Coal reliance saw Qld wholesale power prices rise to $97 megawatt hour as wind and solar boom

Surging wind and solar supplies didn’t help Queensland electricity prices which rose to record levels and more than triple other states because of one key factor.

Surging gas and coal prices pushed up wholesale electricity costs in Queensland and NSW – both of which rely heavily on black coal power plants.

It comes as renewable energy generators contributed almost 35 per cent of east coast electricity supplies in the December quarter, as cheap wind and solar pushed gas and coal rivals out of the network.

And figures from the Australian Energy Market Operator suggest that rising wholesale electricity prices – which surged to record highs in the December quarter in some parts of the ­National Electricity Market – are likely to persist this year, adding to inflationary pressures across the broader economy.

The latest figures showed wholesale power prices jumped to an average $97 a megawatt hour in Queensland, a record for a single quarter, and just over $60 in NSW.

But Victoria was paying wholesale prices averaging only $28, as the price gap between southern and northern states in the National Electricity Market widened to an average $45 per megawatt hour.

AEMO executive general manager Violette Mouchaile said the larger share of thermal generation in Queensland and NSW, more costly in the period, had been the major contributor to the difference.

“Grid-scale solar, wind, hydro and rooftop solar PV continued to displace thermal generation, with black coal-fired generation falling to its lowest fourth quarter average since 1998, while gas generation declined to its lowest average since 2003,” she said.

Domestic wholesale gas prices hovered around record prices in the period, according to AEMO, averaging $10.60 a gigajoule in the quarter – up from $5.95 in the same period in 2020, but broadly in line with the September quarter – as international prices surged on the energy crisis in Europe and parts of Asia.

The gas prices underline the challenges faced by manufacturers that need natural gas to make fertilisers and plastics, already in the spotlight after the November announcement by Incitec Pivot it would close its Gibson Island plant this year after the company failed to land a new gas contract for the manufacturing centre.

The figures could also reignite the debate over the need for the federal government’s $600m Kurri Kurri gas peaking plant, designed to enter the market when electricity prices peak.

“During the quarter, elevated gas prices coupled with high negative price occurrence frequently rendered gas generation subeconomic in most regions,” AEMO said.

High wholesale prices are likely to linger, AEMO figures suggest, with its latest quarterly report noting that futures markets had priced in higher costs across the NEM.

“During the quarter, ASX calendar 2022 futures prices increased across all states, from an average of $57/MWh at the end of Q3 2021 to finish the year at $73/MWh, with participants’ outlooks influenced by wholesale spot price trends, possible impact from long-term generation unit outages and closures, and potentially higher fuel cost expectations in 2022,” AEMO said. Renewable energy contributed an average 34.9 per cent of electricity generation in the quarter, according to AEMO, hitting a record peak of 61.8 per cent penetration in a half-hour period on November 15.

Originally published as Coal reliance saw Qld wholesale power prices rise to $97 megawatt hour as wind and solar boom