Renewables thrive as grid demand soars, coal states suffer from repeated outages and high prices

The Australian Energy Market Operator has hailed the continuing evolution of Australia’s electricity grid, highlighting the record output and market share of renewables amid record demand, and the ongoing coal plant failures that sent prices to record highs in those states that still depend on the fossil fuel generators.

AEMO’s latest Quarterly Energy Dynamics report notes that coal generation for the December quarter fell below 50 per cent for the first time, largely due to a growing number of outages and the lack of availability.

Renewables accounted for a record 46 per cent share, and the growing impact of rooftop solar was felt as it contributed to a reduction in grid demand, when underlying demand actually jumped an average 2.4 per cent because of the number of heatwaves and demand peaks.

The contribution of renewables helped push down prices in South Australia and Victoria, which have the highest share of wind and solar.

NSW and Queensland consumers – the most coal dependent grids – missed out because of the lack of transmission capacity and their respective coal plant failures. Wholesale prices in those states were more than double that of their southern neighbours

Tasmania also could have had lower prices, but was unable to import low cost PV in the middle of the day because of the lack of capacity on its sub-sea transmission link.

“The rise in rooftop solar output, coupled with record low coal-generation availability, resulted in coal-fired generation contributing less than 50% of the NEM’s total generation for the first time,” said AEMO’s head of reform delivery, Violette Mouchaileh.

“Renewable energy supplied a record 46% of the market’s electricity, peaking at 75.6% for a period on 6 November, driving emissions to record low levels.”

AEMO used the report to underpin the importance of new transmission projects that are either under construction or emerging from their planning stages, many despite pushback from local communities and criticism from some sectors of the industry.

“Recent operating conditions highlight the role new transmission projects underway – such as VNI West, Project EnergyConnect and HumeLink – will play in sharing the lowest-cost energy throughout the NEM,”  Mouchaileh said.

That is supported by the prices observed in the December quarter.

New South Wales and Queensland experienced record Q4 wholesale prices of $143/MWh and $127/MWh respectively, while  Victoria recorded the lowest average price at $45/MWh, and South Australia’s average wholesale price fell to $52/MWh. Tasmania averaged $74/MWh.

Source: AEMO.

AEMO cited several particular periods were prices soared. The most costliest came on November 7 when nearly 5 GW of coal fired capacity was unavailable. A second event on November 27 featured the absence of four coal units and one gas unit and saw prices hit the market cap of $17,500/MWh.

A less costly event on December 2 came when lower than expected wind combined with the setting sun to leave space for market players to push prices above $12,000/MWh. But it noted that – over the quarter – the contribution of renewables to maximum demand reached an all time high average of 33 per cent.

It should be noted that prices are also impacted by market manipulation, particularly in periods where demand is high and supply is low. Although apparently not illegal, the bidding strategies, often controlled by the market’s biggest players, can result in much higher prices.

The justification for these bidding strategies is often the number of negative pricing events – caused by a mixture of low demand, inflexible coal, insufficient transmission capacity and too much supply, particularly when households are producing a lot of rooftop PV.

AEMO says negative prices occurred a record 23.1% of the time, including a record 38 per cent in South Australi. Even in NSW, with the biggest coal fleet in the country, negative prices occurred 13.3 per cent of the time.

Interestingly, Western Australia, which is the world’s biggest standalone grid, witnessed a 19.5 per cent slump in coal generation because of reduced availability from its ageing coal fleet, which is expected to be phased out by the end of the decade.

That reduction was offset by a big increase in rooftop solar (20.3 per cent), and the emerging influence of its growing fleet of big batteries, which helped moderate prices despite a 14.4 per cent lift in gas generation.

“Increased battery storage in Western Australia helped the state hit a new quarterly average renewable contribution record of 46.4% and a renewable energy peak of 85.1%,” Mouchaileh said.

The capacity of the battery storage fleet is expected to quadruple over the coming two years as some of the country’s biggest battery projects are completed.

AEMO’s assessment of the December quarter is a reminder that the biggest risk to Australia’s electricity supply remains, as the market operator has repeated on many occasions, the fragile state of the ageing coal fleet, which is why its planning blueprint envisaged replacing nearly all of them within the next decade.

The Coalition parties, at state and federal level, however, have indicated they want to go all in with the Trumpian philosophy of ignoring climate science, delaying renewables, expanding fossil fuel extraction.

In the case of federal Coalition, they want to make a commitment to nuclear, despite its horrendous costs and the lack of any commercial SMR developments, and hope that coal fired power stations can be kept online until then, or replaced with even more costly gas power.

The Coalition parties also want to put a halt to transmission projects, and are disbelieving about the importance of battery technologies.

“The data confirms what we know – unreliable coal is having a negative impact on energy prices, more renewables in the system bring wholesale prices down, and new transmission infrastructure is critical to keeping prices lower,” federal energy minister Chris Bowen said in a statement.

“We are building an energy grid so everyone, everywhere has access to the cheapest form of energy at any given time. 

“Peter Dutton’s plan is to scrap transmission investment and extend unreliable coal generation for decades, so he can build the most expensive form of power available, nuclear. That’s the worst thing possible for energy bills, reliability and the environment.”  

Another couple of interesting observations from the QED report was that while underlying electricity demand was at record highs, gas demand from residential, commercial and industrial consumers  fell, likely due to the growing shift to electrification, and warmer temperatures.

All this meant good news on the climate front. NEM total emissions and emissions intensity both fell to all-time record low levels of 24.9 million tonnes of carbon dioxide equivalent (MtCO2-e), down 1.7 per cent from Q4 in 2023, and 0.57 tonnes of carbon dioxide equivalent (tCO2-e) per MWh, down 3.2% from Q4 last year.