Solar the Star In Volatile Australian Electricity Market

As per a release from Rystad Energy Research, Australia’s power market has emerged as the most volatile in the world as unexpected losses of supply from unplanned coal generation outages and transmission line issues related to natural disasters lead to huge price fluctuations. However, in all these, solar has emerged as the star, helping keep prices low, albeit even that now it faces a huge challenge of needing more storage in key states.  Readers will recall that Australia has the unique place of being a large solar market where rooftop solar dominates over utility scale solar in terms of grid supplies.

The country’s National Electricity Market (NEM), which interconnects power markets in Queensland, New South Wales (NSW), Victoria, Tasmania and South Australia is experiencing the most fluctuations in daily prices of any system worldwide.

Rystad Energy analyzed public price data from 39 electricity markets globally.  Within Australia, it found domestic price spreads for Queensland and South Australia seeing the widest range of all markets. The key metric used to measure volatility is the average one-hour intraday spread for a year of data, i.e., the difference between the highest and lowest price during a given hour.

Australia’s volatility is driven by significant supply issues, including unplanned coal power plant outages or transmission line problems caused by natural disasters such as cyclonic winds or bushfires, which have become more frequent and devastating in recent years. Extreme price fluctuations are also down to high solar power penetration. While daytime generation is high, pushing prices down, elevated natural gas prices are causing soaring rates in the evenings and at night when solar generation falls and gas-fired generation is needed.

To handle these fluctuations, it projects that increased storage capacity is required. A total of 46 gigawatts (GW)/640 gigawatt-hours (GWh) of pumped hydro and utility-scale battery storage capacity will be needed to balance the market by 2050, a significant increase from the current 2.8 GW.

Outside Australia, the other markets that exhibited high volatility in our research were Japan and the Philippines, plus select regions of the US such as California and Texas.

For September 2023, prices across all NEM states of Australia remained low as mild weather conditions reduced electricity demand. However, the northern states of NSW and Queensland bucked this trend, experiencing higher prices of A$69 (US$44) per megawatt-hour (MWh) and A$56 per MWh, respectively.

Conversely, electricity prices were more affordable in other states, hovering around A$44 per MWh in South Australia, A$34 per MWh in Victoria, and A$32 per MWh in Tasmania. Surprisingly, even in the face of these low prices in September, volatility continued to persist in South Australia, NSW and Queensland.

Solar the star: renewables generation growth excels down under
In September 2023, renewable energy generation in the NEM saw significant growth, with solar leading the way. The total renewable energy output reached 7 terawatt-hours (TWh), up 13% year-on-year. Solar accounted for most of this increase, generating 1 TWh more than in September 2022. Wind generation remained steady year-on-year, while hydro generation dipped slightly.

In September, NSW topped the list for utility solar PV generation, producing 650 gigawatt-hours (GWh). Nationwide utility PV generation reached 1,331 GWh, a substantial 41% year-on-year increase. NSW hosted 14 of the top 20 utility PV assets, with the Edenvale solar farm in Queensland, which is jointly owned by Eneos and Sojitz and has a capacity factor (operational efficiency) of 35%, claiming the top spot.

Wind generation in September totaled 2,488 GWh, a 1% increase compared to September 2022.

Coal curtailed: historic lows noted as spring comes into sight
Coal-fired generation in the NEM and Western Australia’s isolated Wholesale Electricity Market (WEM) remained low in September this year, compared to recent norms. This was due to a combination of seasonal factors, increased renewable generation and outages at some coal-fired generation facilities.

Total output from coal-fired generation reached 0.36 TWh in September, compared to the September all-time low of 0.35 TWh set in 2022. In the NEM, coal generation facilities generated a total 8.8 TWh, below the 11-year historical range (2011-22). This downward trend was also visible in Western Australia’s WEM.

Spring is typically a seasonally low period for coal generation in the NEM and the WEM, due to milder conditions leading to lower demand and greater solar generation resources, resulting in increased supply from cheaper renewables. At a state level, Victoria’s coal power fleet operated at a capacity factor of 74%, with NSW at 55% and Queensland at 61%.

In Western Australia, the WEM’s coal fleet operated at a capacity factor of 34% in September, despite all coal power facilities being operational for the month.