Renewables squeeze black coal to record low in electricity grid

Cheaper renewables are helping lower power prices by squeezing more expensive black coal to its smallest-ever share of the energy mix over the past three months, but the growing likelihood of a hot, dry summer has experts on edge for future price rises.

Global power prices soared when the cost of coal and gas skyrocketed amid a global crunch caused by embargoes on Russian exports after it invaded Ukraine in February 2022.

Renewable energy’s share of the electricity grid is growing, pushing black coal’s share to its lowest level on record.

This price spike eventually flowed through from coal and gas electricity generators to households in July this year when the market regulator, which sets retail electricity prices once a year, raised the cost of default retail contracts to reflect the higher input cost, pushing annual bills up by $352 in Victoria and $435 in NSW.

But the rise of renewable energy is set to help ease the hip pocket pain by taking market share off black coal-fired power generation and contributing to lower wholesale power prices, which is what retail companies pay to electricity generators.

Over the past three months, electricity in the east coast grid was comprised of just 45 per cent black coal power, its lowest share on record, according to the Australian Energy Regulator Wholesale Markets Quarterly Report.

The remaining power in the grid was made up of 5 per cent gas, 9 per cent hydro, 8 per cent solar, 15 per cent wind and 18 per cent from Victoria’s three giant brown-coal power plants in the Latrobe Valley.

Climate Change and Energy Minister Chris Bowen said renewables were cutting power bills: wholesale prices were under $100 per megawatt hour in most regions across the grid during the past three months, which was less than half the price of the same time the previous year.

“It shows the lower wholesale electricity prices from increased penetration of cleaner, cheaper, firmed renewable energy,” Bowen said.

The energy regulator’s makets report said: “Gas (an expensive fuel) and black coal (generally mid-priced) both generated less, due to lower demand and increased availability of cheaper fuels.”

However, Schneider Electric principal and senior director Lisa Zembrodt, an adviser to some of Australia’s largest energy users, said wholesale prices were not guaranteed to remain low given the weather outlook over summer.

“We’ve seen prices decline from their highs, but this has been largely driven by a milder, sunny finish to winter – creating less demand for heating coupled with more solar output. Coming at us now is El Nino ... conditions which tend to result in a hot, dry summer. That could drive more price spikes at periods of high demand,” Zembrodt said.

Low rainfall over summer could dry up the water in storage for pumped hydroelectric dams, like the Snowy Mountains scheme in NSW and the Kiewa scheme in Victoria, which means less power and potentially higher electricity prices.

Wholesale prices have returned to near historical averages and if they remain low as the regulator assesses the market early next year, it is likely to cut household power bills when it sets annual prices for the start of the next financial year in July.

Alongside the rise of renewables, two other factors helped cut wholesale prices. A mild winter across the east coast meant reduced electricity demand, particularly for household heaters, and the tight global energy market eased, cutting the input cost of gas and coal.

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