Forward prices are falling!

Carl Daley
Carl Daley
Forward prices are falling!

In case you are not aware, the Victorian wholesale forward prices over the next 3-years are almost in a freefall with prices falling rapidly. In a report recently published by the Australian Energy Market Commission, it is predicted that:

Households can expect to be paying about $120 (or 9%) less for electricity in 2023 than they do today

With the introduction of more renewable generation to the grid, and lower gas prices, the 2020 report found for the second year running that prices will continue to fall.

The freefall in the wholesale market certainly supports AEMC's claim as prices continue to soften to record lows. The chart below shows the historical range of forward prices in Victoria and the ASX volume-weighted traded price for each year (or our estimate of the volume-weighted traded price in the earlier years). The last 3 years of the chart show the trading range of prices and the current trading price.

The next 3-years are all below $35/MWh (3.5 c/kWh), which is also less than half the volume-weighted traded price for the last 3 financial years of FY-18/19 to FY-20/21. The last time the market had forward prices for the next 3-years below $35/MWh, was way back in 2014. The only other time when this occurred was further back in 2005.

The energy market continues to deliver unexpected results, and if you have a look at our Monthly Market Report, you will see the month of January delivered new records and events that have not been seen for many years.

The big question remains though; will consumers realise the benefits of a falling wholesale market through lower tariffs, or will the retail market fail to pass on the reduction in costs?

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