Australian Energy Market Operator report shows cost of electricity in Victoria was up $39 compared to the same quarter in 2023

A huge rise in wholesale power prices has caused pain for Victorian businesses as a report reinforces the importance of gas to keep the lights on after the lowest winds in seven years.

Victorian businesses struggling with energy costs could be ­facing further budget woes, after a cold snap combined with a renewables drought saw a whopping 43 per cent increase in wholesale power prices in the past quarter.

The latest Australian Energy Market Operator quarterly ­report shows the average cost of wholesale electricity in Victoria between April to June reached $127/MWh, up $39 compared to the same quarter in 2023.

The report reinforces the importance of gas to keep the lights on, after the lowest winds in seven years resulted in a 20 per cent fall in electricity generation and reduced rainfall caused an 18 per cent reduction in hydro-electricity in the ­national market.

This led to a 16 per cent ­increase in power from gas and a 7 per cent rise from black coal in Queensland, amid unplanned outages interstate.

Wholesale electricity in Victoria between April to June reached $127/MWh. Picture: iStock

“We have seen low temperatures and persistent cold snaps, especially in Victoria, which have driven higher morning peak demands through the tail end of autumn and the first month of winter,” AEMO chief executive Daniel Westerman said, adding there was ­record demand.

“These market conditions highlight the important role that batteries, pumped hydro and flexible gas generation will play as renewable generation becomes more dominant in Australia’s electricity grids.”

Victoria had the third highest spot price on the mainland at $127/MWh behind SA at $135/MWh and $173/MWh in NSW.

Wholesale gas prices were also up more than $2 to $13.66 a gigajoule compared with the first quarter of 2024, as AEMO last month issued a warning that there was the potential for gas supply shortfalls amid ­depleted storage in Victoria.

AEMO chief executive Daniel Westerman said there was ­record demand during the tail end of autumn and the start of winter. Picture: iStock

AI Group energy expert Tennant Reed said wholesale prices were improving but some manufacturing businesses with a high energy usage that rode the spot market were experiencing volatility.

Mr Reed said energy retailers protected businesses from price instability but it depended when they had contracted. He also raised concerns about the prospect of gas shortfalls later this decade saying that was not only bad for gas users but would mean electricity price spikes a lack of supply.

Grattan Institute energy ­director Tony Wood said businesses were not going to see permanently low prices but if the transition was managed well, “we’re not going to see much higher prices”.

“This is a bit of a roller coaster ride,” he said.

Federal Energy Minister Chris Bowen acknowledged that energy prices were “a serious issue” for businesses but backed in the government’s renewables plan saying wholesale prices were lower than when the Coalition left office.

“The data shows renewables provide cheaper power, and when we’re forced to rely on coal generation and ageing unreliable assets, it drives prices up,” he said.

“The faster we can get more reliable renewables into the system, the better it will be for energy bills and energy reliability. Already we’re seeing batteries doing about twice as much heavy lifting this quarter as the same time last year.”