AEMO report confirms wind and solar best cure for fossil fuel hyper-inflation

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The Australian Energy Market Operator (AEMO) has released its Fourth Quarter 2022 (4Q2022) Quarterly Energy Dynamics report Today.

It’s a stark and welcome reminder that Australia’s green energy transition is well established and moving faster than expected.

While the rampant hyperinflation of all things fossil fuels caused massive disruption in 2022, the underlying trends are clear – and the rise of renewables and the decline of coal and gas in the grid will ultimately drive prices down permanently.

Fossil fuels, in particular, fell to their lowest-ever levels in Australia’s east coast electricity mix in the last three months of 2022. coal (particularly in Queensland) and lower demand.

Renewable energy generation reached an all-time high, yielding average 40.4% of grid delivery during 4Q2022. This beat the previous record of 35% set in the fourth quarter of 2021. Renewables in the East Coast power grid peaked at nearly 69% on Oct. 28, surpassing the previous record of 64% set in the previous quarter alone.

The 4th quarter of 2022 also saw the highest wind generation for any quarter on record, with grid-scale wind and solar output increasing sharply as new facilities were connected and commissioned. During the 3 months, wind and solar energy made up 20% of total generation, not including rooftop solar.

The quarter was marked by an unprecedented historic intervention in the electricity market.

lIn December, the Albanian government passed emergency laws to protect against the ongoing catastrophic market failure underlying the hyperinflation of fossil fuel costs plaguing Australian households and businesses alike.

This was entirely justified, and made some progress towards controlling the international gas cartel that reaps unprecedentedly massive war profits from our sovereign public assets as they praise everyone else, pay next to no taxes in many cases, and destroy the planet in the method.

The markets responded with resounding, pre-emptive approval.

Figure 2: NEM Wholesale Electricity Prices Continue to Normalize After Fossil Fuel Hyperinflation in 2-3Q2022,
shows the success of the dramatic government interventions.

Electricity futures market prices fell in mid-October and November in anticipation of federal government action, falling significantly after details of temporary price caps for domestic gas and coal wholesalers were confirmed, more than halved in the last three months of 2022, while renewable energy set new records (Figure 2).

Wholesale spot market prices averaged $93 per megawatt-hour across all National Energy Market (NEM) regions (the eastern states and South Australia), a price reduction aided by record low demand. Demand was down 2% year-on-year, driven by the continued expansion of and record-high rooftop solar power (Figure 1).

NEM on-grid demand continues to decline as rooftop solar penetration increases
Figure 1: NEM on-grid demand continues to decline as rooftop solar penetration increases.

In terms of gas, wholesale prices for gas on the East Coast fell from record highs in June and July to an average of nearly $18 per gigajoule (GJ). However, this remained 70% above $11 for the final quarter of 2021, and double the 2021 average. Gas demand fell 7% in the quarter compared to the same quarter in 2021, driven by a large decline in the LNG export from Queensland.

In Western Australia, the quarter had the lowest quarterly average coal-fired generation of all time, down 42% from the same quarter last year. At the same time, renewables reached a record quarter-over-quarter share of nearly 43%, up 3% yoy from 4Q2021.

While South Australia had a major blackout, despite all the fear mongering from fossil fuel proponents and climate science deniers, the state managed in isolation, even as renewable energy generation peaked at 91.5% on 19 November 2022.

Australians are held hostage to our historic dependence on fossil fuels and failure to regulate to ensure local energy needs are met first, before the balance is exported, anchored by a lost decade of policy chaos under the coalition government.

The events of the past 12 months are a textbook example of the need and speed of transition.

Figure 3: NEM CY2023-25 ​​future wholesale price expectations continue to normalize.

Fortunately, the worst is probably behind us now: coal and gas are in a prolonged structural decline, renewables are booming, pushing out expensive, unreliable, polluting coal and gas, and market expectations for 2023-2025 wholesale prices have fallen decisively in the last quarter (Figure 3).

While there will be no immediate relief, this transformation will inevitably lead to lower utility bills beyond FY2023, meaning massive, permanent energy price deflation for Australians over time.

The end of coal and gas as we electrify everything and deploy solid renewables and electric cars at an unprecedented rate will send the fossil fuel energy bill shock to the dustbin of history.

An orderly, managed accelerated transition of our energy system and economy is the only solution, and with the Albanian government working with states to develop and implement transformative climate and energy policies, we are moving in the right direction, as appears in the AEMO report.

Figure 3: NEM CY2023-25 ​​future wholesale price expectations continue to normalize.

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