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ABC News
ABC News
National
energy reporter Daniel Mercer

Drop in wholesale power prices as renewable energy generation from wind and solar grows, AEMO finds

Wholesale power prices in the national electricity market tumbled 10.5 per cent in the March quarter. (Supplied: UQ)

Surging renewable energy output has pushed fossil fuel-fired generation down to record low levels in Australia's biggest electricity grid, helping to trigger another big fall in wholesale prices.

The Australian Energy Market Operator (AEMO), which runs the national electricity market covering the eastern states, said power prices had tumbled in the three months to the end of March.

Average prices were $83 a megawatt hour for the period, a 10.5 per cent decrease compared with the previous three months, and a whopping 62 per cent lower than the September quarter last year.

The findings were outlined in AEMO's latest quarterly report, which also showed the extraordinary growth of output from green energy sources such as wind and solar.

AEMO said the amount of electricity produced by Australia's vast array of rooftop solar panels jumped by 23 per cent on average compared with the same period in 2022.

Generation from large-scale wind and solar farms also surged, up 11 per cent, as new projects came online.

AEMO says new transmission lines are needed to help the grid cope with the shift to renewables. (ABC News: Kenith Png)

Back-up power sources needed

At the same time as renewable energy soared, the agency said coal- and gas-fired power fell away to historically low levels, despite AEMO reporting that price caps imposed by the federal government had lowered their costs.

According to AEMO, gas-fired generation dipped to its lowest level in almost 20 years, while the steady decline of both black and brown coal power showed few signs of slowing.

Daniel Westerman, the chief executive of AEMO, said the March quarter highlighted the fundamental changes underway as the electricity system moved from fossil fuels to renewable sources.

However, Mr Westerman said it also underscored the need for new transmission lines and back-up "firming" sources of power such as pumped hydro and batteries to help the grid cope with the shift.

"What these insights reinforce is that critical transmission investments … are needed to share low-cost, low-emission renewable energy with consumers," Mr Westerman said.

To illustrate his point, Mr Westerman noted that a number of major renewable energy projects in the Murray region of Victoria were unable to supply their full capacity to the grid because of constraints in the transmission network.

He said this bolstered the case for high voltage power lines such as VNI West and Energy Connect, which he argued would significantly increase the capacity of the system to absorb renewable energy.

"This is clear with the projects in Victoria's Murray River renewable energy zone that are burdened with generation impacts," he said.

Rooftop solar helping drive prices down

In a further sign of the transformation underway, Mr Westerman noted that renewable energy at one point in February accounted for almost 66 per cent of supply across the national electricity market — a new record.

And it was the prevalence of rooftop solar that was having an outsized effect, he said.

Demand for power from the grid is at record low levels thanks in large part to rooftop solar panels. (ABC News: Curtis Rodda)

There are more than 3 million Australian homes with solar panels, which typically pump any excess power they produce back into the grid in an uncontrolled way, pushing out other generators such as coal-fired plants.

Mr Westerman said this phenomenon had helped push so-called operational demand — or demand for power from the grid — to record low levels.

And it was also helping to drive wholesale power prices into negative territory — where generators pay to keep producing to avoid costly switching off procedures — more and more often.

"Between 9am and 5pm, wholesale electricity prices were negative in South Australia and Victoria, 60 per cent and 55 per cent of the time respectively," he said.

While lower than previous quarters, AEMO noted that prices in Queensland and New South Wales remained higher than the southern states of Victoria, South Australia and Tasmania.

Federal Energy Minister Chris Bowen said the report from AEMO showed efforts by the government to put downward pressure on electricity prices was working.

Central to those efforts was capping wholesale coal and gas prices for the domestic market — something Mr Bowen claimed had helped deliver a "near-halving of electricity future prices, which are a big factor on energy bills".

"We know Australian households and businesses are feeling the cost-of-living crunch," Mr Bowen said.

"The government is continuing to act, providing targeted energy bill relief for households and businesses, and driving investment in cleaner, cheaper, and more reliable energy in the upcoming budget."

Shadow energy minister Ted O'Brien said the government was mismanaging Australia's power industry, arguing the closure this week of the ageing Liddell coal-fired power station in NSW would risk supplies.

Mr O'Brien argued the government did not have proper plans to replace retiring baseload generators such as coal plants.

Editor's note 2/06/2023: This article has been amended to clarify that the AEMO report attributes renewable energy output as one of a number of reasons that have contributed to a fall in wholesale energy prices over the quarter.

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