摩根士丹利-能源未来：全球商用电池（储能）-Future of Energy Global Merchant Batteries-20260604

Morganstanley

June4,202606:20AMGMT

RESEARCHGlobalInsigHt

FutureofEnergy

GlobalMerchantBatteries

WesizetheglobalEnergyStorageSystem(ESS)opportunityat5TWhby2030vs.1TWhnow(46%CAGR)onimproving

economicsandenergysecurityneeds.Atscale,ESSwilldampenpowermarketvolatility,andcouldreduceconsumerprices,

makingESSaholygrailforutilityinvestorsandpolicy-markers.

sustainability

KeyTakeaways

Globalpowercapacityis~11TWgrowingat~7%pa,butwithESSgrowingat46%pa,ESScouldgrowto8%ofcapacityby2030.

8%soundssmall,butthisismorethanhalfofeveningpeakdemandrampupinmostgrids,enoughtomateriallyreducevolatilityandprices.

Wecomparedailyenergyarbitrageopportunitiesinpowergridsaroundtheworldandprovidea~US$1.1tglobalstockscreenofintegrated/merchant/lPPutilities.

WeintroduceourproprietaryframeworkforanalysingmerchantbatteryearningsusingAustraliaasaglobalcasestudy.

WeexploretheabilityofESStoreducepowerpricesforconsumers,bydampeningvolatility,deferringcapex,andmuchmuchmore.

Exhibit1:ESSdampenspowerpricevolatilityandprices

GlobalPowerCapacity(TW)

TotalPowerCapacityEveningpeakrampESScapacityAveragedemand

Inflectionpoint

201520162017201820192020202120222023202420252026e2027e2028e2029e2030e

16

14

12

10

8

6

4

2

0

Source:InternationalEnergyAgency,Rystad,e=MorganStanleyResearchestimates.

Whoisthisreportfor?

•lnvestorslookingtogaugeutilitystockopportunitiesfromESStrendsaroundtheworld;

•C-Suiteandregulatorslookingatbatteryinvestments,powerreliability,andaffordability;and

•Responsibleinvestorsandstewardshipteamstrackingtheenergytransition.

MoRGANSTANLEyAusTRALiALimiTED+RobKoh

EquityAnalyst

Rob.Koh@

+6139256-8932

MoRGANSTANLEyEuRopES.E.,PARisBRANcH+ArthurSitbon,CFA

EquityAnalyst

Arthur.Sitbon@

+331429071-03

MoRGANSTANLEy&Co.LLCDavidArcaro,CFAEquityAnalyst

David.Arcaro@

+1212761-1817

MoRGANSTANLEyAsiA(SiNGApoRE)PTE.+MayankMaheshwari

EquityAnalyst

Mayank.Maheshwari@

+656834-6719

MoRGANSTANLEy&Co.INTERNATioNALpLc,SEouLBRANcH+YoungSukShin

EquityAnalyst

Young.Shin@

+822399-4994

MoRGANSTANLEyINDiACompANyPRivATELimiTED+GirishAchhipalia

EquityAnalyst

Girish.Achhipalia@

+91226118-1124

MoRGANSTANLEyAsiALimiTED+JackLu

EquityAnalyst

Jack.Lu@

+8522848-5044

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

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Morganstanley

RESEARCH

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Morganstanley

RESEARCH

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InvestmentThesisin6Charts

Exhibit2:ESSinstallationsaregrowingquickly,tofirmAIpowerdemandandbalancegrids

GWh

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

-

202120222023202420252026e2027e2028e2029e2030e

USEUAUSASEANMiddleEastROW

China

Sources:Rystad,e=MorganStanleyResearchestimates.

Exhibit4:WeintroduceourproprietaryframeworktoanalysemerchantESSrevenueopportunities

A$/MWh

NewentrantLCOE154GaspeakerSRMC110

NegativeREC-3

Avoidedturndown-406Missingmoney113Scarcity559

ESSPriceTaker

LCOS208

ESSSRMC4NegativeREC-3NegativeREC-3

Balanced211Saturated7

ESSPriceSetter

250

150

50

-50

-150

-250

-350

-450

Source:MorganStanleyResearch.SeeExhibit12forexplanationofterms.

