In the December 2022 quarter wholesale gas and electricity prices fell from the record levels seen earlier in the year but remained higher than prices seen during the same period in 2021, according to the Australian Energy Regulator’s (AER) latest Wholesale Markets Quarterly Report.
Record low electricity demand in the National Electricity Market (NEM) as a result of a mild start to summer and strong rooftop solar output, together with high output from large-scale solar and wind generators, contributed to the easing of wholesale electricity prices.
In gas markets, the lower demand for electricity led to lower gas-powered generation in the NEM, which in combination with the lowest Liquid Natural Gas exports in Q4 since 2018, eased pressure on domestic gas spot prices. The Iona gas storage facility in Victoria was refilled to its highest end-of-year levels since reporting commenced, with the facility looking better placed to assist with 2023 peak winter levels.
Despite wholesale gas and electricity prices easing from their peak in mid-2022, high fuel costs kept prices elevated compared to historical levels.
AER Chair Clare Savage said while wholesale prices remained high, early indications suggest that the outlook for 2023, while still carrying risk, may have improved.
“A reduction in forward contract prices were observed since discussion of market intervention began with the October Budget and continued following the announcement of coal and gas price caps by National Cabinet in December 2022.
“While lower spot prices were also observed, there are likely other contributing factors and it remains too early to tell what impact the interventions have had on spot outcomes but, we will continue to monitor and report on the effect of the price caps on both forward contract and spot prices.
“Wholesale energy costs are a major component of household and business energy bills, and we know they can fluctuate. Wholesale electricity costs are also a vital part of the annual Default Market Offer price, the draft determination of which we will publish in mid-March.
The report also highlights the growing role of renewables in the market. Record combined wind and solar generation in the quarter accounted for 23% of quarterly generation, up 4 percentage points from the same period in 2021.
“During the quarter solar and wind also set electricity prices more often, and with additional large-scale solar and new batteries expected to enter the market in late 2023 there are good signs this trend will continue in 2023, providing more energy and flexibility throughout periods of seasonal pressure and with the planned closure of thermal power stations,” Ms Savage said.