A record and unprecedented Q2 has seen supply issues, power outages and record prices in the Australian electricity market, outlined in the Australian Energy Market Operator’s (AEMO) Quarterly Energy Dynamics (QED) report.
The June quarter for 2022 saw wholesale electricity spot prices averaging $264/MWh in the National Electricity Market (NEM), up by $177/MWh on the previous quarter and $179/MWh on Q2 2021’s $85/MWh average.
AEMO’s QED report shows these high prices triggered the application of administered price caps, first in the gas markets and then in the NEM. Consequently, reductions in generation offered in the NEM led to reserve shortfalls that required extensive AEMO intervention to maintain reliability and, ultimately, the suspension of the spot market in all regions between 15 and 24 June.
AEMO Executive General Manager – Reform Delivery, Violette Mouchaileh, said the quarter has been one of the most complex and challenging periods, underscoring the need to accelerate the transition to the cheapest form of reliable electricity.
“Wholesale energy price hikes and volatility were driven by multiple factors, including high international commodity prices, coal-fired generation outages, elevated levels of gas-fired generation, fuel supply issues, and many east coast cities experiencing their coldest start to June in decades,” Ms Mouchaileh said.
“These factors also drove the frequency of NEM spot prices exceeding $100/MWh from 14 per cent in Q2 2021 to 86 per cent in Q2 2022, and above $300/MWh from one per cent to 26 per cent.
“What’s clear is the urgent need to build-out renewable energy with diversified firming generation – like batteries, hydro and gas – and transmission investment to provide homes and businesses with low-cost, reliable energy.”
Coal-fired generation outages reached highs of around 3.6GW in late April and peaked in June at 4.6GW. Outages, bidding changes and fuel supply constraints saw black coal generation’s average quarterly output down by 947 MW or 8.5 per cent from Q2 2021 to its lowest Q2 output on record, its share of NEM supply falling 4.8 percentage points to 43 per cent.
In contrast, gas-fired generation was up 27 per cent (472MW) from Q2 2021 to its highest Q2 level since 2017. Renewable generation increased 21 per cent on Q2 2021 with the total NEM renewable supply share for the quarter reaching 31.8 per cent, up 3.7 percentage points driven by new capacity additions and commissioning.
Wholesale gas prices across the east coast markets averaged $28.40/GJ, compared to $8.20/GJ in Q2 2021. Prices rose sharply across all markets in May, as a result of increased heating demand, higher gas-fired generation and gas supply limits, narrowing the gap between domestic and international prices. By June, domestic prices exceeded the netback price for the first time since July 2021, peaking at $41.2/GJ on 30 June 2022.
During the June quarter, Sydney and Brisbane markets were placed under an administered price cap of $40/GJ from 24 May to 7 June due to a retailer of last resort event, while Victoria’s Declared Wholesale Gas Market was capped at $40/GJ from 30 May for all of June due to Cumulative Price Threshold exceedance.
The Wholesale Electricity Market (WEM) balancing prices reached a four year high of $68/MWh, nine per cent up from Q2 2021 driven by bidding behaviour, with a 33 per cent decrease in volumes offered in the $0 to $50/MWh price band, and five per cent decreases in volumes offered at negative prices.
Coal-fired generation in the WEM decreased by 12 per cent, while gas-fired generation overtook coal as the primary fuel towards the end of the quarter. Distributed photovoltaics (DPV) continue to grow, with total installed DPV capacity in Q2 2022 reaching 2,174 MW, 22 per cent higher than this time last year.