Exhibit6:WecreatedaglobalutilitystockscreenforESS

Source:Companywebsites.

Exhibit3:Helpingdampenpowermarketvolatilityandaddingdownwardpressuretoprices

Sources:AustralianEnergyMarketOperator(AEMO),MorganStanleyResearch.

Exhibit5:WethinkESSpenetrationcanmateriallypressureelectricitypricesat~5%ofgridcapacity

Source:Gridoperatorwebsites.

Exhibit7:Withdownwardpressuretopricesforendusersandacceptablereturns,weseeESSasautilityinvestor'sholygrail.

BaseCaseGermanRetailTariff(Eur/MWh)

500

450

400

350

300

250

200

150

100

50

0

20182019202020212022202320242025e2026e2027e2028e2029e2030eProcurement&salesNetworksSubsidies&chargesTaxes

Source:BNETZA,MorganStanleyResearchestimates

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RESEARCH

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KeyFigures

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Morganstanley

RESEARCH

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GlobalMerchantBatteries

MoRGANSTANLEyREsEARcH5

Exhibit8:LevelisedCostofStorage(4-hourdailycycle)vs.Top-bottom4-hourspread(US$/MWh)

Source:MorganStanleyResearch

estimates.blue=LCOS4

,orange=TB4.

Whyarewewritingthisreportnow?

Globaldemandforelectricityisrising,withlong-termelectrificationtrendsboostedbyAIinvestment

(PoweringAI:The100GWOpportunity(3Feb2026))

,andtheneedforenergysecurity

(AsiaEnergySecurityandAI:EnergyMeetsCompute:Supercycle

Recharges(21May2026))

.PoweringAIandenergysecuritybothaddapremiumonfastinstallationandfirmpower.

Tomeetthaturgentdemandgrowth,weseeESStickingalotofboxesrightnow–

especiallytime-to-powerandlevelisedcost

(PowerforAI:FlexiblePower–TheNextWave

ofGrowthinAI(17Mar2026))

–andESScapacityinglobalpowergridsisincreasing

rapidly–8%ofTexas'ERCOT,3%ofthePJM,4%ofEurope'sENTSO-E,andnow12%ofAustralia'sNationalElectricityMarket.WeestimateglobalESSinvestmentofUS$0.6tto2030(US$200/kWhcost-to-constructwitha10%palearningcurve).

Butcoststoconsumershaverisenwithtightermarkets,raisingpolicyinterventionrisk.ThisiswhywefocusontheAustraliancasestudy:residentialpowerpricecapsarefalling3-7%inAustralianextyearasbatterieshavecontributedtolowerandlessvolatile

wholesaleprices,butwithcompaniesstilltargeting11%post-taxreturnsonlargescalebatteriesvs.8%observedreturnsglobally.

Technologiesthatcanbringdownpricesforconsumerswhilegeneratingacceptablereturnsforinvestorsaretheholygrailofutilitymarkets.RightnowwethinkthisisESS,andinthisnotewezoominonmerchantpowermarkets(asubsetofglobalpowermarkets):

•Weintroduceaframeworkforanalysinghowmerchantbatteriesearnreturns,andhowtogaugeinflectioninelectricitymarketpriceformationasESSpenetrationrises;

•Weexplorethestateofplayinkeymerchantpowermarkets,i.e.,marketswithreal-timepricing:PJM,ERCOT,CAISO,ENTSO-E,NEM,NEMS,JEPX,KPX,WESM,andIEX1;and

•Welookattheimplicationsforaffordabilityasthemarketevolves–wethinkthatESSgridpenetrationaslowas5%canmateriallyloweraverageprices.

