Extreme weather sparks higher wholesale energy prices

Severe storms in Victoria in February felled transmission towers and contributed to higher prices.

A hot summer and outages triggered by severe storms pushed wholesale electricity prices higher in the first three months of the year, but there could be some relief in 2025.

A quarterly report released on Thursday showed soaring heat and humidity increased demand, and a severe storm in Victoria sparked outages as congestion in the national grid stopped states sharing supply.

Climate Change and Energy Minister Chris Bowen said action to cap coal and gas prices has worked to keep the lid on wholesale prices, even in instances of extreme weather.

The Australian Energy Regulator (AER) said average quarterly electricity prices in Queensland and Victoria increased by 20 per cent and nine per cent respectively from a year earlier.

The 2023-24 summer was Australia’s third-warmest on record, bringing higher demand for cooling, particularly in Queensland where daily demand exceeded previous records three times during January to March.

Severe storms in Victoria on February 13 felled transmission towers and hit the power supply to South Australia and Tasmania, which contributed to high price events in all three regions.

During the quarter there were 26 high-price events, when the spot market price exceeded $5000 per megawatt/hour – mostly in Queensland (11 events) and Victoria (five).

“The issue of congestion in transmission does present a greater risk of high-price events when we do have extreme weather or demand conditions,” AER board member Jarrod Ball told AAP.

Interconnector and network constraints limited Queensland, NSW and South Australia’s ability to import lower-priced capacity, the report explained.

But Mr Ball said government price caps on coal and gas have helped to stabilise prices in recent quarters.

“Things have generally calmed down and prices are well below where they were in 2022,” he said.

Overall, forward prices for 2024 and 2025 are well below the energy shock peaks of 2022, but were yet to return to historic levels.

Weather and international events were the “X-factors” for changes in future supply and demand, Mr Ball said.

“And weather may be a little bit more predictable than international events,” he said.

There was relatively little new large-scale generation but a “significant increase” was scheduled for the rest of 2024 to make up for delays over 2023.

Meanwhile, rooftop solar output reached new heights in the last three months of 2023 and remained high.

Mr Ball said he expected rooftop solar to continue to hit fresh records, which must be accommodated.

“That’s very much where a lot of our focus is as well, in terms of some of the decisions we’re making about networks and provisioning for more consumer energy resources,” he said.

In Victoria and South Australia there was reduced demand on the energy grid due to the increased generation by rooftop solar on sunny yet mild summer days when air-conditioner use is low.

Gas powered generation was at record lows, with 90 per cent of gas sold below the $12/gigajoule price anchor set under the gas code of conduct.

East coast gas market spot prices averaged $11.58/GJ, up 6.9 per cent from the December quarter but down 3.4 per cent on a year ago.

Gas markets remain vulnerable to shocks going into winter although high storage levels should help, the regulator said.