This Wholesale Markets Quarterly report analyses how and why spot prices in both gas and electricity reached record highs during the second quarter of 2022.
The report shows just how strongly the markets are interconnected, with gas-powered electricity generation emerging as the stop-gap measure to keep the lights on.
The report also includes analysis of more recent market outcomes that supported the work of Energy Ministers in August to understand the market volatility and to progress energy reforms.
A focus on the futures markets shows that the volatility was unanticipated and higher prices are likely to persist into 2023.
- Coal-fired generation was plagued by outages and supply problems. Wind and solar generation were lower than expected while demand was high due to cold winter conditions.
- Gas-powered generation, and some hydro, had to fill the gap, pushing up already elevated gas prices influenced by record international prices.
- Fuel prices and fuel availability emerged as a major issue for coal and gas generators, while hydro power stations were managing water levels and environmental concerns.
- Gas supply was tight with less offers into the southern markets to preserve storage for winter.
- The need to cover high fuel costs, or to ration fuel or water levels, caused participants to offer their capacity at progressively higher prices.
- Record prices triggered protective price caps, multiple market interventions, and a never-before-seen market suspension of the entire National Electricity Market.
- High fuel costs are likely to continue as international coal and gas prices remain at historical highs.
- Generation closures, including the impending closure of Liddell power station in April 2023, and tight gas supply conditions, with a domestic gas supply shortfall projected for winter 2023, means that market conditions will remain challenging for some time.