1.PJMInterconnection(previouslyPennsylvania–NewJersey–MarylandInterconnection);ElectricReliabilityCouncilofTexas;CaliforniaIndependentSystemOperator;EuropeanNetworkofTransmissionSystemOperatorsforElectricity;NationalElectricityMarket(AustraliaEastCoast);NationalElectricityMarketofSingapore;JapanElectricPowerExchange;KoreaPowerExchange;WholesaleElectricitySpotMarket(Philippines);IndianEnergyExchange

Morganstanley

RESEARCH

GLobALInsigHt

Followthevolatility.OurthesisisthatnewentrantESSdampenpowermarketvolatilityandreduceaverageprices,whichmakesusconstructiveonESSinvestmentinmarkets

6

withhighvolatility(highvariablerenewablepenetration,highpeak-to-averageloadratios,growingloads),butcautiousonceESSstartstosetdailypeakprices,whichwethinkcanhappensurprisinglyquickly,asseeninAustraliaandTexasoverthelastyear.

Throughthisframework(Exhibit21)ourpreferredglobalmerchantmarketsforESSare:PJM,CAISO,ERCOT,andtheNEM;andourleastpreferredaretheNEMS,KPX,andJEPX.

OurpreferredstocksinthisglobalmerchantutilitygroupingareTalenEnergyCorp

(TLN.O)andVistraCorp(VST.N)duetoattractivevaluations,potentialtosignlong-termPPAswithdatacentersatpremiumprices,andrisingpowerpricesintheUS–wedonotexpectourbullishthesisonpowerpricestobedisruptedbyBESSgivenveryhighloadgrowth(especiallyinPJMandERCOT).OurleastpreferredareČEZGroup(CEZP.PR)andKoreaElectricPowerCorporation(015760.KS),basedlocalmarketconditionsandpowerpriceoutlooks,throughthisevolvingESSpenetrationlens.

Exhibit9:MerchantESSstockscreen

Ticker

MSAnalyst

Marketcap(US$b)

Rating

Currency

PriceTarget

Upside/DownsidetoPT

%EBITDAimpactedbymarketprices

%EBITDAfrombatteries

Batterycapex(US$b)

