Households already grappling with skyrocketing living costs face further pain from their electricity bills, with the body that runs the electricity market saying prices in the sector have also risen over the past year.
Core items:
- According to AEMO, wholesale electricity prices in the NEM increased by 141 percent in the first quarter compared to the previous year
- Coal-fired power plant outages, higher demand amid heatwaves and rising gas prices are driving wholesale prices up
- One energy analyst is predicting price increases of more than 40 percent over the next two years if the forecast pressure materializes
In its latest National Electricity Market (NEM) snapshot, the Australian Energy Market Operator (AEMO) said wholesale costs rose 141 percent in the three months to March 31 compared to the same period last year.
And prices averaged $87 per megawatt-hour, which was also 67 percent higher than in the three months ended December.
AEMO’s findings came as Dale Koenders, head of energy research at investment bank Barrenjoey, predicted retail prices to rise by up to 20 percent a year in the coming years as energy companies look to pass on the higher costs.
Mr Koenders said there are forecasts that wholesale prices in Queensland and New South Wales could reach at least $150/MWh as more coal plants close and there are supply shortages.
NSW, Queensland was hardest hit
AEMO said outages at some coal-fired power plants contributed to recent price increases, as did increased demand due to heatwaves and historically high gas prices.
Violette Mouchaileh, AEMO’s executive general manager of reform delivery, said rising prices are being felt most noticeably in the northeastern states, where coal outages and grid shortages have impacted supplies.
As a result, she found that NSW was hampered in its ability to import electricity from Victoria “despite an average energy price differential of $48/MWh”.
“Wholesale prices in Queensland and NSW were again significantly higher than in the southern states,” Ms Mouchaileh said.
Mr Koenders said the sharp rise in prices reflected a supply tightening that is likely to last for years as more coal plants exit the market.
Turning on the lights just costs more
In addition, Mr Koenders said that Australian energy consumers are increasingly exposed to rising international prices for coal and gas.
This was because the fuels were often used to meet demand when supply was tight, meaning producers were sometimes forced to buy gas or coal in red hotspot markets.
“The prospects are that unless we see a change in electricity costs, the average household electricity bill could increase by 20 percent this year and 20 percent again next year,” Mr Koenders said.
“But that costs more.”
He said the uptake of renewable energy, aided by entrenching services like batteries and pumped hydro, could ultimately help alleviate cost pressures.
However, he said the market faces a potentially rocky road to get there.
“As we go through this energy transition and prioritize green power, we face greater volatility, greater uncertainty and higher prices,” he said.
“And until we reach that end point where there is enough hydropower build-out and battery storage per government targets, we will continue to face increased volatility in the electricity market.”
Even as wholesale prices skyrocketed for the quarter, AEMO found that they fell to zero or negative levels a record number of times — where generators pay to keep going.
According to the agency, negative or zero spot prices were “achieved” in 6.6 percent of cases.
Rates were much higher in South Australia and Victoria, at 16.4 percent and 12.5 percent, respectively, given the greater share of renewable energy in the southern states’ systems during the quarter.
AEMO also pointed out that it triggered for the first time its so-called wholesale demand response policy, under which large electricity consumers are paid to reduce their consumption during periods of grid stress.
Renewable energies as a “natural safeguard”
Marija Petcovich, managing director of consulting firm Energy Synapse, argued that the price hikes were a direct result of supplements’ reliance on fossil fuels.
AEMO’s report showed that despite a year-on-year decline, coal-fired generation still accounted for more than 60 percent of production in the quarter, while gas accounted for about 6 percent.
Ms. Petcovich found that the largest price increases occurred in states with the greatest reliance on coal and gas, and market volatility for these fuels had an outsized effect.
“As long as our electricity system remains dependent on fossil fuels, we will remain vulnerable to price shocks in the coal and gas markets,” she said.
“The price of coal and gas has increased dramatically and we are seeing this impacting the bidding behavior of coal and gas power plants.
“This was the main reason for the increase in the wholesale price of electricity.”
Australian Energy Council’s Hamish Fitzsimmons, representing electricity and gas retailers, said household bills would not feel the impact of higher wholesale prices immediately.
He said the higher costs would likely start leaking out by mid-year.
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