Renewables shine as electricity and gas prices begin to untether

AUSTRALIA saw around 7 gigawatts of renewable energy capacity added across the country in 2020, as electricity prices begin to diverge from historically-linked gas prices.
Renewables shine as electricity and gas prices begin to untether Renewables shine as electricity and gas prices begin to untether Renewables shine as electricity and gas prices begin to untether Renewables shine as electricity and gas prices begin to untether Renewables shine as electricity and gas prices begin to untether

Mark Tilly

Journalist

Mark Tilly

The 7GW of wind and solar was an 11% jump compared to the record 6.3GW installed in 2019, with rooftop solar leading the charge with 3GW installed in 2020, up by 50% compared to 2019, according to the Australian Energy Market Operator's Quarterly Energy Dynamics. 

The boost in rooftop solar saw average operations demand in the east-coast National Electricity Market fall by 3% during the quarter, compared to the same period in 2019 - the lowest quarterly average in 20 years. 

"Electricity demand continues to reflect changing energy trends with new minimum demand records observed in Victoria, South Australia, and Western Australia," AEMO chief members service officer Violette Mouchaileh said. 

"The downward operational demand trend, coupled with increasing renewable energy, which accounted for 24% of the generation mix in Q4 2020, resulted in significant displacement of thermal generation and the lowest NEM emissions on record."

AEMO noted that while east coast electricity and gas prices were historically linked, they diverged in the second half of 2020 with gas prices increasing and electricity prices remaining relatively low, with South Australia becoming the lowest-priced NEM region for the first time in nearly a decade. 

The state's quarterly average price fell by 57% to A$29 per megawatt hour. 

"In contrast, New South Wales and Queensland bounced back from Q3 2020 lows, with NSW's average price of $64/MWh at a significant premium to other regions," Mouchaileh said. 

"This was driven by record low coal-fired generation, constraints on imports from other NEM regions, and price volatility."

AEMO noted however that there's a growing trend in increasing out-of-market costs to keep the system secure, citing costs associated with directing South Australian gas-powered generators for system strength increasing to $49 million - a 91% jump compared to 2019. The operator believes this trend will be curbed by the middle of the year thanks to the commissioning of four synchronous condensers.

Gas-powered generation demand also fell compared to Q4 2019, dropping 29% (-11 petajoules) with reductions in all states except Queensland, resulting in the lowest Q4 gas-powered generation demand since 2005.

Domestic wholesale spot gas prices increased in all east coast gas markets, averaging $5.90 per gigajoule compared to $4.50/GJ in Q3 2020.

"The increase in gas prices reversed the downward trend that commenced in 2019 and was largely influenced by LNG prices that are linked to international oil prices," Mouchaileh said.

The government projects Australia to deploy an additional 24GW of rooftop solar by 2030. 

"As record levels of renewable energy come online, the Government continues to ensure Australia's energy system remains reliable and affordable," energy minister Angus Taylor said.

"This includes prioritising work on a new fit-for-purpose market design and delivering flexible backup generation and storage needed to balance and complement very high levels of intermittent renewables."