The Australian Energy Regulator’s (AER) latest Wholesale Markets Quarterly Report has revealed that average annual wholesale electricity prices in the National Electricity Market (NEM) fell significantly in 2023.
Average annual wholesale electricity prices fell by between 44 per cent and 64 per cent, while average annual east coast gas market spot prices fell by 43 per cent in 2023.
The shift was attributed to milder weather conditions, lower fuel costs, fewer coal supply issues and an increase in cheap wind and solar supply.
The report showed that wholesale electricity prices fell in New South Wales, Victoria and South Australia in the October to December quarter, but increased in Queensland and Tasmania, compared to the previous quarter. Gas prices on the east coast spot market increased slightly compared to the previous quarter.
Both electricity and gas prices during the October to December quarter remained well below the record prices of 2022, and were closer to longer term annual averages.
Once retailers’ wholesale costs adjust to the lower prices going forward, prices faced by consumers should reflect these lower costs.
Electricity demand fell between nine per cent to 19 per cent compared to the previous quarter in all regions except Queensland, where hot and humid periods drove increased use of air conditioning units.
However, in periods of high demand there were five high price events, and the market remains vulnerable to more frequent high price events should temperatures increase in the January to March quarter.
The fall in electricity demand in regions outside Queensland was impacted in part by rooftop solar output, which increased 50 per cent compared to the previous quarter and 17 per cent compared to the corresponding quarter in 2022.
Combined, wind and large-scale solar reached a record high of 26 per cent generation output in the NEM – up from a previous record share of 23 per cent at the same time last year.
Forward prices for electricity fell in all regions for all forward quarters, reflecting mild spot price outcomes during the quarter.
However, contract markets are sensitive to spot conditions and will likely be impacted if spot prices increase in the January to March quarter. Changes in forward prices also take time to be reflected in prices faced by consumers.
Average east coast gas market spot prices increased by 3.8 per cent (to $10.83 per gigajoule) compared to the previous quarter, but were 39 per cent lower than the same quarter in 2022 and similar to those at the end of 2021.
Residential and commercial gas demand was at its lowest fourth quarter level in a decade, with demand from gas-powered generators also declining by 27 per cent from the previous quarter.
This low demand helped put downward pressure on domestic prices, offsetting potential upward pressure from high LNG export volumes or constraints in place to manage ongoing pipeline maintenance in Victoria.
International liquid natural gas spot prices decreased in November and December. When international prices are high, it can increase pressure on domestic prices. While it is typical to see a continued increase in prices as the Northern Hemisphere enters winter, prices this quarter likely reflect Europe’s high gas storage levels and mild winter conditions.
Domestically, the Iona storage facility remained at record high levels, topping up inventory in late November and late December. This supports market resilience against sudden changes in supply or demand.
AER Board Member Jarrod Ball said the regulator was pleased to see average annual wholesale energy prices below the record highs of the previous year.
“Although we saw increased electricity prices in some regions and a small increase across all regions in the gas market during the quarter, these remain significantly lower than those experienced in 2022 and closer to the levels seen at the end of 2021,” Mr Ball said.
“The proportion of electricity output sourced from coal and gas fell to a record low of 66 per cent, down from 67 per cent the previous quarter.
“Each region set a new solar output record this quarter, and although relatively little new generation entered the market, a significant increase in new entry is currently scheduled for 2024.”