Lower energy prices and increased renewable generation resulted in a record-breaking quarter ending 2022

AEMO’s Quarterly Energy Dynamics (QED) reveals that while both coal and gas continued to be crucial for a consistent supply of electricity to homes and businesses, average renewable output reached a record high, while peak renewable contribution records continue to be broken.

According to the report, grid-scale solar and wind power increased their prices by 4% and 1% for the quarter, setting prices at 17% and 34%, respectively, while black and brown coal generation fell from 45% to 39%.

AEMO Executive General Manager Reform Delivery Violette Mouchaileh said futures prices remained elevated early in the quarter due to continuing high commodity costs, impending coal unit outages, and constrained gas supplies before decreasing through November and severely in December.

“Following the Federal Government’s temporary capping of wholesale domestic gas and thermal coal markets on 9 December, ASC Cal23 electricity futures prices saw steep falls in the mainland states through to the end of the quarter,” Mouchaileh stated.

According to Mouchaileh, high price volatility occurred in the December quarter due to a transmission failure in South Australia, which caused the state to lose normal connectivity with the rest of the NEM for a week.

Due to rising demand, AEMO said local frequency control ancillary services (FCAS) markets surged, and an administered pricing period was triggered, capping South Australia’s FCAS rates at $300/MWh.

“While SA lost interconnection, instantaneous renewable penetration in SA peaked at an extraordinary 91.5% on 19 November,” Mouchaileh said.

Mouchaileh added that it was made possible by four new synchronous condensers strategically located throughout the SA network, delivering system strength services previously provided by coal, gas, and hydro.

“The ability to manage frequency using the Hornsdale big battery and gas generation was critical to maintain system reliability with high renewable penetration. This event was a glimpse of the future, when both batteries and gas generation will be key to Australia realising its renewable potential,” Mouchaileh stated.

As a result of ongoing investments in consumer-owned generation, AEMO said grid generation has continued to be replaced, and daytime operational demand has decreased. Both markets have experienced minimum demand records, with the NEM recording 11,892 MW on 6 November and the Wholesale Electricity Market (WEM) recording 626 MW on 16 October.

With the help of significant amounts of Distributed PV, new instantaneous renewable penetration records were also reached in the NEM on October 28 at 68.7% (up 4.6%) and the WEM on December 12 at 84.3% (up 3.7%).

According to Mouchaileh, wind and grid-scale solar output increased significantly in Q4 2022, accounting for 20% of total generation in the NEM as new facilities were connected and commissioned.

“This growth, along with the lowest output from coal-fired generation since NEM start (down 926 MW from Q4 2021), saw NEM emissions drop to the lowest quarter on record at 26.4 million tonnes carbon dioxide equivalent – 5.6% lower than Q4 2021 levels. Similarly, WEM emissions dropped 11% from Q4 2021,” Mouchaileh stated.

East coast gas prices have also fallen from previous highs to a quarterly average of $17.79 per gigatonne (GJ), down from $26/GJ in Q3 2022 and $10.60/GJ in Q4 2021.

AEMO said demand for east-coast gas fell by 7% during the quarter, but an increase in gas storage resulted in the Iona Underground Gas Storage facility closing the calendar year with the highest gas balance since reporting began in 2017, at 18.9 petajoules (PJ).

Overall, AEMO stated that demand from gas-fired generators fell throughout the quarter, but gas needed to be available to meet demand when needed.

On the other hand, the WEM weighted average Balancing Price continued its upward trend, reaching an all-time quarterly average high of $81.80/MWh, up 6% from the previous quarter and 50% from Q4 2021. Reduced coal generation (down 42% from Q4 2021), increased gas-fired output to fill the gap (up 35% from Q4 2021), and lesser occurrence of negative prices were among the drivers.

Total consumption in the Western Australian gas market increased by 7% compared to Q4 2021, mainly by a 31% rise in gas used to generate power. Despite the unexpected decline in output from the Varanus Island facility brought on by a pipeline leak in mid-December, gas production grew by 9% compared to Q4 2021.