Better outcomes but challenges remain, AER report reveals

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The Australian Energy Regulator’s (AER) latest State of the Energy Market report highlights that the energy system in 2023 experienced fewer shocks and better outcomes than in the preceding year, however many of the vulnerabilities observed in 2022 remain.

The report reveals some improved outcomes in wholesale energy markets with average wholesale electricity prices significantly lower than the record highs seen in 2022. Wholesale gas prices also declined significantly from 2022 but remain high by historical standards.

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Consumers faced similar costs for network services in 2023 compared to 2022 but electricity network consumers faced longer and more frequent unplanned interruptions due largely to major weather events. Consumers on gas pipelines continued to experience very few outages.

Increases in wholesale energy prices were evident in retail prices, with estimated electricity bills rising between 9% and 20% in all NEM jurisdictions in 2023-23, impacting households already experiencing broader cost-of-living pressures.

The impact of renewable generation and household solar continued to grow, with rooftop solar output accounting for 9% of total generation in 2022—15% more than in 2021 and more than double that in 2018.

Rooftop solar output further reduced grid demand during the middle of the day across the NEM, with a new record for negative prices set for the fourth consecutive financial year. Negative prices can occur in the wholesale market because generators are able to offer their capacity as low as -$1000 in order to compete to be dispatched. Where enough generators bid this way, it can lead to the market price being set below zero (i.e. generators are effectively paying to operate for a short period).

AER chair Clare Savage said while 2023 has not seen the same volatility as the previous year, pressures remain in the energy system as it transitions to net zero emissions.

“Generally we have seen better market outcomes this year, aided by milder winter temperatures, improved generation availability and the impact of government interventions in coal and gas markets along with energy bill subsidies.

“Work still remains to address energy affordability for consumers, coordinate the entry and exit of generation sources and ensure the timely and least-cost delivery of major transmission projects.

“These projects face challenges including escalating costs, slower than planned progress and the need to address the concerns of the communities that host them.

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“From a consumer affordability perspective it’s vital that effective whole-of-system integration occurs so that everyone can benefit from consumer energy resources such as rooftop solar and small-scale batteries and we avoid unnecessary and expensive grid and generation investment.

“To support this transition to renewables we are making sure our regulatory frameworks are flexible and responsive to the shifting market, and are providing guidance about how we’ll consider emissions reduction as part of the National Energy Objectives in our regulatory decisions,” Savage said.

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