Australian Chart of the week | Down, down, prices are down… but is it sustainable?

Following a comparatively mild Q1, electricity prices have fallen significantly in Q2. While a drop in price is expected as we move from peak demand conditions in Q1 to the shoulder Q2, the surprising element is the level to which prices have fallen. Average quarterly prices in Q2 2020 were between $33-43/MWh – a significant outlier for recent quarters. Compared to Q2 2020, prices are 47-58% lower on average. COVID-19 possibly plays some role in this trend however, more likely is a change in market dynamics and market outcomes in H1 2020 that are influencing the ongoing expectations of lower prices in the future.

Over the first half of 2020, the electricity futures curve has trended downwards with quarterly products now trading at as low as $40/MWh (from around $60/MWh at the start of the year). This bearish sentiment is likely a revision of price expectation going forward as demand appears lower than expected and the increased penetration of renewable energy into the supply mix – both grid-scale and behind-the meter. The question remains – will prices remain at this level and if so for how long?

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