2023 Wrap Up
Off the back of an unprecedented 2022, which saw record-breaking electricity prices, extreme market volatility, and AEMO’s remarkable suspension of the National Electricity Market (NEM) wholesale market for the first time since its inception in 1998; January 2023 opened comparatively low, which was largely brought about by the Government intervention in early December. This report provides a comprehensive overview of the key trends and events that shaped the market throughout last year, highlighting both opportunities and challenges for businesses and consumers.
In the Australian energy market, 2023 stood out as a pivotal year, marked by rapid transformation as the grid struggled to adapt to the shifting landscape of intermittent renewables and rising demand. The Liddell closure in April marked a significant symbolic milestone, indicating the shift away from fossil fuels. Policy swings aimed at climate goals (renewable investment and targets), grid resilience (upgrades and storage), and affordability (price caps) proved a tricky balancing act, sparking concerns about hindering the clean energy transition.
While not as extreme as what was seen in 2022, this year saw continued volatility in electricity prices, driven by several factors:
Global Gas Price Surge:
- Global events, such as the war in Ukraine, resulted in spiking commodity prices. These price increases had a direct impact on wholesale electricity and gas costs in Australia.
Coal Market Instability:
- Global coal shortages due to supply chain disruptions and export restrictions led to price increases and contributed to higher wholesale electricity prices.
- The looming threat of El Niño and the occurrence of significant heatwaves, particularly on the east coast, resulted in surges in demand, leading to an increase in prices.
Renewable Integration Challenges and Generator Fleet Outages:
- Rapid growth of renewables like solar and wind, while positive for long-term sustainability, introduced intermittency into the grid. This required greater reliance on gas and coal during peak demand periods, again impacting prices.
- Lack of storage infrastructure combined with unplanned coal and gas generators outages continued through 2023, exacerbating supply-demand imbalances and contributing to price fluctuations.
- Government interventions like price caps and market interventions also contributed to price fluctuations.
- Renewable energy acceleration: The Clean Energy Council reported that renewables accounted for 38.9% of total electricity generation in 2023, with a record penetration of 72.1% in October.
- Grid transformation imperative: Intermittency, congestion, and aging infrastructure require faster storage and transmission rollout.
- Policy uncertainty: The changing political landscape created uncertainties around energy policy, particularly regarding the Safeguard Mechanism and emissions reduction targets. This uncertainty impacted investment decisions and market confidence.
- Focus on affordability: The high cost of energy remains a major concern for businesses, prompting continued calls for measures to improve affordability and energy security.
In December, the Australian Energy Market Operator (AEMO) approved applications for a record 19 generation and storage projects, totaling 4.7 gigawatts, to connect to the National Electricity Market. This brings the total approved applications for the first half of FY24 to 7.5 GW, surpassing the approvals for the entire previous financial year. The projects, consisting of 9 solar, 9 battery, and 1 wind farm, highlight Australia’s accelerating shift towards low-cost, low-emission renewables supported by energy storage.
Energy Market Summary for 2023
Overall: The energy market in 2023 was a rollercoaster of stability and volatility, influenced by resource availability, weather, and political factors.
- January-February: Stability with slightly high futures prices. Negative spot prices observed in February.
- March-April: Increased prices due to outages, political events, and Liddell closure. April volatility peaked with Liddell’s final shutdown.
- May-June: Declining prices due to high renewable generation and mild winter. Gas prices also fell.
- July-August: Prices bounced back, then dropped again due to mild weather and ESOO’s warning of future grid reliability issues.
- September-October: Significant drop in spot prices and contract prices due to mild weather, strong renewables, and low gas prices. Wholesale demand decreased by 5%.
- November: Record low market demand and negative spot prices nationwide. South Australia experienced extreme volatility due to weather and isolation.
- December: Extreme volatility triggered by heatwaves, LOR declarations, and interconnector constraints. South Australia and Queensland saw record high market prices. Year ended with record low demand drops in Victoria and South Australia.
- Volatility persists: Weather, global markets, and policy will keep the market dynamic. Businesses and consumers need to adapt and consider risk management.
- Renewables rise: Continued demand for clean energy will drive investment in solar, wind, and new technologies like hydrogen. Policy clarity is key to attract investment and accelerate the transition.
- NEM spot prices: Negative prices present both opportunities and challenges, requiring ongoing policy and market adjustments to ensure a sustainable and efficient future.
- Grid modernization: Upgrading the grid for renewables is crucial for long-term energy security. Investment in transmission, smart grids, and energy storage is essential.
- Affordability and equity: Balancing affordability with climate goals requires prioritising energy efficiency, vulnerable consumers, and equitable access to clean energy solutions.
The Australian energy market experienced significant progress and challenges throughout the year 2023. While navigating ongoing volatility and policy uncertainties, the year also highlighted the country’s commitment to renewable energy and the need for a coordinated approach to ensure a sustainable and affordable energy future.
As 2024 unfolds, the Australian energy market is poised for significant developments. The focus will likely be on enhancing the Reliability and Emergency Reserve Trader (RERT) mechanism, harnessing the power of demand response, and optimizing the Frequency Control Ancillary Services (FCAS) market. These strategies, coupled with a commitment to renewable energy, signal a promising year ahead for sustainable and possibly more affordable energy in Australia, while opening additional revenue streams for engaged businesses. Having previously said that the current heatwave in parts of QLD and NSW are causing a surge in electricity demand, which is then leading to higher spot prices, illustrate that the coming will not be without its challenges.