Procurement News Notice |
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| PNN | 2370 |
| Work Detail | Rising gas exports from Queensland along with increased penetration of renewable energy such as wind power will work to keep both electricity and gas prices high, Moody's Investors Service has warned, with the big energy utilities Origin Energy and AGL likely to benefit. An increase in the use of renewable energy is forcing coal-fired power stations to close, which has boosted reliance on power stations which use gas since they can be turned on quickly to fill shortfalls when the wind isn't blowing and when the sun is not shining, the report noted. These difficulties were underscored in July when a cold snap in South Australia at a time when output from renewable sources was low and when only limited volumes of electricity could be sourced from Victoria drove up wholesale electricity prices, prompting the state government there to call for a mothballed power station to be restarted, to avoid power shortages. "We expect Australian wholesale power prices to remain high, reflecting tighter market conditions, higher fuel costs and the limited number of renewable projects due to come on stream in 2018/19," Moody's said. "The expected increased use of gas-fired production as the swing generator, at a time when gas prices are rising, will also support power prices." Lower electricity generated by coal-fired power stations, for example, and rising reliance on intermittent power sources such as wind will keep wholesale power prices volatile, it warned. The outlook is complicated, however, by other factors such as a rise in renewable generation towards 2020 which could boost reliance on gas to ensure stable electricity supplies and the possible closure of aluminium smelters, for example, which use large amounts of power which could cut overall demand, it said. "As wind farm output depends on wind conditions, thermal generators – particularly gas-fired – will remain an essential source of back-up energy," the report noted. "When incremental generation needs are met by thermal generators, the market price of electricity will undergo a steep increase." As a result, Origin Energy will benefit, since around half of its electricity generation capacity is gas, as will AGL, which owns the Loy Yang A power station in Victoria and Bayswater in NSW, which both use coal and have less competition from wind in these markets, the report found. Exposed are power retailers with only limited in-house electricity generation since they will see "greater cost increases, and will generally have less flexibility to manage price swings", the report found. This includes Alinta Energy, Moody's said, as it has only a small share of the retail market with little of its own generation capacity. As a result it "is likely to come under pressure over time if the integrated utilities decide to capitalise on their advantage in generation to acquire additional market share through discounting," it warned. |
| Country | Australia , Australia and New Zealand |
| Industry | Energy & Power |
| Entry Date | 03 Sep 2016 |
| Source | http://www.smh.com.au/business/origin-agl-to-win-from-high-energy-prices-says-moodys-20160825-gr0zbp.html |
