Australia’s wholesale power prices fall by almost half as carbon emissions drop

Wholesale power prices across Australia’s main electricity market almost halved at the end of 2023 compared with a year earlier, stoking hopes households may soon see smaller bills.

Spot prices in the National Electricity Market (Nem) that serves the eastern and southern states fell to an average of $48 a megawatt-hour in the December quarter, down 48% on the previous year, the Australian Energy Market Operator (Aemo) said in a report released on Thursday. Carbon emissions also dropped to record lows.

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Warmer than average temperatures nudged average electricity demand 1.6% higher to 19,745MW in the Nem, the first increase in the fourth quarter since 2015. That rise in demand came even as rooftop solar output jumped by 17% to average 3,433MW.

The split between mainland Nem states widened, with average wholesale spot prices dropping to $26MW/h in Victoria and $33MW/h in South Australia, well shy of the $66MWh for New South Wales and $68MW/h for Queensland.

Abundant renewable electricity, particularly during the middle of the day, meant that prices were zero or negative for a record of 20% of the trading intervals during the quarter. Both Victoria at 29% and NSW at 12% set records for the proportion of the quarter that saw wholesale electricity prices at zero or negative levels.

Energy analysts including Tim Buckley have argued that retail power prices should fall when the Australian Energy Regulator sets its default market offer for the year from 1 July. Even though wholesale prices make up only about one-third of the bill consumers pay, the drop so far this financial year could provide a “double-digit drop” if maintained, Buckley said last week.

But the warmer temperatures that nudged demand higher in the final three months of 2023 are continuing this month, sending spot prices sharply higher in Queensland. Demand in the state broke the previous record set last March by almost 10%.

The power grid faces fresh strains on Thursday and Friday as the heatwave roasting inland parts of Queensland and NSW extends to Sydney. Aemo issued several “lack of reserve” notices for both states late on Wednesday afternoon, calling for additional supply in both states for those days.

Authorities often faced the opposite issue, with solar electricity supplies meeting much if not all demand during parts of some days as rooftop systems continued to spread.

“Early in the afternoon of 31 December rooftop solar met 101% of South Australia’s total electricity demand,” said Aemo’s chief executive, Daniel Westerman. “While on the afternoon of 24 October rooftop solar and grid-scale renewables provided 72% of all electricity across the east coast.”

Renewables took a 43% share of generation during the quarter, Westerman told the ABC on Thursday.

“These events are snapshots of the transition that’s happening, and they are becoming more frequent,” Westerman said, adding: “This represents a great opportunity for Australia’s energy market.”

To seize that opportunity, though, additional storage such as large-scale batteries are needed lest more output from solar farms, in particular, face so-called curtailment when excess generation is wasted.

For instance, grid-scale capacity increased more than 600MW from new and existing solar farms but network and other constraints reduced growth in actual power delivered by more than a third, Aemo said.

The advance of renewables helped push out coal and gas.

Total Nem emissions fell 4%, or 1.1m tonnes of carbon-dioxide equivalent, to a record low 25.4MtCO2-e. It took 590kgCO2-e to produce 1MWh of electricity, a record low intensity.

Black coal-fired generation fell to a new low of 9,189MW even as more capacity was available despite last April’s closure of NSW’s Liddell plant, and coal prices fell.

“Government policies capping domestic thermal coal prices and improved coal supply conditions collectively contributed to an overall decrease in marginal cost of coal-fired generators, resulting in more volume offered to the market at lower price ranges,” Aemo said.

Fossil gas demand for power generation fell slightly, helping to contribute to a sharp drop in east coast wholesale prices. Prices averaged $10.83/gigajoule, almost 40% lower than for the December quarter of 2022.