2nd February 2006 – NEMMCO’s forecast from 17th January

The following graphic illustrates what NEMMCO had forecast (at Tuesday 17th January, before their update on 23rd January had been released) for date noted above:

(please click on the image for a better view)

Please note the following in the above image:

(a) This forecast has not changed markedly in more than 6 weeks, which is a cause for concern.

(b) Even more of a concern is the fact that an LOR3 alert level has been signalled by NEMMCO for the peak demand periods of the day:

LOR3 is more dire than LOR2 and means that there is insufficient generation capacity being made available (in SA and VIC in this case) to meet peak demand – in other words, if an extreme demand day eventuates, load shedding will be necessary.

(c) It can be seen from this diagram that the market is pricing in a tight supply/demand balance in the futures prices for the current quarter (especially the peak prices).  However, we are still investigating whether the peak price contracts referenced (a low of $72.75 in Queensland to a high of $89 in South Australia) reflect what may actually eventuate in the spot market, given the numerous days this quarter when low reserve conditions are currently forecast.