AGL.AX

Koh

4

Underweight

AUD

9.28

8%

84%

6%

0.2

ORG.AX

Koh

13

Underweight

AUD

11.00

1%

47%

8%

0.4

SCIL.SI

Maheshwari

9

Overweight

SGD

7.50

17%

80%

2%

0.2

MER.PS

Maheshwari

10

Overweight

PHP

683.00

20%

20%

2%

0.5

015760.KS

Shin

17

Underweight

KRW

29,000.00

-25%

70%

3%

0.5

ADAI.NS

Achnipalia

19

Overweight

INR

1,133.00

-25%

0%

0%

1.0

JSWE.NS

Achnipalia

10

Overweight

INR

624.00

5%

95%

0%

-

RWEG.DE

Pulleyn

47

Overweight

EUR

66.00

21%

13%

5%

0.6

ENGIE.PA

Sitbon

75

Overweight

EUR

31.00

17%

6%

3%

1.0

ENEI.MI

Pulleyn

113

Underweight

EUR

9.00

-6%

12%

2%

0.2

EDPR.LS

Sitbon

17

Equal-Weight

EUR

13.50

-5%

15%

4%

0.2

IBE.MC

Pulleyn

152

Equal-Weight

EUR

20.00

3%

15%

2%

0.1

VLTSA.PA

Sitbon

1

Equal-Weight

EUR

8.00

-5%

1%

2%

0.0

ANE.MC

Sitbon

9

Equal-Weight

EUR

21.00

-9%

12%

3%

0.1

ORSTED.CO

Sitbon

34

Overweight

DKK

225.00

37%

12%

2%

0.3

EDP.LS

Sitbon

21

Equal-Weight

EUR

4.60

5%

15%

1%

0.2

NTGY.MC

Sitbon

31

Overweight

EUR

32.00

12%

7%

1%

0.0

SSE.L

Pulleyn

34

Overweight

GBp

2,950.00

27%

27%

1%

0.1

CEZP.PR

Sitbon

32

Underweight

CZK

880.00

-30%

35%

1%

0.0

SLRS.MC

Sitbon

3

Equal-Weight

EUR

21.00

-11%

24%

0%

0.1

ELE.MC

Pulleyn

44

Underweight

EUR

34.00

-5%

26%

0%

0.1

DRX.L

Lester

4

Equal-Weight

GBp

900.00

14%

3%

0%

-

VST.N

Arcaro

55

Overweight

USD

212.00

32%

84%

2%

0.2

TLN.O

Arcaro

18

Overweight

USD

499.00

29%

47%

0%

0.2

CEG.O

Arcaro

104

Overweight

USD

359.00

25%

84%

1%

0.2

NRG.N

Arcaro

26

Equal-Weight

USD

162.00

21%

47%

0%

0.2

AES.N

Arcaro

10

Equal-Weight

USD

15.00

2%

84%

6%

0.2

NEE.N

Arcaro

182

Overweight

USD

111.00

28%

47%

2%

0.2

Source:MorganStanleyResearch.Pricesasof1June2026.

Morganstanley

RESEARCH

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FutureresearchintotheFutureofEnergy

MoRGANSTANLEyREsEARcH7

Theintegratedutilitybusinessmodel.Globallyweprefertherisk-returnofratebaseorregulatedutilities,butmerchantmarketscanrevealefficientpowersolutionsthrough

competitionandinnovation,andcanprovidestockalphawhenmarketsinflect.Merchantpowermarketsvaryalot,e.g.,differentdemandpatterns(climate,demographics,

industrialbase),resources(coal,nuclear,gas,hydro,geothermal,wind,solarirradiance),

regulatoryandpolicycycles,andincumbentplayers.Ingeneral,flatpowermarketstendtoleadtomorestandalonesupplierswithcompetitiononbillingandbundling,e.g.,as

seenintheUK,whereasvolatilemarketstendtoencourageverticalintegration,with

physicalgenerationasahedgeforvolatility,e.g.,asseeninAustralia.Conceptually,higherESSpenetrationmaydriveconvergencetowardsflattermarkets,andhencemovesawayfromverticalintegration.However,weanticipatemultiplecyclesofvolatilityoverthe

courseoftheenergytransition,e.g.,asthermalfleetsretireandvariablerenewableenergy(VRE)movesintoreplaceit.

Implicationsfortheglobalutilityvaluechain(Exhibit10).Weseealongandbroadgrowthrunwayforpowerandutilities,withlong-termconcernslikeenergysecurityandenergytransitionrequiringamixoftechnologies(e.g.,

GlobalThematics:Nuclear

Renaissance–KeyQuestionsFor2026(15Jan2026))

andthedevelopmentofnew

technologies(e.g.,

Sustainability:EarthshotsSeries:Sodium-IonBatteryTechnology(16

Apr2026))

.

Exhibit10:ESSimpactontheutilityvaluechain

Equipment

Contractors

Transmission

Distribution

Billingsoftware

Behind-the-meter

ESSarenotasourceof

ESSinstallationcan

Large-scaleESSare

ESSmayreducepeak

Orchestrationofbehind-

Eitherforback-upor

energysodon'treplace

oftenbecombinedwith

oftenco-locatedwith

demandandslow

the-meterresources

rooftopsolar-self

theneedforgeneration

otherprojects,e.g.,data

plants,e.g.,solar

RegulatedAssetBase

(e.g.,VirtualPowerPlant

consumption,behind-

forenergyadditions

centreswithbehind-the-

attachment

growth

andVehicle-to-Grid)

the-meterESScanadd

meterESS

addscomplexityto

billing

toinstallationmarketgrowth

ESSdocompetewith

ESSmayfacilitatemore

Behind-the-meterESS

gaspowerforfirming,

VRErollout,supporting

mayreducegriddemand

butdonotyetcompete

newrenewableenergy

andslowRegulated

withgasforlong

zones

AssetBasegrowth

durationbackup,e.g.,

dunkelflaute

ESSmayfacilitatemore

ESSmayreducepeak

Therearesomelow

VRErollout

demandandslow

RegulatedAssetBase

growth

voltagenetworkESS

applications,e.g.,

communitybatteries,

networksupport

Sources:MorganStanleyResearch.

