Consumer take-up of solar and investment in large-scale renewables is transforming the way the energy market operates

Consumers are taking control of their energy generation with more dispersed renewable generation from rooftop solar transforming the National Electricity Market (NEM), a new Australian Energy Regulator (AER) report reveals.

AER Chair Clare Savage said the State of the Energy Market 2021 report, released today, highlights the continuing transformation of the NEM, and the role of the AER and other regulatory bodies in maintaining system reliability.

“The NEM is moving rapidly from a centralised system of large coal and gas generation towards a mixture of smaller scale, widely dispersed wind and solar generators, grid scale batteries, and consumers having more control over how and when they use energy,” Ms Savage said.

“In 2020, more than 3,700 megawatts (MW) of new large scale wind and solar generation capacity entered the market driving record levels of wind and solar generation, with output from wind generation exceeding gas generation across the NEM for the first time.

“Over the next two decades, 16 gigawatts (GW) of thermal generation, 61% of the current coal fleet in the NEM, is expected to retire, while over the same period up to 50 GW of new large scale wind and solar capacity is forecast to come online, along with up to 24 GW of rooftop solar photovoltaic (PV) capacity.

“Energy consumers are adopting their own ‘behind the meter’ energy solutions, embracing distributed energy resources that include rooftop solar PV installations, small batteries, electric vehicles and demand response.

“Almost 24% of all consumers in the NEM now partly meet their electricity needs through rooftop solar and sell excess electricity back into the grid, compared with less than 0.2% of consumers in 2007.

“These systems combined represent around 17% of the NEM’s total generation capacity with rooftop solar PV meeting 6.4% of the NEM’s total electricity requirements in 2020.

“Most importantly, there was good news for consumers with lower wholesale prices in 2020 flowing through to retail bills, reducing the cost of electricity for households and small businesses.”

While a combination of generator outages, lower renewable output and higher demand saw wholesale prices rise from May 2021, the longer-term outlook is for prices to remain relatively subdued.

The report reveals in 2020 that because of the growth in renewables, milder temperatures during the past summer, and falling coal and gas input costs:

  • Wholesale prices fell significantly in all jurisdictions declining by up to 58% compared to 2019 averages, mostly due to cheaper renewable generation. The annual average price in all jurisdictions was below $70 per MW hour for the first time since 2015.
  • There was a record 3,662 instances of negative spot prices across the NEM.
  • Minimum demand fell in every NEM jurisdiction in 2020, with records set in South Australia and Victoria, driven by the growth of rooftop solar.

Ms Savage said ensuring reliable energy supply to consumers was a pivotal challenge as the generation mix evolved, with the rise of cheap renewables and more consumers taking ownership of how energy is distributed into homes and businesses.

“We know that with the growth of renewable generation there needs to be investment in dispatchable resources to stabilise the grid, such as demand response, quick starting flexible hydro or gas generation and battery storage technology,” Ms Savage said.

Issued date: 
2 July 2021
AER reference: 
NR 19/21
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