26 September 2023

Wholesale power prices fall on renewable energy output

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Daniel Mercer* says consumers are set for some energy bill relief as wholesale prices fall.

Embattled consumers are set for some welcome relief after sky-high wholesale electricity prices more than halved in the final three months of 2022, an analysis of Australia’s biggest power market shows.

In its latest snapshot of the national electricity market, the Australian Energy Market Operator (AEMO) noted wholesale prices fell back from $216 a megawatt hour in the September quarter to $93/MWh in the three months to December 31.

Wholesale prices make up about 30 to 40 per cent of the typical household power bill and their rising levels over the past 12 months have been blamed for big increases in tariffs.

Despite the big drop, AEMO noted prices for the quarter were still significantly higher than the previous corresponding period in 2021, when they averaged barely $50/MWh.

The report also shows that renewable energy output soared to record levels during the period as generation from coal-fired power plants plumbed new lows.

AEMO said 68.7 per cent of the electricity consumed from the National Electricity Market (NEM) was generated by sources such as solar panels or wind farms just after midday on October 28.

Such “instantaneous renewable penetration” was even higher in Western Australia’s wholesale electricity market where green power accounted for 84.3 per cent of demand from the grid at one stage on December 12.

However, unlike the eastern states, WA’s biggest electricity market was wracked by record prices in the most recent quarter when they ballooned 50 per cent to $81.80MW/h compared with the same period in 2021.

Wind, solar ‘push out’ coal

AEMO executive general manager of reform delivery, Violette Mouchaileh, said a steep fall in NEM spot prices in December coincided with moves by state and federal governments to cap coal and gas markets.

Ms Mouchaileh said emissions dropped to their lowest levels since the start of the national market in 1998 as more renewable energy was added to the system.

She said grid-scale wind and solar plants now accounted for 20 per cent of the total generation in the market — a figure that did not include the huge amounts of small-scale rooftop solar in the system.

“This growth, along with the lowest output from coal-fired generation since NEM start … saw NEM emissions drop to the lowest quarter on record at 26.4 million tonnes carbon dioxide equivalent,” Ms Mouchaileh said.

“[These were] 5.6 per cent lower than Q4 2021 levels.

“Similarly, [WA’s wholesale electricity market] emissions dropped 11 per cent from Q4 2021.”

According to AEMO, falls in coal-fired generation were driven by several factors including outages that hit Queensland’s fleet of units particularly hard.

But it said coal plants were also being pushed out by the ever-growing amounts of cheap wind and solar energy that was generated, especially in the middle of the day.

Across the three months, the share of demand met by coal-fired power fell 7 per cent to 55.4 per cent.

With so much of that renewable energy generated by consumers via rooftop solar panels, rather than utility-scale plants, AEMO said demand for power supplied through the grid fell to a new low of 11,892MW on November 6.

Traditionally, demand for power from the NEM, which spans from Queensland in the north to South Australia in the west and Tasmania in the south, averaged more than 20,000MW.

Renewable records tumble

Ms Mouchaileh said although prices declined as the quarter wore on, the loss of South Australia’s grid after a transmission failure in November triggered a period of volatility.

She said the incident separated South Australia from the rest of the NEM for a week, sending the price of power in the state soaring at times and forcing AEMO to order some gas-fired plants to run to help keep the system stable.

However, Ms Mouchaileh said the episode was also a portent of the future, showing how a power system could cope with heavy levels of renewable energy penetration.

She noted that South Australia was drawing more than 90 per cent of its electricity from renewable sources at one stage on November 19 despite operating as an “island”.

“While [South Australia] lost interconnection, instantaneous renewable penetration in SA peaked at an extraordinary 91.5 per cent 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.”

She said 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,” she said.

Gas WA’s ‘primary fuel type’

Amid efforts by the Commonwealth to jawbone coal and gas markets lower, AEMO noted prices for the latter had eased “from recent record highs to a quarterly average of $17.79 a gigajoule”.

The price sits above the government’s temporary cap of $12/gj but represents a big decrease on the $26/gj level that prevailed before Canberra’s intervention.

As part of its report, AEMO said gas-fired power generation fell during the December quarter as high prices weighed on demand and renewable energy output rose.

Conversely, gas-fired power production surged to record levels in WA, where the fuel was the main source of electricity and was used to meet almost 40 per cent of underlying demand.

*Daniel Mercer is the Energy Reporter for the ABC’s National, Regional and Rural Team.

This article first appeared at abc.net.au

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