017 that helps landowners go off the grid. It consists of renewable energy solutions including wind and solar panels, batteries for storage and back-up generators.

The New South Wales Government also announced an additional $1bn to support the bushfire recovery effort that extends to re-establishing the infrastructure that has been destroyed by fires.

More broadly, eligible small businesses can access recovery grants and concessional loans provided by the Federal and State Governments as well as a number of other initiatives designed to help.

If your business has been affected by the recent weather events and require assistance relating to your energy account, or you are considering reducing your reliance on grid supplied electricity, please reach our to your account manager to discuss your options.