Energy Markets Update & End-User Solutions€¦ · Source: Schneider Electric, Feb 2016 Strategic Sourcing Special Market Update. Active Energy Management for Fixed-Price Contracts

Energy Markets Update& End-User SolutionsEUAA South Australian Energy Forum 2017

Lisa M. Zembrodt, ERPConfidential Property of Schneider Electric

2018 Calendar Year Electricity Prices Electricity prices have nearly tripled since 2016 in some states due to structural shifts in the market

Australian Energy Market In Three Graphs

Spot Large-Scale Generation Certificates Price Large-scale generation certificates have tripled since 2015

Spot Natural Gas PricesSpot gas prices have more than doubled since 2016, while some retail offers for 18/19 have been > $20GJ

Page 2Confidential Property of Schneider Electric |

Source: Schneider Electric Global Research & Analytics, AEMO

Increasing Value of Actively Managing EnergyTake Control of Your Energy Spend Destiny

• Structural shifts in energy markets drive need for more-sophisticated strategies

• 5-min rule change – load curtailment, on-site generation, batteries

• Changing gen stack – load curtailment, on-site generation, batteries

• Volatility – Strategically timed purchases/renewals

• Higher Prices – Efficiency projects

• Greater Risks – need to spread risks


Impact of Battery Storage on Consumption ProfileUse of batteries can shift consumption from grid, just one of many active approaches Source: SE Global Research & Analytics

Strategic Timing: Underpinned by Our Research & Forecasts

October 2016 Quarterly Natural Gas Outlook Our Oct 2016 Gas Outlook described our LNG netback forecasts and the divergence between domestic and international marketsSource: Schneider Electric Global Research & Analytics

February 2016 Monthly Electricity OutlookOur Feb 2016 Outlook highlighted the opportunity in the market based on our bullish view for pricesSource: Schneider Electric Global Research & Analytics

The Foundation of Active Energy Management

• Knowing the markets is imperative in progressing along the procurement journey from passive to active management

• End users should seek to understand market events and anticipate their short- and long-term impacts

• Market knowledge provides end users with the ability to take action proactively rather than reactively to manage their energy spend, and make long-term strategic business investment decisions


Strategically Timed Contract Renewals

February 2016 Special Market Update: Buying Initiative (Fixed-Price Contracts)Our Feb 2016 SMU for fixed-price contract renewals highlighted our call to actionSource: Schneider Electric, Feb 2016 Strategic Sourcing Special Market Update

Active Energy Management for Fixed-Price Contracts

• By leveraging our market research and forecasts, our procurement team provides timing advice for fixed-price contract renewals rather than waiting until contract expiration (Strategic Sourcing)

• As an example of this timing advice, at right is the cover page of the Special Market Update Buying Initiative we issued in February of 2016, calling clients to action for 2017 and 2018 well in advance of the dramatic increase

• End users should seek to strategically time their fixed-price procurement activities as one approach to actively managing energy costs


Strategically Timed Block Purchases

Flexible/Progressive Purchasing Rather than fixing prices at the time of signing the retail contract, flexible agreements allow prices to be built up via multiple purchases through time, spreading risksSource: Schneider Electric Risk Management

Active Energy Management for Flexible/Progressive Contracts

• Similar to fixed-price contract renewals at strategic times rather than at contract expiration, end users can engage with retailers in flexible/progressive contracts to better manage their energy spend

• Flexible/progressive contracts allow the spreading of timing risk and volume risk, while also providing end users with the ability to act quickly when an opportunity or risk in the market presents itself

• Our market research and forecasts are also leveraged by our Risk Management team to provide tailored advice for flexible/progressive purchases based on an end user’s risk tolerance and objectives/risk policy


Longer-Term Price Management with PPAs

Aggregate Offsite Renewable PPAs by Energy Type, USSchneider Electric’s Renewable Choice Energy has consulted on 2000MW of PPAs in the USSource: Schneider Electric’s Renewable Choice Energy

Active Energy Management for the Long Haul

• Longer-term price management can be achieved through PPAs

• PPAs provide both electricity and LGCs, creating active management of both components of an end user’s electricity bill

• We recommend a holistic approach, including strategic purchasing, energy efficiency measures, demand response, onsite generation, battery storage, etc



Recent Key Drivers

Agenda

Additional ReadingLooking Ahead: Factors to Watch

Recent Key Drivers


Closure of Hazelwood Changes EverythingWith just five months’ notice, the closure of Hazelwood shook the market


Weekly Brown Coal Output Vs. Spot Prices in VICTight supply/demand balance has contributed to a sensitive market, particularly in VIC.Source: AEMO, SE Global Research & Analytics

NEM Generation Share by Major TypeThe share of brown coal has fallen dramatically, with black coal and gas stepping inSource: AEMO, SE Global Research & Analytics

NEM Forward Price Evolution: Calendar 2018

Forward Prices Cal-18The closure of Hazelwood with short notice combined with Portland’s supply deal contributed significantly to the price increase, while improving availability and the Queensland Government’s directive have helped ease pricesSource: SE Global Research & Analytics


