Wholesale electricity prices jump in winter in blow to bill relief hopes ahead of renewable surge

Wholesale electricity prices rose sharply in winter, new data shows, a blow to hopes of a fall in household power bills.

Wholesale electricity prices rose sharply in winter, new data from the country’s energy market operator has shown, an uplift that could fuel household bills and stoke inflation, though a surge in the amount of renewables poised to connect to the grid could offer some relief.

The Australian Energy Market Operator said wholesale electricity prices across the National Electricity Market during the three months ended September 30 rose 88 per cent from the same period one year earlier.

Much of the increase was driven by depressed renewable energy outputs which meant demand for fossil fuel generation increased.

AEMO said wholesale electricity spot prices averaged $119/MWh across the NEM, up $56/MWh. South Australia recorded the highest average quarterly price at $158/MWh followed by NSW which averaged $121/MWh. Victoria and Queensland had the lowest average wholesale prices during the quarter.

Wholesale electricity prices are not predominantly paid by households and businesses but the rise will be reflected in the next annual tariff reset early next year, though the impact will be curtailed by weaker wholesale prices throughout 2024. While the surge in winter wholesale prices may not lead to increase in household bills, it threatens to mute any downward revisions - a disappointment to Labor and policymakers have been desperate for substantial falls in electricity prices in order to ease pressure on households, amid a cost of living crisis, and accelerate the decline in inflation.

The data from AEMO, however, did offer some relief to Labor as the amount of renewables close to being connected into the grid has jumped more than 36 per cent from levels recorded one year earlier.

AEMO said 45.6GW of new renewable energy capacity was progressing through the connection process from application to commissioning, a 36 per cent increase compared to the same time last year.

Batteries saw the biggest growth, with some 14.6GW of capacity added. AEMO said the growth in batteries amounted to an 87 per cent increase on Q3 2023.

The rise in renewables is a key pillar of Labor’s plan to rapidly transition the country’s electricity grid away from coal and meet emission reduction targets.

Labor has set the ambitious target of having renewables generate 82 per cent of the country’s electricity by 2030 - which it said will lower bills.

Labor has been beset by criticism that its plan to rapidly grow renewables is unfeasible, and federal Energy Minister Chris Bowen seized on the data.

“AEMO’s latest QED confirms what we already know – the Albanese Government’s policy certainty is bring more reliable renewables into our energy grid, with a whopping 45.6GW of new capacity progressing through the connection process right now,” said Mr Bowen.

“Our Reliable Renewables Plan is the only plan supported by experts to deliver the clean, cheap, reliable and resilient energy system that Australians deserve.”

The surge in renewables will do little, however, to quell criticism. Opponents insist Labor’s plan heightens the vulnerability of Australia’s grid.

The Coalition has highlighted the increase in winter wholesale prices as evidence of the vulnerability.

Australia endured depressed wind conditions during winter, and critics insist Labor has not developed adequate supplies of alternatives such as gas - meaning future periods of so-called renewable energy droughts are likely to cause more spikes in wholesale prices.

The increase in renewables is also challenging AEMO, which is tasked with ensuring adequate supplies of electricity.

Australia’s east coast in September experienced unseasonably warm, sunny conditions - which meant a series of new records for minimum demand for electricity were set. Australia’s record proliferation of rooftop solar meant homes that would have otherwise pulled power from the grid were instead self-sufficient.

The increase in renewables meant Australia’s NEM also set a record for renewable penetration. AEMO said on September 9, renewables provided a record 72.2 per cent of the country’s power, a record high.

Originally published as Wholesale electricity prices jump in winter in blow to bill relief hopes ahead of renewable surge