According to AEMO, the June quarter was an unparalleled period for Australia’s energy markets, with wholesale electricity spot prices averaging $264 per megawatt-hour (MWh) in the National Electricity Market (NEM), up by $177/MWh from the previous quarter and $179/MWh from the year prior.
AEMO’s Quarterly Energy Dynamics (QED) report for the second quarter of 2022 shows these high prices required 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 was a complex and challenging period, 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% in Q2 2021 to 86% in Q2 2022, and above $300/MWh from 1% to 26%.
“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,” she said.
Coal-fired generation outages reached highs of around 3.6 gigawatts (GW) in late April and peaked in June at 4.6 GW. Outages, bidding changes and fuel supply constraints saw black coal generation’s average quarterly output down by 947 MW or 8.5% from Q2 2021 to its lowest Q2 output on record, its share of NEM supply falling 4.8 percentage points to 43%.
In contrast, gas-fired generation was up 27% (472 MW) from Q2 2021 to its highest Q2 level since 2017. Renewable generation increased 21% on Q2 2021 with the total NEM renewable supply share for the quarter reaching 31.8%, up 3.7 percentage points driven by new capacity additions and commissioning.
Wholesale gas prices across the east coast markets averaged $28.40 per gigajoule (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, peaked 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 (RoLR) event, while Victoria’s Declared Wholesale Gas Market (DWGM) was capped at $40/GJ from 30 May for all of June due to Cumulative Price Threshold (CPT) exceedance.
The wholesale electricity market (WEM) balancing prices reached a four year high of $68/MWh, 9% up from Q2 2021 driven by bidding behaviour, with a 33% decrease in volumes offered in the $0 to $50/MWh price band, and 5% decreases in volumes offered at negative prices.
Coal-fired generation in the WEM decreased by 12%, while gas-fired generation overtook coal as the primary fuel towards the end of the quarter. Distributed photovoltaics (DPV) continuing to grow, with total installed DPV capacity in Q2 2022 reaching 2,174 MW, 22% higher than this time last year.