Australia’s power market is now the most volatile in the world as unexpected losses of supply from unplanned coal generation outages and transmission line issues related to natural disasters lead to huge price fluctuations, according to Rystad Energy research.
The country’s National Electricity Market (NEM), which interconnects power markets in Queensland, New South Wales (NSW), Victoria, Tasmania and South Australia is experiencing the most fluctuations in daily prices of any system worldwide.
Rystad Energy has analyzed public price data from 39 electricity markets globally and concluded that Australia’s NEM holds the unwanted title of ‘most volatile’, with domestic price spreads for Queensland and South Australia seeing the widest spreads of all markets. The key metric used to measure volatility is the average one-hour intraday spread for a year of data, i.e., the difference between the highest and lowest price during a given hour.
Volatility is driven by significant supply issues, including unplanned coal power plant outages or transmission line problems caused by natural disasters such as cyclonic winds or bushfires, which have become more frequent and devastating in recent years. Extreme price fluctuations are also down to high solar power penetration. While daytime generation is high, pushing prices down, elevated natural gas prices are causing soaring rates in the evenings and at night when solar generation falls and gas-fired generation is needed.
To handle these fluctuations, increased storage capacity is required. A total of 46 gigawatts (GW)/640 gigawatt-hours (GWh) of pumped hydro and utility-scale battery storage capacity will be needed to balance the market by 2050, a significant increase from the current 2.8 GW.
Outside Australia, the other markets that exhibited high volatility in our research were Japan and the Philippines, plus select regions of the US such as California and Texas.
Volatility an be unsettling for retailers who lack proper hedging strategies and for consumers who bear the brunt of resulting cost fluctuations. To tackle this, Australia should prioritize the enhancement of transmission infrastructure and invest in storage solutions to mitigate the impact of volatility. This will help to create a more stable and affordable electricity market for all Australians
David Dixon, senior analyst, Rystad Energy
