Australia’s wholesale electricity and gas prices experienced an upward trend in the June quarter, following a period of sharp decline. However, these prices remained considerably lower than the peak levels recorded a year ago, aided by improvements in production capacity. The Australian Energy Regulator (AER) released its latest wholesale markets report, which reveals that average spot prices in the National Electricity Market (NEM) ranged from $65-$148 per megawatt hour during the quarter, compared to $64-$114 per megawatt hour in the previous three months.
Several factors contributed to the price increases, including higher demand during the winter season, a decrease in solar generation, and a reduction in coal-fired power plants’ capacity in Queensland and New South Wales (NSW). The closure of NSW’s Liddell power station in April resulted in an 800-megawatt loss in generation capacity, leading to higher wholesale prices. However, the entry of 1,100 megawatts of new solar, wind, and battery capacity partially offset this loss.
While the average electricity demand during the day was lower than a year ago due to the increased adoption of rooftop solar panels, evening peaks and nighttime consumption remained at similar levels. Moreover, wind output hit record levels in the NEM, with Victoria, South Australia, and energy companies investing more in wind technology.
Justin Oliver, a board member of the AER, expressed satisfaction with the electricity price movements during the June quarter compared to the previous year. He highlighted that the same factors that drove high prices in the second quarter of 2022 were not as prominent this year. Factors such as coal generator outages were much less frequent, and more coal capacity was offered into the market.
Despite the decline in wholesale electricity prices since the peak in the June quarter of 2022, Australian households continued to face high retail electricity prices. Starting from July 1, millions of consumers experienced a new round of price increases, which could result in electricity bills rising as high as $600 for the 2023-2024 financial year.
In addition to electricity prices, gas spot prices also saw an increase during the June quarter. The average prices in the east coast market stood at $14.50 per gigajoule, up from $12 in the previous quarter. This increase was primarily driven by supply constraints at the Longford gas plant and transportation limitations on the Moomba to Sydney pipeline, coinciding with high demand in Victoria. However, these constraints were eventually resolved, allowing more pipeline capacity to flow southward in June. Additionally, the decline in heating demand in the northern hemisphere contributed to a decrease in the international liquefied natural gas market prices.
Looking ahead, the AER forecasted a drop in wholesale electricity prices in the third quarter of 2023. Factors such as warmer-than-expected winter temperatures, increased wind output, and a strong possibility of El Nino conditions returning were cited as contributing to this forecasted decrease. Victoria was expected to see the most significant price reduction, with prices falling to around $32 per megawatt hour. NSW, South Australia, and Queensland were also projected to experience price drops.
While future spot prices were anticipated to remain stable in the last three months of 2023, the AER predicted an increase in prices for Queensland, NSW, and South Australia during the first two quarters of 2024. This price hike was primarily attributed to delays in the return to service of several generation units in the Callide Power Station, changes in weather patterns, and potential unplanned outages. The AER emphasized the importance of managing supply-demand shocks and highlighted the significant role that the nearing full capacity of the Iona gas storage facility in Victoria would play in this regard.
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