Australia's latest electricity market report refutes the hoax of cheap and reliable coal

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  • Expansion of renewable energy sources will lead to higher prices and frequent outages.
  • Coal’s reputation as a reliable and cheap primary loader has been dented.
  • Coal-fired power generators dominate northern state grids and control wholesale electricity prices.
  • Australia’s coalition government was quick to blame the international coal price hike.

The electricity market in Australia suffers from fluctuations in prices amid disputes over the reasons for this, and blame is being thrown between the actors in the country.

It comes after Australian climate policy over the past decade has repeatedly been dominated by conservatives and fossil fuel companies, who have insisted that coal is essential to a reliable, low-cost electricity grid, and that expanding renewables will lead to higher prices and more frequent outages.

Coal’s reputation as a reliable and cheap primary load source has been dented by the latest official quarterly market report that directly blames coal plant outages and coal market bids for the sharp rise in electricity prices in Australia in the first quarter of this year.

The recent live market experience, and the 141% rise in electricity prices in Australia during the first quarter compared to the same period the previous year, showed that the opposite is true, according to Australian clean energy news and analysis website Renew Energy.

The states of Queensland and New South Wales, which are more dependent on coal, are now struggling that wholesale prices are much higher than those of states in the south, such as Victoria and South Australia; Where renewable energy sources have a large share.

electricity in australia
A coal power plant north of the Australian city of Sydney (Photo: Reuters)

Price Variation

The Australian Energy Market (AEMO) operator identified the disparity in electricity prices in Australia between north and south for the first time last year. In its latest Quarterly Report on Energy Dynamics, the Australian energy market operator says the price discrepancy is becoming clear.

The Australian energy market operator reported that energy prices are again significantly higher in Queensland and New South Wales than in the NEM regions.

He added that coal was primarily to blame; Restrictions on the flow of electricity from Victoria to New South Wales prevented the pressure from being eased.

Price variance is exacerbated on the north side during the day, and daytime electricity prices in NSW were more than double Victorian prices in the first quarter, and were above them by an average of $48/MWh, or 146% of Victoria’s price.

Grid restrictions have left northern states hostage to prices set by coal-fired generators, which dominate their grids and control wholesale electricity prices.

coal prices

Due to rising coal prices; Bidding fees for coal-fired power plants, which have had the lowest storage rates in 20 years, have risen due to outages and keen to make money whenever they get the chance.

In a statement accompanying a quarterly report on the latest energy dynamics, the Director-General of Delivery Reform at the Australian energy market operator, Violet Misheleh, said wholesale prices in Queensland and New South Wales were again significantly higher than in the southern states.

coal in australia
Coal storage and distribution facility in Australia

She explained that this is due to pricing for black coal electricity and system security restrictions that limit daytime transmissions of electricity from Victoria to NSW, despite the average electricity price difference of $48/MWh.

Compared to the first quarter of 2021, it says, more than 3,000 megawatts of black coal bidding has been shifted from lower price ranges to over $60/MWh — the largest annual quarterly change since 1998.

In turn, Australia’s federal coalition government was quick to blame high international prices, but the Australian energy market operator made clear that high bids from Australian coal power plants were emerging long before global coal prices were raised.

Meshaileh said that while the higher quarterly bid prices coincided with global coal prices rising to record levels, bids trended higher in the months leading up to the first quarter of 2022.

She added that in conjunction with unplanned outages in coal power generation, Queensland has experienced bouts of high demand; Overall price volatility contributed $47/MWh of the region’s first-quarter average price of $150/MWh.

Analysts compare this price hike with renewables-dominated South Australia, which has a world-leading 64% share of wind and solar energy.

Electricity generation areas from renewable sources

Electricity price volatility in other areas of the national electricity market was less significant; It added $11/MWh to the quarterly average price in South Australia and $3/MWh or less elsewhere.

The Australian energy market operator says prices in South Australia are set frequently in the middle of the day by offers from renewable generation and batteries; Black Coal offers a set price on only 17% of dispatch times between 7am and 7pm.

wind farm in australia
A wind farm in Australia (Image via ABC’s website)

It should be noted that Queensland saw some of its highest prices ever during the quarter, as a result of rising temperatures and increased demand, coupled with multiple blackouts at coal power plants.

This was largely driven by high volatility in Queensland; The average daily spot prices on February 1 and March 8 were among the 10 highest values ​​recorded since the market began more than two decades ago.

A February 1 electricity shortage in one state with 80% coal-fired electricity caused the Australian energy market operator to step in to use emergency reserves and led to additional costs of $51 million.

In contrast, the share of renewables overall rose to 33.7%, and black coal fell to the lowest average production in the first quarter since the establishment of the national electricity market, thanks to sudden outages.

Thanks to the expansion of renewable energy sources and the reduction of coal use, the emissions of the national electricity market regions fell to a record low in the first quarter, amounting to 30.4 million tons of carbon dioxide equivalent, and decreased by 4% from last year.

Battery storage and hydropower revenue jumped significantly, battery revenue reached $12 million and hydropower pumped to a record $56.5 million, in large part as Wayfinhoe Dam turned to take advantage of price volatility in Queensland.

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