Australia has world’s most volatile electricity market, Rystad Energy finds

Australia has the most volatile wholesale electricity market, troubling the country’s energy industry and heightening pressure on household and business bills.

Australia has the world’s most volatile electricity market, as the country’s energy transition sputters, a report from Rystad Energy has found.

The report’s findings illustrate why households and businesses have endured two consecutive years of price rises of more than 20 per cent and the scale of the challenge facing the nation in meeting its target of rapidly weaning the country’s $2.5 trillion economy off its coal dependency.

Rystad said it had analysed the difference in price between the highest and lowest points during a given hour of 39 electricity markets and found Australia had the most significant volatility, caused by natural disasters such as cyclonic winds or bushfires, which have become more frequent and devastating in recent years. Extreme price fluctuations were also down to high solar power penetration, Rystad said.

Outside Australia, the other markets that exhibited high volatility in the research were Japan and The Philippines, plus select regions of the US such as California and Texas.

David Dixon, senior analyst with Rystad Energy, said the volatility would trouble Australia’s broader energy market and the nation must move to unlock a pipeline of renewable energy generation.

“Volatility can be unsettling for retailers who lack proper hedging strategies and for consumers who bear the brunt of resulting cost fluctuations,” Mr Dixon said. “To tackle this, Australia should prioritise the enhancement of transmission infrastructure and invest in storage solutions to mitigate the impact of volatility. This will help to create a more stable and affordable electricity market for all Australians.”

Rystad said prices in Queensland and South Australia experienced the greatest volatility, primarily led by high penetration of renewables and unplanned coal power outages.

South Australia leads the country in the installation of rooftop solar and can often have periods where its entire electricity demand is met from renewable energy. However, the state suffers significantly when the sun sets as it lacks so-called firming capacity.

A high-voltage transmission cable linking Victoria and South Australia is expected to allow the transfer of electricity between the two states, a process that the Australian Energy Market Operator expects will lower wholesale prices in both states.

The volatility findings came as Australia’s coal output slowed. Coal is the dominant source of the nation’s electricity, but a spate of generators were out of commission due to maintenance or faults in September when the study was conducted. If coal generation was at normal levels, volatility probably would have been much lower, as the source of electricity typically peaks in the evening when solar generation exits the system.

While the title from Rystad will not be welcomed by states and the federal Labor government, the findings also indicate the nation is making progress in meeting its transition targets.

Australia has set the ambitious target of having renewable energy generating more than 80 per cent of its electricity by 2030. To meet this goal, Australia will need a rise in solar generation, and Rystad’s findings illustrate significant progress.

Rystad said Australia had more than 1331 GWh of rooftop solar installed, an increase of 41 per cent from the previous year.

NSW leads the way in solar installations, with about half of the national solar capacity found in the state.

Originally published as Australia has world’s most volatile electricity market, Rystad Energy finds