The last financial year ending June 2019 saw wholesale electricity prices rise in every state in the National Electricity Market (NEM). Victoria had the highest increase on the previous financial year at 19%, followed by South Australia (12%), Queensland (10%), New South Wales (8%), and Tasmania (3%) (see Figure 1).
This data has been compiled using NemSight, a software developed by Creative Analytics (part of the Energy One group).
Wholesale electricity prices have tripled over the past decade in Victoria and Tasmania and have doubled in Queensland, NSW, and South Australia. This energy crisis has been brought about by a combination of factors coming together.
These include high gas prices, a decade of policy uncertainty, exit of ageing generation, lack of competition, outdated market rules, and more. And it is still very much on-going. Prices in South Australia, Victoria, and NSW all reached record highs in the 2019 financial year.
Pricing in Tasmania peaked earlier in FY 2016, due to a prolonged outage of the Basslink interconnector, which links to the mainland grid.
Queensland peaked in FY 2017. In mid 2017, the Queensland Government directed state owned generators to alter their bidding practices and put downward pressure on wholesale electricity prices.
This direction has been one of the main reasons why Queensland has had the lowest wholesale electricity prices in the NEM for the last two years, despite growing max demand.
However, this bidding direction ended on 30 June 2019. It will be interesting to see whether the bidding behaviour from state owned generators reverts back to old patterns over the coming summer.
Victoria and South Australia battled record heat and coal failures
High summer prices drove the annual price increase in Victoria and South Australia as seen in Figure 2. This was largely weather related as Australia sweltered through the hottest summer on record.
However, it was also due to multiple failures at Victorian coal-fired power stations, particularly on the 24th and 25th of January. An extreme heatwave gripped South Australia and Victoria, with some regions experiencing record high temperatures.
Multiple brown coal outages led to 1.1 GW of thermal generation being unavailable on 24 January and 1.6 GW being unavailable on 25 January (see report by AEMO).
This created a shortage of supply, with the unfortunate result of load shedding in Victoria and record high electricity prices.
NSW coal and hydro generators raised bids
In contrast to Victoria and South Australia, pricing in NSW was not particularly volatile. The main contributing factor to higher prices was a change in bidding behaviour from coal and hydro generators during the first quarter (Jan to Mar) of 2019.
Figure 3 shows that black coal generators reduced the amount of electricity they offered in price bands ≤$100/MWh and instead bid this energy into higher price bands between $100/MWh and $300/MWh.
The change in bidding behaviour was even more drastic for hydro generators, who significantly cut bids in the ≤$100/MWh and $300-13,000/MWh price bands and instead bid this energy at prices greater than $13,000/MWh.
Dry conditions and low storage levels were contributing factors.
Spreads in wholesale electricity prices on the rise
Another interesting trend over the past decade has been the growing spread (or difference) between the 10th and 90th percentile of pricing. This has interesting implications for energy storage, which is most economic when spreads are high.
Figure 4 shows the spread for each region in the NEM in the last financial year versus 10 years prior. Ten years ago, spreads very were small, varying between $17-24/MWh across states. This offered limited arbitrage opportunities in the spot market.
In contrast, in the last financial year, spreads ranged from $60/MWh to $125/MWh. As an example, the Tesla big battery in South Australia achieved an average price differential of $76/MWh (inclusive of round trip efficiency losses).
As more zero marginal cost renewable energy enters the market, we can expect wholesale prices to keep decreasing at the times when renewables are generating power.
Queensland gave the perfect example earlier this week when daytime prices hit zero/negative for a record nine consecutive days.
This was predominantly due to high solar uptake, low electricity demand, and inflexible coal. RenewEconomy covered some of our commentary here and here.
In contrast, when renewable energy is less available, prices tend to go up.
The opening up of spreads is a predictable outcome of the transition to renewable energy. It will be largely up to energy storage, as well as demand response, to regulate spreads going forward.
Source: Energy Synapse. Reproduced with permission.
