Carbon Markets Electricity

OUTLOOK: NEM wholesale electricity and LGC price forecast 2021-40

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Dear Subscriber,

Our latest Australian Electricity Outlook (AEO) for the National Electricity Market (NEM) has now been published.

The AEO is a quarterly outlook for price development in each region of the NEM over both medium-term (four years) and long-term horizons (20 years). The report contains:

  • an outlook for wholesale electricity prices for each region of the NEM (NSW, QLD, SA, TAS, VIC), over medium- (quarterly average prices for the next 16 quarters) and long-term horizons (annual average prices to 2040);
  • an outlook for annual average LGC prices to 2030 including the potential interaction with forward Australian Carbon Credit Unit (ACCU) prices;
  • forecasts for market outcomes, such as change in capacity and generation mix;
  • detailed discussion of important input assumptions; and
  • analysis of the major factors impacting the electricity market in the forecast period.

The scenarios chosen for analysis in this report cover two potential pathways for the future transition of the NEM, aligned with the Australian Energy Market Operator’s (AEMO) draft 2022 Integrated System Plan (ISP).

Given the rapid transformation of the NEM since the most recent ISP in 2020, AEMO’s 2022 Draft ISP adopts an updated set of scenarios to account for the continued acceleration of variable renewable energy (VRE) that has occurred faster than assumed likely. The updated set of scenarios span a range of plausible futures with varying rates of decarbonisation, electricity demand, and decentralisation. For the purposes of this report, we adopt the two “most likely” scenarios as defined by stakeholder engagement undertaken by AEMO. Specifically, AEMO’s Step Change scenario (considered by stakeholders to be the ‘most likely’ scenario) is adopted as our Central Case forecast, modelling a rapid consumer-led transformation of the energy sector and co-ordinated economy-wide action. AEMO’s Progressive Change scenario is applied as our Alternative case, modelling less aggressive action on climate change by ratcheting up emissions reduction goals over time. Each scenario assumes a target of net zero emissions by 2050 is adopted, yet applies different timing pathways, with our Central Case scenario accounting for net-zero emissions by 2035, while the Alternative reaches net-zero emissions ‘just in time’.

Additional sensitivities are also considered, with an emphasis on fuel prices, demand and generator reliability, helping to identify the magnitude of impact of key assumptions and test specific decisions that may soon be taken.

Parts one to three of this report introduce our AEO including our modelled scenarios, approach and common assumptions including inputs and policy settings. Part four summarises the key drivers of our modelled pool prices. Parts five and six detail the outcomes of our AEO, including medium- and long-term price forecasts for both our Central and Alternative cases. Part seven outlines our modelled change in capacity and generation mix for each scenario. Part eight presents our outlook for LGC prices. Appendices provide additional assumptions along with a summary of our National Electricity Market Renewable Energy Simulator (NEMRES).

This report is published under our Australian Electricity Market Intelligence and EnergyIQ services. Please login to access the report or sign in to our EnergyIQ platform to view underlying outcomes.

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