The Australian Energy Regulator’s (AER) latest Wholesale Markets Quarterly Report reveals that average annual wholesale electricity prices in the National Electricity Market (NEM) fell by between 44% and 64% and average annual east coast gas market spot prices fell by 43% in 2023.
This was attributed to milder weather conditions, lower fuel costs, fewer coal supply issues and an increase in cheap wind and solar supply.
The report also shows wholesale electricity prices during the October to December 2023 quarter fell in NSW, VIC and SA but increased in QLD and TAS compared to the previous quarter, with gas prices on the east coast spot market increasing slightly compared to the previous quarter.
Both electricity and gas prices during the quarter remained well below the record prices of 2022 and were now closer to longer term annual averages. Once retailers’ wholesale costs adjust to the lower prices going forward, prices faced by consumers should reflect these lower costs.
Electricity demand fell compared to the previous quarter between 9% and 19% in all regions except QLD, where hot and humid periods drove increased use of air conditioning units.
However, in periods of high demand there were five high price events, and the market remains vulnerable to more frequent high price events should temperatures increase in the January to March quarter.
The fall in electricity demand in regions outside QLD was impacted in part by rooftop solar output which increased 50% compared to the previous quarter and 17% compared to the corresponding quarter in 2022.
Combined, wind and large-scale solar reached a record high of 26% generation output in the NEM – up from a previous record share of 23% at the same time last year.
Forward prices for electricity fell in all regions for all forward quarters, reflecting mild spot price outcomes during the quarter. However, contract markets are sensitive to spot conditions and will likely be impacted if spot prices increase in the January to March quarter. Changes in forward prices also take time to be reflected in prices faced by consumers.
Average east coast gas market spot prices increased by 3.8% (to $10.83 per gigajoule) compared to the previous quarter but were 39% lower than the same quarter in 2022 and similar to those at the end of 2021.
Residential and commercial gas demand was at its lowest fourth quarter level in a decade, with demand from Gas Powered Generators also declining by 27% from the previous quarter. This low demand helped put downward pressure on domestic prices, offsetting potential upward pressure from high LNG export volumes or constraints in place to manage ongoing pipeline maintenance in Victoria.
International liquid natural gas spot prices decreased in November and December. When international prices are high, it can increase pressure on domestic prices. While it is typical to see a continued increase in prices as the Northern Hemisphere enters winter, prices this quarter likely reflect Europe’s high gas storage levels and mild winter conditions.
Domestically, the Iona storage facility remained at record high levels, topping up inventory in late November and late December. This supports market resilience against sudden changes in supply or demand.
AER Board Member Jarrod Ball said the regulator was pleased to see average annual wholesale energy prices below the record highs of the previous year.
“Although we saw increased electricity prices in some regions and a small increase across all regions in the gas market during the quarter, these remain significantly lower than those experienced in 2022 and closer to the levels seen at the end of 2021.
“The proportion of electricity output sourced from coal and gas fell to a record low of 66%, down from 67% the previous quarter.
“Each region set a new solar output record this quarter, and although relatively little new generation entered the market, a significant increase in new entry is currently scheduled for 2024.”