Australia has achieved a record high in solar electricity generation during the third quarter, resulting in a significant decrease in average wholesale electricity prices. The Australian Energy Market Operator (AEMO) reported that wholesale spot electricity prices averaged A$63 per megawatt-hour (MWh) for the quarter, a 71% drop compared to the same period in the previous year. This increase in solar energy generation is welcome news for Australian households and businesses grappling with rising energy costs.
Factors Influencing Lower Prices
The drop in electricity prices can be attributed to a combination of factors. Warmer weather led to a reduction in electricity demand, while solar energy output saw a boost. This surge in solar energy generation is in line with the growing trend of Australian households installing solar panels to counteract two consecutive years of significant price hikes. During the quarter, solar output reached a record 2,287 megawatts (MW).
Energy Transition and Economic Impact
These developments align with the goals of the federal Labor government, which is working to shift Australia’s A$2.5 trillion economy away from coal dependence. The rapid increase in solar installations is placing economic pressure on coal power plants, accelerating the demand for alternative “firming” capacity to stabilize the grid.
While coal remains a significant source of electricity, its profitability is diminishing as wholesale prices often fall into negative territory. AEMO predicts that two-thirds of traditional electricity providers may close within the next decade. The decline in coal production is already evident, with AGL Energy recently shutting down its Liddell power station, leading to a record low in black coal generation.
Challenges Ahead
While solar and wind power are on the rise, concerns persist regarding grid stability during periods with limited sun or wind. Gas supplies, which have traditionally played a role in grid stabilization, are decreasing.
ExxonMobil has warned of the rapid depletion of its Gippsland Basin joint venture, a major gas supplier. The scarcity of approvals for new gas developments suggests that Australia may need to explore large-scale batteries or imported liquefied natural gas (LNG) to bolster its firming capacity.
In the near term, gas remains a crucial safety net, particularly with an impending El Niño weather system that could strain Australia’s energy grid. To ensure continued grid stability, Australia may need to invest in various infrastructure and energy inputs, potentially including hydrogen, grid-sized batteries, alternative energy storage methods like pumped hydro, or thermal energy storage. These measures are critical as the nation continues its transition to cleaner and more sustainable energy sources.
