Asia Pacific Equity Research02 September 2019 Australian UtilitiesWholesale electricity datawatch - August 2019AustraliaEnergy & UtilitiesMark Busuttil AC(61-2) 9003-8619mark.busuttil@jpmorgan.comBloomberg JPMA BUSUTTIL Jimmy Zeng(61-2) 9003 6017jimmy.zeng@jpmorgan.comJ.P. Morgan Securities Australia LimitedSee page 26 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.www.jpmorganmarkets.comSeptember has marked the end of winter and questions are now emerging over whether the system will cope with upcoming summer peak loads. AEMO has indicated a likely loss of load (particularly in Victoria) between January and March 2020. Meanwhile, baseload forward contracts continue to rise and CAL20 A$300 cap contracts in both Victoria and South Australia are now above A$17/MWh. At their financial results in August 2019, AGL and Origin flagged significant falls in profitability in the current year. However, we believe market dynamics continue to suggest that it will be more challenging for Tier-2 and Tier-3 retailers to compete given their higher cost bases. Wholesale spot prices remain elevated: Average wholesale spot prices across the four NEM states increased to A$83/MWh in August 2019, 12% above A$74/MWh in June 2019 despite slightly lower demand. Average prices were 2% above the prior corresponding period. Forward prices (average of A$94/MWh across the four states) remain elevated and more than 29% higher than the prior corresponding period. While forward contracts remain in backwardation, the front end of the curve continues to rise. We note that the back end of the curve is somewhat illiquid and theshape may not be indicative of the direction of prices. No new capacity added in August 2019: There were no new wind or solar farms offering capacity to the NEM in August 2019. New capacity has amounted to close to 2GW in 2019, 2% higher than the prior corresponding period. REC prices continue to trend higher, now at A$45/cert. compared to A$30/cert. in March 2019. Nonetheless, the curve remains in backwardation with CAL20 forward REC prices at A$26/cert. and CAL21 at A$13/cert. Growing concerns over system adequacy: There were a number of news articles (refer to page 2) indicating growing concern over system adequacy through the summer months. As shown in the chart below, AEMO’s MTPASA test is showing 100% change of loss-of-load during P10 weather events in the summer months in Victoria and South Australia. AEMO has expanded the RERT panel in order to provide demand side response.Figure 1: Chart of the month: Medium-Term Performance and System Adequacy Test for VIC (LHS) and SA (RHS) – units in MWSource: AEMO05,00010,00015,000LowMediumHighLoss of load probability0%50%100%Sep-19Dec-19Mar-2001,0002,0003,0004,0000%50%100%Sep-19Dec-19Mar-202Asia Pacific Equity Research02 September 2019Mark Busuttil(61-2) 9003-8619mark.busuttil@jpmorgan.com Major news items in the last monthAEMO ups emergency power reserves for summer: The AFR reported on the 9th of August 2019 that AEMO will offer to pay for emergency back-up energy supplies across five states to protect the electricity grid from potential black-outs this summer. As federal Energy Minister Angus Taylor moves to secure base-load power in NSW following the proposed closure of AGL Energy's Liddell coal-fired power plant, AEMO has announced it will expand its Reliability and Emergency Reserve Trader panel for the 2019-20 summer.AGL calls for flexibility in Vic’s emissions reduction pathway: According to the AFR on the 12th of August 2019, AGL has advised the Victorian government that emissions reductions trajectories towards the state’s net zero target by 2050 need to be flexible and broadly neutral across industry sectors to avoid unnecessary costs. The electricity and gas supplier, which owns one of the state’s biggest coal generators, at Loy Yang A, also cautioned that emissions reduction efforts within Victoria’s electricity sector need to be carefully co-ordinated with the national energy market.Victoria sweats on high cost of summer power: The AFR reported on the 14thof August 2019 that wholesale electricity prices during next summer’s peak are pressing higher in the tight Victorian market, keeping both generators and consumers on full alert as the market operator takes steps to put in place emergency reserve supplies. AGL and Origin are battling to repair their respective coal and gas power units that are due back online before the summer heat hits.Origin Energy hit with $80,000 fine after cutting power from 54 homes: According to the Age on the 16th of August 2019, Australia’s energy watchdog has slap...
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