• Jan 2016 through May 2017 (see EUAA Nat’l Conf Presentation)

• Northern & Hazelwood Closures1

• Portland Smelter Remains Open2

• GSOO3

• Gas Prices4

• Generator Bidding / Spot Prices5

• Jun through Oct 2017

• Qld Government’s Directive6, NSW Coal-Fired Bidding and Supply Issues7

• Vic Generator Outages/Availability8

• Second Unit at Pelican Point Restored9

• ESOO and GSOO Updates10

http://www.euaa.com.au/files/documents/Zembrodt-Lisa.pdf

Generator Bidding Behaviour Supporting Prices Starting Early ‘17Coal-fired generators driving prices higher in NSW & Qld – more renewables or regulatory action could push prices lower


Weekly Spot and Forward Prices in QLDMarket prices have softened following the QLD state government’s directiveSource: AEMO, SE Global Research & Analytics

NSW Coal Generator Bids Coal supply issues reduce lower-priced black coal availabilitySource: AEMO, SE Global Research & Analytics

Recent Record Wind Output Brings Price Relief


Monthly Average Wind Output in the NEM regions Record wind output in most regions between July and September, after a lull in June.Source: AEMO, SE Global Research & Analytics

Vic-NSW and Vic-SA Interconnector Flows (Monthly Average MW)Post Hazelwood closure, exports from Vic to NSW reduced, but rebounded in recent months due to high wind output.Source: AEMO, SE Global Research & Analytics

Recent Key Drivers - Recap

• The closure of Hazelwood has left the market supply/demand balance tight, reversed flows of electricity from historical norms, and increased the reliance on gas-fired generation at a time of historically high gas prices. This is supporting NEM prices.

• Generator bids remain in significantly higher bands in NSW (partly due to coal supply issues), though the directive from the Queensland government to Stanwell has lowered prices.

• The return to service of the second unit at Pelican Point boosted supply in SA and softened prices.

• Coal-fired outages in Victoria in July are leaving high-priced gas to set price, further supporting prices.

• Strong wind output in recent months helped softened prices, particularly in SA.


Looking Ahead: Factors to Watch


Key Generator Closures Since 2012The closures in recent years due to assets at end of economic life have structurally tightened the marketSource: SE Global Research & Analytics

Sensitive Market, but Improved Supply in SA

Additional capacity in SA since 2016/17 summerAlmost 1GW of supply relief will be available in SA to meet demand this summerSource: SE Global Research & Analytics, AEMO, ARENA


Generator Last Year in Service

Capacity (MW)

Munmorah 2012 600Swanbank B 2012 250Collinsville 2012 190

Morwell 2014 195Redbank 2014 150

Wallerawang 2014 1000Anglesea 2015 150Northern 2016 530Playford 2016 240

Hazelwood 2017 1600

Total 4905

• Reduced capacity leaves the market more sensitive to small events

• SA 8 Feb 2017 – 100 MW load-shedding requested (300 MW of load was shed)11

• Improved supply outlook in SA for 2017/18 summer

• SA Gov’s Energy Plan12

• Pelican Point’s second unit returned to service9

• AEMO/ARENA DSP projects13

• AEMO’s RERT

Project Capacity (MW)

Pelican Point’s second unit returned to service 239

Hornsdale 2 & 3 wind farms 211Tesla battery 100Emergency diesel generators 276

AEMO/ARENA demand response 19

AEMO RERT (670MW for Vic & SA combined) ~100

Total 945

Weather Outcomes Drive Demand


BOM’s Maximum Temperature Forecast for November to JanuaryForecast above-normal maximum temperatures in south-east AustraliaSource: BOM

Australia Annual Mean Temperature Anomaly vs. 30-Yr Climatology (1961-1990)Temperatures have trended warmer than the baseline “normal” of 1961-1990Source: BOM

East Coast Gas Supply – Crunch Likely Avoided, Pricing Remains Unclear

• AEMO forecast a shortfall of up to 108PJ in 201814

• Due to increases in gas-fired generation and declining supply from the Gippsland Basin Joint Venture in Vic

• LNG exporters promised to increase domestic supply to avoid shortfalls; as such the Australian Domestic Gas Security Mechanism (ADGSM) will likely not proceed

• The ACCC estimated netback prices of $5.87 (Qld), $7.54 (SA), $7.87 (NSW) and $8.14 (Vic) per GJ

• Uncertainties

• The deal with LNG exporters – “the good faith offering of gas to the domestic market on reasonable terms”

• How much downward pressure on gas prices?


Gas Demand Components in Australia’s East Coast and the United States Australia’s east coast exports significantly more LNG relative to the domestic consumption, in a stark contrast to the United States which is becoming a major LNG exporter globally as well. Source: EIA, Gas Bulletin Board, SE Global Research & Analytics

NEM Large-Scale Wind/Solar Capacity Expected to Exceed 6GW by 2020

Expected Renewable Generation Capacity AdditionsSource: SE Global Research & Analytics

• Renewable energy projects progressing

• 2,500MW of solar projects have PPA or are committed

• 4,200MW of wind projects have PPA or are committed

• More are likely in the near future

• Customers are evaluating PPA’s – various stages

• Battery storage cost coming down – early development

• ESOO’s baseline scenario fails to consider >3,500MW of new renewables expected through 201915

• Renewable Energy Target

• Increasingly likely to be met


National Energy Guarantee Would Overhaul Wholesale MarketDouble efforts: Finkel Recommendations address reliability, which is considered a less-urgent issue than is sustained high prices

• What is the NEG?

