Cool summer drives down power prices

Wholesale electricity prices fell in the first three months of the year to their lowest levels since 2012.

Energy Minister Angus Taylor. Picture: Sean Davey

Wholesale electricity prices fell in the first three months of the year to their lowest levels since 2012, with milder summer temperatures and record rooftop solar take-up plunging demand to a near record low.

NSW and Victoria achieved the biggest reductions in wholesale prices as an easing of volatility coupled with a 3 per cent drop in demand continued a trend for cheaper tariffs seen in the past few years, the Australian Energy Market Operator said.

NSW fell to $38 per megawatt hour in the first quarter of 2021 from $86MWh for the same period a year earlier. Victoria’s wholesale price dropped to just $25MWh from $79MWh. Queensland averaged $43MWh.

Daytime prices in South ­Australia averaged negative $12MWh, marking the first quarter anywhere in the national electricity market when the daytime average has fallen below zero on a consistent basis.

“In the last quarter, we’ve experienced less price volatility, an increased volume of low-priced coal and hydro generation and a 29 per cent increase in wind and solar generation, all contributing to lower wholesale prices,” AEMO’s chief markets officer ­Violette Mouchaileh said.

Average temperatures during the three-month period were also at their lowest since 2012, meaning operational demand fell to levels not seen since 2002.

The ongoing rout in wholesale prices shows little sign of letting up, in a trend that has brought down household bills but also created immense earnings pressure for the nation’s big utilities led by AGL Energy, Origin Energy and EnergyAustralia.

The big retailers and generators are being battered by a storm of low wholesale electricity prices as cheap renewables continue to flood onto the market, while moves by both state and federal governments to underwrite new generation has also contributed to a tough market outlook.

Futures markets show contract prices for 2022 fell across all states to $40MWh on average, from $46MWh at the end of 2020.

“These price reductions coincided with low mainland spot prices, increased variable renewable generation, and high occurrence of negative spot prices in the southern regions,” AEMO noted.

The linking of Australia’s east coast gas market to international LNG dynamics saw domestic prices increase slightly compared to the fourth quarter, despite reduced domestic gas demand.

The role of gas as a price setter across the power grid also fell to just 8 per cent this quarter from an average of 19 per cent a year earlier, its lowest quarterly amount since the fourth quarter of 2013. Output was low over the three-month period, while gas generators were forced to shift price offers into the wholesale market to higher priced bands.

Energy Minister Angus Taylor said the Morrison government expected the price falls to be passed on to Australian families and businesses.

“Prices falling to nine-year lows is an outstanding result and demonstrates how effective the government’s actions have been. From the introduction of the ‘big stick’ legislation to March this year, there have been 19 straight months of wholesale price reductions on the previous year,” Mr Taylor said.

The legislation was introduced last year to tackle energy market manipulation.

Originally published as Cool summer drives down power prices