Morganstanley

RESEARCH

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IntroducingourMerchantESSFramework

Top-Bottom4-hourspreads

WeseeenergyarbitrageasthemostsignificantrevenuesourceformerchantESS,usuallymakingup50-70%oftotalESSrevenue,eitherdirectlyorviacontracts/derivatives.For

comparability,wefocusonTop-Bottom4-hour(TB4)spreads,theaveragespreadbetweenlowestpricedandhighestpriced4-hourperiodseachday.Wedescribetwoscenario

boundstoanalysemerchantESSreturns:

1.Top4andBottom4pricesareindependent–sotheESSisapricetakerorshadow

bidder,withgoodprospectstogenerateeconomicrents(IRR>WACC)andfastpayback(<5years).

•Top4pricesetby

°Gaspeakershort-runmarginalcost(SRMC);

°Revealednewentrantprice(LCOE);or

°ValueofLostLoadormarketlimitprice.

•Bottom4pricesetby

°Negativerenewableenergycertificateprice;

°Avoidedthermalturndowncost;or

°Marketfloorprice.

2.Top4andBottom4pricesarerelated–sotheESSsetseithertheTop4orBottom4price,andreturnsarebetweenESSrequiredreturnandshort-runmarginalcost.

•TB4setbyLevelisedCostofStorage(LCOS);or

•TB4setbyShortRunCostofStorage,e.g.,valueofawarrantedcycle

WeprovideaworkedexampleforAustralia'sNationalElectricityMarket(NEM)–seeExhibit11.

Exhibit11:AustraliaTB4Scenarios

NewentrantLCOE154GaspeakerSRMC110

NegativeREC-3

Avoidedturndown-406Missingmoney113Scarcity559

ESSPriceTaker

LCOS208

ESSSRMC4NegativeREC-3NegativeREC-3

Balanced211Saturated7

ESSPriceSetter

A$/MWh

250

150

50

-50

-150

-250

-350

-450

Source:MorganStanleyResearch.SeeExhibit12forexplanationofterms.

MoRGANSTANLEyREsEARcH9

TheESSRevenueStack

Inventedin1799byAlessandroVolta,chemicalelectricbatteriesarenotanew

technology,butmaturingchemistries,inflectionintheelectricvehiclesupplychain,andgrowingvolatilityandcomplexityinpowersystemshasincreasedtheutility

batteryaddressablemarket.

WeseeESSperformingmultiplefunctionsinpowergridsaroundtheworld:

•Ancillaryservices,e.g.,frequencycontrol,inertia,contingencyreserve,voltagecontrol/reactivepowersupport;

•Networkservices,e.g.,non-wiresalternatives,deferralofupgrades,congestionrelief,locationalornodalmarketarbitrage;

•Demandresponse,e.g.,emergency/backupservices,curtailmentabatement;

•Thermalcomplement,e.g.,avoidingthermalplantturndowns,heatratearbitrage,especiallyaspartofanintegratedutilityfleet;

•Renewablesfirming,e.g.,shiftingsolartoeveningpeak,firmingwindpowerpurchaseagreement(PPA)delivery;

•Energyarbitrage,e.g.,chargeatlowprices,anddischargeathighprices,sometimesstructuredintooff-takecontracts,tollingagreements,andderivatives.

TheversatilityofESSalsocomplicatestheexerciseofmodellingreturns.Many

developersuseMonteCarlopowermarketmodels,andtraditionalindependentpowerproducertoolsforriskallocationandfinancing,e.g.,PowerPurchase

Agreements(PPAs),capacitypaymentmechanisms,and/ortollingagreements,

withlimitedparticipationinreal-timeandderivativepowermarkets(i.e.,merchantrevenue).

Forthepurposesofthisnotewefocusonenergyarbitrage,asweseethisasthedominantsourceofrevenueinmostmerchantmarkets,eitherdirectlyorthroughcontractsorderivatives.

