Electricity Market Update: Power Demand Hits Record Low

Recent data from the Australian Energy Market Operator (AEMO) has revealed a significant shift in the nation's energy market, with wholesale electricity demand falling to a record low.

This decline in demand, influenced by factors like milder winter weather conditions and a rise in renewable energy contributions, signals changes for the Australian energy sector. We take a look at the intricacies of these changing energy market conditions.

 

Decline in Wholesale Prices

According to the latest Quarterly Energy Dynamics report released by the Australian Energy Market Operator (AEMO),  wholesale electricity prices have dropped significantly. 

In fact, the report for Q3 2023 (1 July to 30 September 2023), shows that wholesale electricity prices averaged $63 per megawatt hour (MWh) in the quarter, down 41% from the June quarter ($108 per MWh) and down a huge 71% ($216 per MWh) from the same quarter last year.

By region, South Australia recorded the highest average quarterly price at $92 per MWh, followed by New South Wales ($81 per MWh), Queensland ($65 per MWh), Victoria ($49 per MWh) and Tasmania ($29 per MWh).

This contrasts with market conditions in 2022, which was marred by soaring coal and gas prices coupled with disruptions in coal-fired power supplies. The present trend indicates that there could be a return to mean prices across the majority of states. 

 

Factors Leading to Reduced Demand

The reduced electricity demand is primarily due to a milder winter, and increased renewable energy sources within the power grid.

Milder Winter Season

Traditionally, colder months see a surge in electricity consumption due to heating needs. This year's warmer winter meant households and businesses required less energy for heating.

Surge in Renewables

Total electricity supply by fuel type saw renewables (wind, grid-scale and rooftop solar, hydro and other sources) contribute 38.9% of total supply-an increase of 4.6%. At the same time, black coal's share fell 3.4%, primarily due to the Liddell Power station closure, and gas fell 2.3%. Brown coal's market share increased 1%, mainly due to fewer unplanned outages.

Renewables also supplied a record 70% of total energy used over a half-hour period, with rooftop solar contributing 39%, again highlighting the likely benefit from coordinating rooftop solar and home batteries.

The past year has also seen an unprecedented increase in rooftop solar installations. The grid's rooftop solar power in September 2023 was 41% higher than the same month in the previous year, driven by favourable weather conditions and an accelerated pace of solar installations.

Potential renewable output hit a record 98.6%, which combines dispatched generation and available wind and solar farms that were bidding above the spot price and therefore not dispatched into the wholesale market.

 

Challenges in Some States

Despite all this, there were still challenges in some states. For example, South Australia was impacted by a number of outages on the main interconnector to Victoria. These outages were caused by extensive network shut-downs due to maintenance and upgrades. This meant that the electricity grid in South Australia had to use more gas generation, which left it more susceptible to high price bidding from the state's gas generators.

 

Retail Prices: A Forward Look

While the decline in wholesale prices is a positive indicator, it's important to note that this may not immediately translate to reduced household electricity bills. There are a lot of factors that impact the of retail energy pricing. In addition, retail energy pricing is often pre-set far in advance. This means that consumers might have some time to wait to see wholesale price reductions reflected in their bills.

 

Future Considerations and Cautions

While the current state of the energy market brings optimism, commentators like the Australian Energy Regulator have voiced concerns. They've acknowledged the benefits of integrating affordable renewable sources like solar and wind power into the grid. However, they've also highlighted that the pace of this transition needs acceleration. The upcoming summer season is projected to be warmer, posing potential challenges, particularly when considering the vulnerabilities observed in South Australia.

The influence of renewables on Australia's electricity grid and the cost of electricity has been profound. The overarching message is clear: a transition to renewables is imperative for both a reduction in the cost of power, and Australia's sustainable energy future.