• Proposed legislation requiring retailers to contract with “dispatchable” (yet to be defined) capacity

• Also requires retailers to meet a defined emissions level (CoP 21)

• Reliability starts 2019, Emissions starts 2020 (post RET)

• Financial solution for reliability (physical issue)

• Appears to replace CET proposed in Finkel Report

• What issues exist?

• Puts large gentailers in control, as most dispatchable resources are concentrated with these parties

• Market liquidity likely to decline, as contracts will now be needed for electricity, reliability, and emissions (& less transparent)

• Smaller entities, incl. end users will face increasing complexity and difficulty piecing together portfolio of contracts

• Uncertainty – another year of policy uncertainty; implementation timelines are aggressive (vs. 5-min SRC July 2021); may cause another investment strike

• Impacts thus far

• Retailers pulling fixed-price offers for 2019 and beyond

• Forward prices up

• Alternatives

• Reliability – Day-ahead market w/ AEMO

oversight – Demand response , e.g. SA Gov’t

approach (see slide 16)

• Emissions– CET– Emissions pricing scheme


Increasing Value of Actively Managing Energy

• Structural shifts in the energy markets drive the need for more-sophisticated strategies

• Strategically timed fixed-price contract renewals

• Strategically timed block purchases

• PPAs

• On-site generation

• Batteries

• Load curtailment

• Efficiency projects


Schneider Electric’s Gepps Cross FacilityAn example of active energy management is our Gepps Cross facility, where multiple initiatives have been combined to manage energy consumption and spendSource: SE Global Research & Analytics

Gepps Cross – Prosumer Smart Factory

Looking Ahead: Factors to Watch Recap

• Generator bidding behaviour is expected to continue to support prices, while high wind output will soften prices

• With a tight supply/demand balance, small events in either supply or demand can affect prices, but more demand response will help

• Above-normal temperatures are the new normal, which may continue to push peak demand higher; users can take measures to actively manage their peak demand

• The extent of gas price softening remains unclear currently

• Renewable generation projects are underway but lead times are long and more is needed to make up for lost baseload generation

• The National Energy Guarantee consultations are to follow

• The value of actively managing energy spend through a number of approaches is rapidly increasing and end users should take a portfolio approach to addressing their energy needs long term


Additional Reading

Optional Subtitle Goes Here


Additional ReadingThe sampling of Global Research & Analytics publications cited in this presentation includes research linked below, as well as research available only to ESS Risk Management or Research & Forecasts clients

• 1 November 2016 Monthly Outlook & 10 May 2016 Weekly Outlook (link)

• 2 November 2016 Monthly Outlook & 17 January 2017 Weekly Outlook (link)

• 3 March 2017 Monthly Outlook & 15 March 2017 Weekly Outlook (link)

• 4 April 2017 Quarterly Outlook

• 5 April 2017 Quarterly Outlook

• 6 May 2017 Monthly Outlook & 18 July 2017 Weekly Outlook (link)

• 7 September 2017 Monthly Outlook

• 8 11 July 2017 Weekly Outlook (link)


• 9 4 April 2017 Weekly Outlook (link)

• 10 September 2017 Monthly Outlook & 13 September 2017 Weekly Outlook (link)

• 11 February 2017 Monthly Outlook

• 12 March 2017 Monthly Outlook & 15 March 2017 Weekly Outlook (link)

• 13 18 October 2017 Weekly Outlook (link)

• 14 28 September 2017 Weekly Outlook (link)

• 15 13 September 2017 Weekly Outlook (link)

http://www.summitenergy.com/rm/Aus_Weekly_10May2016_4562.pdf

http://www.summitenergy.com/rm/Aus_Weekly_17January2017_3124.pdf

http://www.summitenergy.com/rm/Aus_Weekly_19October2015_4491.pdf

http://www.summitenergy.com/rm/Aus_Weekly_18July_2017_5357.pdf

http://www.summitenergy.com/rm/Aus_Weekly_11July_2017_1860.pdf

http://www.summitenergy.com/rm/Aus_Weekly_4April2017_6878.pdf

http://www.summitenergy.com/rm/Aus_Weekly_13September_2017_0931.pdf

http://www.summitenergy.com/rm/Aus_Weekly_15March2017_1894.pdf

http://www.summitenergy.com/rm/Aus_Weekly_16October_2017_1213.pdf



Lisa M. Zembrodt, ERPManager, Markets and StrategyEnergy and Sustainability [email protected] Property of Schneider Electric

mailto:[email protected]

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Energy Markets Update & End-User Solutions€¦ · Source: Schneider Electric, Feb 2016 Strategic Sourcing Special Market Update. Active Energy Management for Fixed-Price Contracts