June 2025 – Review of Market Events
By Aaron Bool
The electricity market in June saw a series of fluctuations largely driven by weather conditions and power station outages. Early in the month, NSW experienced a Lack of Reserve (LOR1) event, causing a burst of volatility, while renewable energy generation was hindered by wet, cloudy weather and low wind conditions. The volatility was compounded by coal-fired power station outages, which had a significant impact on supply, especially in VIC. This resulted in higher spot prices across the board, with a noticeable spike driven by cold weather demand, pushing prices across all states to elevated levels.
Mid-June saw the introduction of a new market mechanism called the Frequency Performance Payment (FPP), aimed at stabilising grid frequency. The FPP, branching under Frequency Response, incentivises market participants to engage in real-time events to stabilise grid frequency and ensure the safe operation of the electricity network. Maintaining a frequency near 50 Hz is crucial, as the grid relies on a balance between generation and load, with all generators and loads designed to operate within this frequency. A failure to do so could result in damage to grid elements, system failures, and potential blackouts. The FPP approach seeks to improve market balance and hold participants accountable for poor frequency contributions, operating as a zero-sum system where those who contribute to stability – via batteries, generators, or large flexible loads – are rewarded, while those who negatively impact the system are penalised.
June was marked by significant supply-demand imbalances, particularly due to the ongoing outages at Yallourn and other coal-fired power stations, including units in VIC’s Loy Yang and NSW’s Bayswater. These outages contributed to sharp price increases and volatility, with some states seeing spikes of up to $10,500 per MWh. Renewable generation remained inconsistent throughout the month, with periods of low wind and zero solar generation. This added further strain to the market, as states like VIC and NSW relied on more expensive sources of electricity, like gas, to fill the generation gaps. It is worth noting that during these outages, VIC’s reliance on burning brown coal for electricity generation became more apparent. While brown coal is typically cheaper than the black coal used in NSW and QLD, the outages at Yallourn and Loy Yang reduced supply, driving prices up. Furthermore, the loss of this cheaper generation source meant that more expensive black coal from other states had to be used, further increasing cost pressures.
Gas prices rose significantly due to their heavy use in filling generation gaps, with short-term trading prices climbing to around $18.50 per gigajoule – nearly double the level seen just a few days earlier. This spike was partly driven by VIC, which used approximately 13% of its annual gas consumption in just three days to address supply shortages. This mirrors the price movements seen during the afternoon period, when electricity spot prices reached around $10,000 per MWh.
Towards the end of the month, market conditions stabilised slightly, with renewable generation picking up as the cold snap dissipated. Wind and solar performance improved, and no significant volatility was observed in the latter half of the month. The ASX Futures for CAL26 saw consistent price increases across all states. Comparing prices from the start to the end of the month, NSW saw an increase of $4.59, QLD rose by $4.49, VIC saw the highest increase of $6.34, and SA experienced an increase of $2.97. CAL27 also saw price increases in NSW, QLD, and VIC, with a surprising decline for SA. A similar trend was observed in CAL28, though the changes were less pronounced.
Looking forward, July 1 will see the Market Price Cap (MPC) increase from $17,500/MWh to $20,300/MWh, the first of three scheduled increases through to the 2027–28 financial year, aimed at enhancing market resilience and investment signals. While the volatility experienced in June appears to have subsided for now, the market remains susceptible to weather-driven supply issues and ongoing infrastructure challenges, which could lead to further price spikes in the near term, especially if the cold weather persists.
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