Wholesale electricity prices[1] in the National Electricity Market (NEM) averaged $93 per megawatt hour (MWh) during the December quarter, dropping 57% from the September quarter ($216/MWh), but remaining well above the Q4 2021 average of $52/MWh.
AEMO’s Quarterly Energy Dynamics (QED) report shows that average renewable output was the highest on record, peak renewable contribution records continue to be broken, and the overall contribution of both coal and gas fell – while both remained essential to a reliable supply of electricity to homes and businesses.
The report shows reduced wholesale prices were influenced by wind and grid-scale solar setting prices 17% for the quarter, up 4% from Q4 2021, hydro at 34% (up 1%), while black and brown coal generation reduced from 45% to 39%.
AEMO Executive General Manager Reform Delivery, Violette Mouchaileh, said sustained high commodity prices, upcoming coal unit outages and tight gas supply led to futures prices remaining elevated early in the quarter, before declining through November, and sharply in December.
“Following the Federal Government’s temporary capping of wholesale domestic gas and thermal coal markets on 9 December, ASX Cal23 electricity futures prices saw steep falls in the mainland states through to the end of the quarter,” said Ms Mouchaileh.
“Instances of high price volatility in the December quarter followed a transmission failure in South Australia, which saw the state lose normal connection with the rest of the NEM for a week.”
Without normal connection to the NEM, local frequency control ancillary services (FCAS) markets spiked due to increased demand, and an administered pricing period was triggered - capping South Australia’s FCAS prices at $300/MWh.
“While SA lost interconnection, instantaneous renewable penetration in SA peaked at an extraordinary 91.5% on 19 November,” Ms Mouchaileh said.
“This was possible with the support of four new synchronous condensers that are strategically placed within the SA network, providing system strength services that are traditionally offered by coal, gas, and hydro.
“The ability to manage frequency using the Hornsdale big battery and gas generation was critical to maintain system reliability with high renewable penetration.
“This event was a glimpse of the future, when both batteries and gas generation will be key to Australia realising its renewable potential.”
Ongoing investment in consumer-owned generation continued to displace grid generation and drive down daytime operational demand, with both markets observing minimum demand records – in the NEM at 11,892 megawatts (MW) on 6 November and the Wholesale Electricity Market (WEM) at 626 MW on 16 October.
New instantaneous renewable penetration records were also set in the NEM at 68.7% on 28 October (up 4.6%) and the WEM at 84.3% on 12 December (up 3.7%), largely driven by high levels of Distributed PV.
Ms Mouchaileh said output from wind and grid-scale solar grew strongly in Q4 2022, producing 20% of total generation in the NEM as new facilities were connected and commissioned.
“This growth, along with the lowest output from coal-fired generation since NEM start (down 926 MW from Q4 2021), saw NEM emissions drop to the lowest quarter on record at 26.4 million tonnes carbon dioxide equivalent – 5.6% lower than Q4 2021 levels. Similarly, WEM emissions dropped 11% from Q4 2021.
East coast gas prices have also dropped from recent record-highs to a quarterly average of $17.79 per gigajoule (GJ), compared to $26/GJ in Q3 2022 and $10.60/GJ in Q4 2021.
Demand for east-coast gas decreased by 7% during the quarter, but an increase in gas storage saw the Iona Underground Gas Storage facility finishing with the highest end to a calendar year since reporting began in 2017 at a gas balance of 18.9 petajoules (PJ).
Overall demand from gas-fired generators also decreased during the quarter, however, it was incredibly important that gas was available to meet demand when required.
In contrast, the WEM weighted average Balancing Price[2] continued an upward climb, reaching an all-time quarterly average high of $81.80/MWh, up 6% on the previous quarter and 50% from Q4 2021. Drivers included reduced coal generation (down 42% from Q4 2021), an increase of gas-fired generation to fill the gap (up 35% from Q4 2021), and lower occurrence of negative prices.
In the Western Australian gas market, total consumption increased by 7% compared to Q4 2021, driven by a 31% increase in gas consumed for electricity generation. Gas production increased by 9% from Q4 2021, despite the sudden reduction of production from the Varanus Island facility caused by a pipeline leak in mid-December.
Ends…
[1] Wholesale electricity prices refer to the value of energy traded between participants in the NEM, and affect only one component of the retail energy bills that consumers pay. In addition to wholesale energy purchases, costs that retailers incur to supply electricity to consumers include transmission and distribution network charges, environmental costs and retail operating expenses. Uses the time-weighted average which is the simple average of regional wholesale electricity spot prices in the quarter. The Australian Energy Regulator (AER) reports the volume-weighted average spot price which is weighted against native demand.
[2] The weighted average Balancing Price is a measure of the average Balancing Price that puts greater weighting on intervals where greater quantity is generated. This is to reflect the average Balancing Price more accurately against quantity of electricity generated, rather than against intervals. Weighted average Balancing Price is sum(Balancing Price * EOI Demand)/sum(EOI Demand) across the quarter