Wholesale energy prices are up…
Sanctions and shunning of Russian energy exports continues to drive up global prices for the coal and gas that our generation fleet largely relies on.
Thermal coal prices are now at an unprecedented $A500 per tonne, increasing coal-fired generation wholesale prices to over $150 per megawatt hour.
Many units in Australia’s coal generation fleet are out of action for scheduled and unscheduled maintenance and repair. This pushes more demand onto our gas generators.
Gas prices have risen from $6-12 per GJ in Q1 2022, to $50 per GJ at the end of May. Government intervened
to cap prices at $40 per gigajoule. Gas generation now costs around $300 per megawatt hour.
… and the retailers are nervous
Retailers perform the crucial role to collect payments from energy consumers on behalf of all other players in the energy economy, and must manage the risks and absorb the costs of late or default payers.
This is tricky terrain to navigate when wholesale prices are escalating wildly. There is a lot of regulatory constraint on retailers that governs when and by how much they can change their prices for existing customers, but they are 100% required to meet their obligations to pay their wholesale providers for the energy those customers consume.
Some larger and better established retailers are less exposed to this risk since they own their own generation assets, and are less reliant on the spot market to procure the energy their customers consume.
In principle, retailers can adopt a variety of hedging strategies to insulate them from wholesale market risk, but in practice, especially for smaller retailers, it’s impossible to avoid. At the end of the day, if they cannot charge their customers more than their wholesales costs, they will go out of business.
This is why we’ve recently seen dramatic announcements from several of the smaller and more competitively priced retailers recommending that their own customers should immediately find a new retailer.