AEMO highlights urgency for renewables, diversified firming

transmission towers against pretty evening sky (AEMO)

AEMO’s Quarterly Energy Dynamics (QED) report for Q2 2022 shows high wholesale prices triggered the application of administered price caps, first in the gas markets and then in the NEM.

The June quarter was an unparalleled period for Australia’s energy markets, with wholesale electricity spot prices averaging $264 per megawatt-hour (MWh) in the National Electricity Market (NEM), up by $177/MWh on the previous quarter and $179/MWh on Q2 2021’s $85/MWh average.

Consequently, reductions in generation offered in the NEM led to reserve shortfalls that required extensive AEMO intervention to maintain reliability and, ultimately, the suspension of the spot market in all regions between June 15-24.

Related article: AEMO takes further steps to manage tight gas supplies

AEMO executive general manager reform delivery Violette Mouchaileh said the quarter had been one of the most complex and challenging periods, underscoring the need to accelerate the transition to the cheapest form of reliable electricity.

“Wholesale energy price hikes and volatility were driven by multiple factors, including high international commodity prices, coal-fired generation outages, elevated levels of gas-fired generation, fuel supply issues, and many east coast cities experiencing their coldest start to June in decades,” Mouchaileh said.

“These factors also drove the frequency of NEM spot prices exceeding $100/MWh from 14 per cent in Q2 2021 to 86 per cent in Q2 2022, and above $300/MWh from 1 per cent to 26 per cent.

“What’s clear is the urgent need to build-out renewable energy with diversified firming generation—like batteries, hydro and gas—and transmission investment to provide homes and businesses with low-cost, reliable energy,” she said.

Coal-fired generation outages reached highs of around 3.6GW in late April and peaked in June at 4.6GW. Outages, bidding changes and fuel supply constraints saw black coal generation’s average quarterly output down by 947MW or 8.5 per cent from Q2 2021 to its lowest Q2 output on record, its share of NEM supply falling 4.8 percentage points to 43 per cent.

Related article: AEMO highlights crucial transmission projects in 2022 Integrated System Plan (ISP)

In contrast, gas-fired generation was up 27 per cent (472MW) from Q2 2021 to its highest Q2 level since 2017. Renewable generation increased 21 per cent on Q2 2021 with the total NEM renewable supply share for the quarter reaching 31.8 per cent, up 3.7 percentage points driven by new capacity additions and commissioning.

Wholesale gas prices across the east coast markets averaged $28.40 per gigajoule, compared to $8.20/GJ in Q2 2021. Prices rose sharply across all markets in May, as a result of increased heating demand, higher gas-fired generation and gas supply limits, narrowing the gap between domestic and international prices. By June, domestic prices exceeded the netback price for the first time since July 2021, peaked at $41.2/GJ on June 30, 2022.