Partlyforcomparabilityacrossmarkets,andpartlyasafunctionoftheEarth’s

dailyrotationaroundtheSun,wezoominonTop-Bottom4-hourSpreads(TB4),whichistheaverageofthespreadbetweenthelowestpriced4hourseachday,

andthehighestpriced4hoursforeachdayintheperiodunderexamination.ThisspreadrepresentsthenetrevenueopportunityforanESSforenergyarbitrage,andhasbecomethereferenceforanumberofearly-adopterderivativeproductsin

ERCOTandCAISO.Althoughmostutilitybatteryinstallationstodateareinthe1-3hourstoragerange,(andthereareTB1andTB2markets),wefocusonTB4

because:(a)TB4isstillagoodmeasureforshorterdurationbatteries,e.g.,a2-hourbatterywith50%foresight;and(b)webelievebatterydurationwillincreaseovertimeasbatterypackandinstallationcostscontinuetofall.

Wealsoanticipatefurtherevolutioninderivativesmarketsandelectricitymarketdesign(e.g.,

FutureofEnergy-AustraliaUtilities:ESEMintheNEM(7Aug2025))

,whichisalwaysthecaseinutilities.

Morganstanley

RESEARCH

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Australia'sNEMhasbeenanattractivemarketforESSowingto:

•TheNEMhashighrenewablepenetration(43%in2025),ahighspark/darkspread,andhigherforecastvolatilitywithcoalclosure;and

•TheNEMisalsooneoftheworld'sfastestgrowthdatacentermarkets

(Australia–

DataCentreHandbook(24Mar2026))

.

ThisishowweestimatetheTop4andBottom4pricesunderourtwoscenariobounds:Exhibit12:AustraliaNEMTB4scenarios

TB4emergesfromindependentBottom4andTop4prices

GaspeakerSRMC(A)

NewEntrantVRE(B)

Top4pRicEDEscRipTioN

A$110/MWh

A$154/MWh

CommENT

Eveningpeakprice,largelysetbyagaspriceofA$10/GJxHeatrate11GJ/MWh.

AscarcitypricetoencouragenewinvestmentequaltotheLCOEofFirmedVariableRenewableEnergy(60%VRE,8%IRR).

SouRcEs

AEMO

CSIRO

A$169/MWhNewEntrantCCGT(C)

AscarcitypricetoencouragenewinvestmentequaltotheLCOEofGasFiredCombinedCycleTurbines(GaspriceA$12/GJ,8%IRR).

CSIRO

A$23,200/MWhMarketPriceCap(D)

BasedonValueofLostLoadestimate.NotethattheNEMmovestoanadministeredpricecapofA$600/MWhafter~8hoursattheMPC.

AEMC

BoTTom4pRicEDEscRipTioN

CommENT

SouRcEs

Negativecertificate

price(E)

-A$3/MWh

RenewablegeneratorsearnLarge-ScaleGenerationCertificates(LGC,aformofRenewableEnergyCertificate)foreveryMWhsentout,sothenegativeLGCpriceapproximatescashbreak-evenforazeromarginalcostplant,typicallyasolarplantduringdaylighthours.

Mercari

Avoidedturndowncost

(F)

-A$406/MWh

Thermalplantmaintenancecostsincreasewithturndownandrampup,sothermalplantsmaypayapricetodispatchandavoidthis

maintenance.EstimatedasA$1mturndowncost/(30%mingenx~2.1GWx4hours).

AGL

TB4DEscRipTioN

CommENT

SouRcEs

A$113/MWh(A)-(E)

Daylightpricesetbysolar,eveningpricesetbygaspeaker.

A$560/MWh(B)-(F)

Negativepricesetbyathermalplantavoidingaturndown,peakpricesetunderscarcityconditions(revealednewentrantprice).

TB4compressestopricessetbyESS

TB4DEscRipTioN

CommENT

SouRcEs

A$211/MWhLCOS

Requiredrevenuefora4-hourESS(US$248/kWhcost-to-construct,8%IRR)

CSIRO

A$7/MWhESSSRMC

Valueofawarrantedcycle.EstimatedatA$178/kWh2035BatterypackreplacementCost/(6,000warrantedcyclesx4hours)

CSIRO

Sources:MorganStanleyResearchandasshownaboveinExhibit11.

