Mild summer delivers near record low Q1 electricity demand and wholesale prices

QNI, HumeLink, AEMO VNI West, transmission, NEM, VNI West

Mild summer temperatures, coupled with record Q1 installation of rooftop solar photovoltaic (PV) capacity during the first three months of 2021, led to a 3 per cent drop in average operational demand from the National Electricity Market (NEM), its lowest Q1 since 2002.

The Australian Energy Market Operator’s (AEMO) Quarterly Energy Dynamics report for Q1 2021 also shows NEM wholesale electricity price falls of up to 68 per cent, reaching the lowest Q1 averages since 2012. 

AEMO chief markets officer, Violette Mouchaileh, said, “Mild summer conditions have driven down both average and peak demand levels – average demand reduced by 5 per cent in New South Wales and 3 per cent in Queensland.”

Few periods of extreme heat, combined with low NEM price volatility, and increased renewable energy output resulted in diminished demand for gas-powered generation (GPG), representing the lowest quarter since 2005. The 15 petajoule (PJ) GPG decrease (compared to Q1 2020) was more than offset by the 19 PJ increase in gas flowing to Curtis Island for LNG export. 

“In the last quarter, we’ve experienced less price volatility, an increased volume of low-priced coal and hydro generation and a 29 per cent increase in wind and solar generation, all contributing to lower wholesale prices,” she said.

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The largest spot price reductions occurred in Victoria, falling from $79 megawatt hour (MWh) to $25/MWh, its lowest quarterly average since Q1 2012. New South Wales declined from $86/MWh to average $38/MWh, while Queensland averaged of $43/MWh. 

Negative and zero spot prices occurred in 5.8 per cent of all 30-minute trading intervals, up from 2.3 per cent in Q1 2020. Continuing Q4 2020’s trend, the occurrence of negative spot prices remained confined to the southern regions, with Victoria reaching record quarterly occurrences (10.3 per cent) and South Australia remaining very high (16.8 per cent).

“South Australia’s average daytime prices fell below zero consistently between 10am and 3:30pm (AEST) during the quarter, the first time in the NEM’s history. At the same time, persistently low electricity prices below their cost of generation required AEMO to direct South Australian gas-powered generations on for system security for a record 70 per cent of the quarter,” Ms Mouchaileh said.

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Compared to Q4 2020, quarterly average gas prices increased slightly in all east coast gas markets except in Victoria, which remained steady. A cold northern hemisphere winter led to a sustained period of high international gas prices and contributed to a 6 per cent increase in gas flowing to Curtis Island for LNG export compared to Q1 2020. This represented the second highest quarterly east coast LNG export – just behind the record set from the previous quarter. 

In Western Australia, a new minimum operation demand record was set in the South West Interconnected System on 14 March 2021. Operational demand dropped to 952 MW, 33 MW below the previous record, with estimated distributed PV output of 1,026 MW at the time. 

Despite hot summer Perth conditions and increased peak evening demand, average Balancing Prices reduced from $56/MWh in Q1 2020 to $47/MWh his quarter, due to increased renewable energy output and reduced daytime demand. 

Western Australia’s Q1 2021 total domestic gas consumption was 0.75 PJ higher than Q1 2020, while total gas supply reduced by 8.6 PJ compared to Q1 2020, representing the lowest quarterly production since Q4 2018, due to lower supply from the Karratha Gas Plant.