AER Report Q1 FY21: Solar Eclipses Gas as Electricity Source in Australia

The Australian Energy Regulator (AER) recently published its Quarterly Wholesale Markets Report for the first three months of this year, reporting that large-scale solar generated more electricity than the average amount produced by gas for the first time in Australia.

In Q1 FY21, wholesale electricity spot prices were lower than expected, with volume weighted average prices ranging from $27/MWh in Victoria to $53/MWh in South Australia. This was the first time any region has had a Q1 price as low as $27/MWh since 2012. Low prices were the result of very low demand – with traditional peak grid demand periods during the summer having been pushed to their lowest levels in five years – driven by a mild summer and increased rooftop solar generation.

Close to 20% of Australian homes are now PV panels-equipped, up from 0.2% in 2007, so the National Electricity Market (NEM) faces increasingly lower load, especially since one in every five Australians relies on powering their ACs with energy acquired from their rooftop solar panels rather than that from the grid. Increased large-scale renewable generation also put downward pressure on prices.

Low demand and increased low cost wind, solar and brown coal generation displaced black coal and gas generation. Average black coal generation fell to its lowest ever Q1 level and average gas generation fell to its lowest Q1 level since 2005. In fact, average solar generation exceeded average gas generation for the first time.

The higher prices in South Australia were mainly driven by 2 high priced events caused by plant and network failures and limited imports from Victoria.

Average gas market prices were slightly up from last quarter ranging between $5.50/GJ to $6.40/GJ. Northern market prices remained higher again this quarter, with the north-south price gap widening further. Significant quantities of gas continued to flow north into Queensland.

As per the AER’s report, both Victoria and New South Wales, however, utilised less than 1 petajoule of gas last quarter. Thus, gas-fired electricity not only reached its lowest level in 16 years but was also surpassed by solar energy.

The Day Ahead Auction remained popular with 9.9 PJ of capacity won across all auction facilities. Roma production and LNG exports remained high following record levels across Q4 2020. Liquidity in the east coast spot markets continue to increase, reaching a record of 17% of scheduled demand this quarter.

The report comes at an interesting time since this month, the Scott Morrison-led Australian government committed $600 million of unallocated funds from the recent budget towards building the controversial 660 MW Kurri Kurri gas plant in New South Wales.

Morrison’s plans are in direct opposition to the recommendations of the recently published International Energy Agency (IEA) Net Zero Report for 2050 : A Roadmap for the Global Energy Sector Report, which conspicuously states that to reach net-zero by 250, there must be “from today, no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants.”

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