Australia’s National Electricity Market (NEM) has emerged as the most volatile power market globally, according to a recent study by Rystad Energy. Unplanned coal generation outages and transmission line disruptions caused by natural disasters have triggered significant fluctuations in electricity prices. This volatility is a concern for retailers without effective hedging strategies and consumers who bear the brunt of cost fluctuations.
Rystad Energy, a leading research firm, analyzed public price data from 39 electricity markets worldwide and found that Australia’s NEM now holds the dubious distinction of being the “most volatile” market. The primary metric used to gauge this volatility is the average one-hour intraday price spread, measuring the difference between the highest and lowest prices within an hour.
The primary drivers of this volatility include unexpected supply issues, such as unplanned coal power plant outages and transmission line problems arising from natural disasters like cyclones and bushfires, which have become more frequent and devastating in recent years. Additionally, the surge in solar power generation during the day has pushed daytime prices down. Still, elevated natural gas prices have caused electricity rates to soar during the evenings and at night when solar generation decreases, and gas-fired generation becomes necessary.
To manage these price fluctuations, there is a pressing need to increase storage capacity. Rystad Energy suggests that by 2050, Australia will require a total of 46 gigawatts (GW) and 640 gigawatt-hours (GWh) of pumped hydro and utility-scale battery storage capacity, a significant leap from the current 2.8 GW.
The study also identified other markets worldwide that exhibit high volatility, including Japan and the Philippines, as well as select regions within the United States, such as California and Texas.
Rystad Energy’s Senior Analyst, David Dixon, emphasized, “Volatility an be unsettling for retailers who lack proper hedging strategies and for consumers who bear the brunt of resulting cost fluctuations. To tackle this, Australia should prioritize the enhancement of transmission infrastructure and invest in storage solutions to mitigate the impact of volatility. This will help to create a more stable and affordable electricity market for all Australians”
In September 2023, Australia’s National Electricity Market witnessed a substantial growth in renewable energy generation, with solar power taking the lead. The total renewable energy output reached 7 terawatt-hours (TWh), marking a 13% increase compared to the previous year. Solar power contributed significantly to this surge, generating 1 TWh more than in September 2022. Meanwhile, wind generation remained steady year-on-year, with hydro generation experiencing a slight dip.
New South Wales (NSW) led the charge in utility solar PV generation in September, producing 650 gigawatt-hours (GWh). Nationwide utility PV generation reached 1,331 GWh, an impressive 41% year-on-year increase. Notably, 14 of the top 20 utility PV assets were located in NSW, with the Edenvale solar farm in Queensland claiming the top spot with an operational efficiency of 35%.
Wind generation for September totaled 2,488 GWh, reflecting a 1% increase compared to September 2022. The top-performing wind assets were predominantly located in Queensland and Tasmania, with Prime Super’s Morton’s Lane wind farm as the sole exception outside these regions. At a state level, Victoria led wind generation with 874 GWh, followed by South Australia (464 GWh) and NSW (456 GWh).
However, the decline of coal-fired generation in Australia has been particularly striking. In September, coal generation in the NEM and Western Australia’s isolated Wholesale Electricity Market (WEM) remained at historic lows, largely due to seasonal factors, increased renewable generation, and outages at coal-fired facilities.
The total output from coal-fired generation in September was 0.36 terawatt-hours, slightly above the all-time low of 0.35 TWh set in 2022. In the NEM, coal generation facilities produced 8.8 TWh, falling below the 11-year historical range (2011-22). This downward trend was also observed in Western Australia’s WEM.
Spring, with milder conditions leading to lower demand and increased solar generation resources, has traditionally been a period of lower coal generation in both the NEM and the WEM. Victoria’s coal power fleet operated at a capacity factor of 74%, while NSW and Queensland recorded 55% and 61%, respectively. It is essential to note that multiple coal-fired generation facilities were offline in September, totaling 3.0 GWac of capacity, equivalent to 14% of the NEM’s coal-fired generation capacity.
In Western Australia, the WEM’s coal fleet operated at a capacity factor of 34% in September, despite all coal power facilities being operational throughout the month.