Morganstanley

RESEARCH

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0

Exhibit13:Australia(NSW)averageTB4(A$/MWh)

119

67

116

60

72

75

186

199

212

175

183

154

108

121

123

169

214

148

156

171

169

129

149

125

111

148

118

166

197

191

204

191

158

183

206

195

157

161

140

180

155

184

161

181

170

179

174

132

97

94

75

91

SepNovJanMarMayJulSepNovJanMarMayJulSepNovJanMar202420252026

TB4<300TB4>300

JanMarMayJulSepNovJanMarMayJul20222023

1,00

900

800

700

600

500

400

300

200

100

0

Sources:AustralianEnergyMarketOperator(AEMO),MorganStanleyResearch.WeseparatetheportionofTB4aboveA$300/MWhasthisiscapturedwithinthecapmarket,aseparatederivativemarket..

12

Morganstanley

RESEARCH

GLoBALINsiGht

Forecastingpoolprices–beyondSupplyandDemand

Intraditionalenergy-onlymerchantpowermarketanalysiswerankthegenerationfleetbyrelativecost(themeritorder)toestimateasupplycurve,andthenrun

observeddemandcurvesoverthesupplycurvetogeneratepriceforecastcurves.

•Fortypicalintegratedutilitystockmarketanalysiswitha2-3yearearningsforecast,wefindthislevelofanalysisissufficienttosanitycheckriskskewvs.observedforwardcurves.

Video:AustraliaIntegratedUtilities:Avoided

CapCosts(6Mar2026)

•Fordevelopers,financiers,andutilitieslookingtoassessprojectand

portfolioreturnsovercontractandplantlives,theyturntoprofessionalpowermarketforecasterswhoincorporatedynamicandMonteCarlo

supplyanddemandscenariosincorporatingassumptionsonfuturetechnologycosts(learningscurves),fuelcosts,andpolicy(renewabletargets)toarriveattheirlong-termpricescenarios.

Butinbothcases,wecanstartbyconsideringtwobasicmarketstatestosolveforenergyprices:

•Scarcitymarkets,wherepricesrisehighenoughtoencouragenewinvestment,knownasaRevealedNewEntrantprice,whichshouldbehigherthanthelevelisedcostofnewentrantplant;and

•Over-suppliedmarkets,wherepricesfalltothecashcostofthemarginalprice-settingplant,alsoknownasaMissingMoneymarket,asthemarginalprice-settingplantearnsonlyitscashflowbreak-evenbutnoreturnon

capital,orreturnofcapital,encouragingtheplantownertoimproveplantefficiencyandimprovetheplant’spositioninthemeritorder,ortoretiretheplant(ideallywithprovisioningforrehabilitation).Notethattheshort-runmarginalcostofsomethermalplantscanbenegative,i.e.,the

generatorpaystobeallowedtodispatchpowersoastoavoidincrementalmaintenancecostsassociatedwithshutdownandrestart.

Inatraditionalthermalpowermarket,weusesomeshorthandconceptstoevaluatemarginalplanteconomics

•Darkspread=powerprice-costofcoalxheatrate

•Sparkspread=powerprice-costofgasxheatrate

•Cleanspread=powerprice-costofgasxheatrate-costofcarbonxemissionsintensity

•Quarkspread=powerprice-costnuclearfuelxheatrate

•Barkspread=powerprice-costofbiomassfuelxheatrate

Whereheatratesarefuelquantitiesrequiredtogenerate1MWhofelectricity,theinverseoffuelefficiency(e.g.,MWhofelectricitygeneratedperMMbtuofgas).Inasense,apowermarketsolvesforpowerdemandbyoptimisingbetweendifferentfuelsandtheirefficiencies.

Morganstanley

RESEARCH

GLobALINsight

MoRGANSTANLEyREsEARcH