Record low coal and gas-fired generation forced wholesale electricity prices lower in the closing months of 2023, as every region of the country notched up a new solar output record.
While prices are sharply lower than the peaks of two years ago, Australia remains vulnerable to price spikes should heat waves strike from January to March, the Australian Energy Regulator (AER) said on Wednesday.
In a quarterly update, the regulator also warned it would “take time” for power bills to reflect recent lower costs.
Combined, wind and solar farms reached a record high of more than a quarter (26 per cent) of generation output in the national electricity market (NEM) from October to December, up from a record 23 per cent a year earlier.
Average annual wholesale electricity prices in the NEM dropped by between 44 per cent and 64 per cent and average annual east coast gas market spot prices fell by 43 per cent in 2023.
“The proportion of electricity output sourced from coal and gas fell to a record low of 66 per cent,” AER board member Jarrod Ball said.
“Although relatively little new (large-scale) generation entered the market, a significant increase in new entry is currently scheduled for 2024,” he added.
Wholesale electricity prices fell in NSW, Victoria and South Australia in the last three months of 2023, but increased in Queensland and Tasmania compared to the previous quarter.
Victoria was the cheapest region in the December quarter, with electricity prices averaging $34 per megawatt hour, while Queensland was the most expensive at $79 per MWh.
However, the price gap between daytime and evening continued to widen with evening peak prices averaging well over $100 per MWh in Queensland, NSW and South Australia.
Interconnector constraints continued to be a factor in high price events recorded during the quarter, AER revealed.
High-voltage interconnectors are meant to allow states to import cheaper generation from outside their borders.
Queensland and Victoria have tended to be net exporters, providing surplus capacity to NSW where cheap capacity is often lacking.
Australia is racing to connect new and more geographically dispersed renewable energy zones as the country moves on from last century’s network of large coal-fired power stations.
On November 9, a planned network outage limited imports into SA. Severe weather on December 8 in SA, and on December 28 and 29 in Queensland, led to electricity imports being restricted to protect system security.
Residential and commercial gas demand was at its lowest in a decade for that time of year, and demand from gas-fired generators dropped by 27 per cent from the previous three months.
The regulator said this low demand helped put downward pressure on domestic prices, offsetting potential upward pressure from high LNG export volumes or constraints from ongoing pipeline maintenance in VIC.
Gas prices on the East Coast spot market increased slightly from the previous quarter to $10.83 per gigajoule, and southern gas storage remains at record high levels.
Trading by producers granted an exemption under the $12 per GJ gas price cap had relatively little impact on prices, AER said.
Federal Treasurer Jim Chalmers said further electricity bill relief for stretched households was still under consideration even as wholesale prices moved lower.
To address the high cost of living, the government announced power bill relief in the last budget for eligible households and small businesses.
“The focus for us right now is bigger tax cuts for middle Australia to help with the cost of living, but we are prepared to contemplate any affordable or responsible additional measures that we can take in the May budget to ease the pressure,” he told reporters in Melbourne.