Powers 50% of grid for first time, slashing electricity prices
Electricity prices in eastern Australia fell sharply in the final three months of last year as record-breaking contributions from renewable energy and large-scale batteries reduced the need to rely on fossil fuels to fill supply gaps.
The energy market operator’s figures, due on Thursday, confirm that for the first time in history more than 50 per cent of the grid was powered by renewable energy and batteries in the December quarter; coal fell to its lowest ever seasonal share of the mix and gas to its lowest level since 2000.
Wholesale electricity prices, which retailers pay to generators before selling electricity to customers, dropped 44 percent to $39 per megawatt hour compared to the same period the previous year.
The lower prices are now reflected in the rates retailers and large industrial users are being charged for 2027 supply contracts, and could well boost consumers’ chances of avoiding steep energy bill increases later this year. Regulators factor in wholesale costs in March when preparing each state’s annual default market offerings; this is the maximum fee retailers can charge customers who do not accept special deals.
This year’s default offerings will become even more important for household budgets after the Albanian government announced in December that it would end its $75-a-quarter energy bill discounts.
Energy Minister Chris Bowen, who remains under pressure as rising electricity bills drive up the cost of living, said the new figures show Labor’s policies are working.
“The decline in wholesale price is good news and we are working to ensure that most of it passes through retail prices,” he said.
Violette Mouchaileh, head of policy at the Australian Energy Market Operator, said the lower average prices in the quarter were the result of years of sustained investment in clean energy and storage projects. Adding more wind, solar and battery capacity to the grid reduces the need to burn higher-cost coal and gas for electricity, putting “downward pressure” on prices, he said.
“This is a turning point for the national electricity market,” Mouchaileh said.
“For the first time, renewables and storage met more than half of the system’s energy needs for a full quarter.”
Opposition energy spokesman Dan Tehan called on Bowen to “explain” after the government failed to deliver on its 2022 election pledge to deliver a $275 electricity bill cut by 2025. “There is a big difference between wholesale and retail prices, and retail is the price the end user pays,” he said. “It’s like celebrating winning the pre-season night title and finishing last in the season.”
Still, experts said a sustained relief in wholesale prices could help smooth volatility and reduce the impact of temporary price increases in early 2025, including during the winter months when fewer windy days reduce wind turbine output and force gas plants to work harder.
Lisa Zembrodt, director of sustainability at Schneider Electric, a leading energy advisor to Australian businesses, said lower wholesale prices were already helping to reduce the costs of contracts to buy and sell energy at future dates. He said futures prices in NSW fell about 20 per cent to $98.
“Looking ahead, there is some comfort that renewables provide the way they should,” Zembrodt said. “On some of the hottest days we’ve seen, rooftop solar has been serving because it’s also been sunny, which has helped keep some prices under control.”
This was helped by water storage levels in Tasmania’s massive hydroelectric dams being at a 10-year high, he said. “This means we have something when we need it during periods of tight supply and demand… and it bodes well for keeping prices a little bit contained going forward,” he said.
Despite a record-breaking quarter for renewable energy, the grid remains reliant on supplies from coal and gas plants to power wind and solar and keep the lights on. Last week, Origin Energy’s Eraring generator in NSW, Australia’s largest coal-fired power station, closure postponed for another two years Following warnings that the network was not sufficiently ready for retirement
Earlier this week, strong reliability in Victoria’s coal fleet helped the grid reach its highest-ever demand levels during scorching heatwave conditions, particularly as they began turning on their air conditioning in the evening when solar power wanes.
“We are not at a point where renewable energy alone can meet demand in extreme weather conditions,” said Javier Savolainen, market development manager for Wartsila Energy, which builds batteries and power plants. “Peak electricity demand often coincides with scorching, cloudy or windless conditions, meaning capacity must perform reliably when Australians need it most,” he said.
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Nick Toscano is an economic correspondent for The Age and the Sydney Morning Herald.Connect with: X or email.
