Cheap solar and wind send power prices to three-year low, as coal output falls

Australia’s record renewables growth in 2019 has helped to deliver a dramatic decline in wholesale electricity prices in the year’s final quarter – despite and possibly even because of a marked fall in output from the nation’s coal-fired generator fleet.

In its Quarterly Energy Dynamics report for the fourth quarter of 2019, the Australian Energy Market Operator says spot wholesale electricity prices averaged $A72/megawatt hour (MWh), marking a 19 per cent fall from Q4 2018, and the lowest prices since Q4 2016.

The market operator said that a “key driver” of this fall in spot prices was increased supply from wind farms and solar farms, whose combined output increased by a massive 39 per cent compared to Q4 2018.

Accordingly, the largest fall was recorded in the renewables-rich state of South Australia, where the average price for the quarter was $68/MWh, compared to $96/MWh in Q4 2018, followed by Queensland, at $63/MWh compared to $82/MWh.

Conversely, the contribution to the grid by coal in the quarter was notably low, thanks to a high number of generator outages.

AEMO says black coal-fired generation around the country decreased by 1,061MW on average compared to Q4 2018, its lowest quarterly level since Q4 2016, thanks to a combination of coal supply issues, unit outages, and displacement by solar at Eraring, Gladstone, and Stanwell power stations.

“Across the NEM, the three main marginal fuel types (black coal, gas, and hydro) set the price at lower levels than in recent quarters,” the report says, and illustrates for Victoria in figure 12, below.

“This was a function of: the large increase in variable renewable energy (VRE)… which resulted in price setting occurring at a lower-priced point on the supply curve,” AEMO said.

Between Q4 2018 and Q4 2019, for example, Origin Energy’s Eraring coal plant in NSW shifted around 500MW priced at $49-58/MWh to $25-38/MWh, resulting in it setting the price at $46/MWh on average in Q4 2019, down from $61/MWh in Q4 2018.

Wholesale prices in gas markets also continued on a downward trend, the report said, falling by an average of 26 per cent compared to Q4 2018, and reaching their lowest level since the end of 2017, thanks to lower priced offers, decreased electricity prices, and increased Queensland production.

Average gas-powered generation remained at comparatively high levels, providing cover for coal-fired generator outages, the report said.