The NEM has experienced an unprecedented year of high electricity spot prices, recently Q322 averaged $216/MWh across the (NEM) which was more than three times higher than the same quarter in the previous year and close to matching the all-time high during Q222 of $264/MWh.
Many factors influenced the volatility and elevated spot prices including:
- A tight supply / demand balance resulting from gas flow restrictions in Europe associated with the war in Ukraine
- Australian weather events
- An increase in demand
- Generator bidding behaviours
- A reliance on thermal generation (coal and gas fired)
Coal and gas prices are at all-time highs due to international demand leading to a high cost of generation. In turn increasing the underlying fuel cost for generators, contributing to the increase in spot prices. As little energy storage is currently installed in Australia, large swings in the output from wind also contributed to the volatility in the market.
Generators who want to sell electricity to the NEM must submit a bid detailing how much energy they would like to offer in ten different price bands. Recently a lower volume of generation has been available from coal due to bidding behaviour with participants withdrawing thermal capacity and intermittent generation like solar and wind taking a larger market share.
A lower capacity factor for coal generation has resulted in coal fired availability to move higher up the bid stack, resulting in coal fired generation needing to dispatch at higher spot prices to meet their long run average costs.
Weather influences such as La Niña and a negative Indian Ocean Dipole (IOD) event increased the likelihood of rainfall across the east coast of Australia this year. With September’s rainfall being the fifth highest on record across Australia. The cloudy and wet conditions impacted solar generation and the supply of coal to power stations resulting in higher fuel prices.
Demand from the grid has increased for the first time in Q322 since 2015 as households and businesses require more electricity from the grid due to rooftop solar not generating as much as previous years due to cloudy conditions.
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