Record low emissions: deep dive into the Australian Energy Market Operator’s (AEMO) Q4 2022 Energy Dynamics Report.

Record low emissions: deep dive into the Australian Energy Market Operator’s (AEMO) Q4 2022 Energy Dynamics Report. 

The fourth quarter of 2022 was the lowest emissions quarter on record in the National Energy Market (NEM). In the same quarter, a new record for minimum coal-fired generation was set as the prevalence of wind and solar PV generation increased. We take a look at these trends as we dive into the Australian Energy Market Operator’s (AEMO) Q4 2022 Energy Dynamics Report.

Demand

Rooftop solar PV continued to drive decreases in operational demand in Q4 2022. An average increase of 16 per cent in rooftop solar PV output precipitated a 2 per cent decline in average operational demand compared with Q4 2021. Average operational demand for the quarter was 19,431 MW, the lowest Q4 average on record.

Figure 1 illustrates changes in average demand across the NEM in Q4 2022 v Q4 2021, and shows the increased output of rooftop solar PV.

Figure 1 – Distributed PV output reduced daytime operational demand

Source: Australian Energy Market Operator (AEMO) Q4 2022 Energy Dynamics Report

Several minimum demand records were set across the quarter. The standout figure is the NEM’s minimum operational demand record of 11,892 MW, with 45 per cent of underlying demand being met by rooftop solar PV on 6 November. Mild conditions and weaker demand also led to minimum demand records in some states:

• Queensland recorded its lowest quarter of operational demand since 2002, recording 3,676 MW Maximum demand on 6 November. Rather than increased rooftop solar PV, Queensland recorded a number of low-temperature days and a reduction in industrial demand, which precipitated a 406 MW decrease in demand for that state across the quarter.
• South Australia recorded minimum operational demand of 100 MW as 93 per cent of the state’s underlying demand was met by rooftop solar PV on 16 October, 6 per cent lower than the previous record set in the same quarter in 2021.
• Victoria set a new record for minimum demand of 2,285 MW on 2 October, and promptly broke it on 18 December with 2,195 MW minimum demand, where solar PV accounted for 55 per cent of underlying demand.
• New South Wales recorded its lowest minimum demand of 4,356 MW on 29 October.
• The NEM recorded its lowest quarterly emissions on record at 26.4 million tCO2-e and grid emissions intensity reached a record low of 0.62 tCO2-e/MWh.

As illustrated in Figure 2, minimum operational demand has been declining across the NEM for a number of years.

Figure 2 – Declining minimum operational demand across the NEM

Source: Australian Energy Market Operator (AEMO) Q4 2022 Energy Dynamics Report

Spot prices across the NEM

Spot prices averaged $93/MWh across the five NEM regions in Q4 2022, a 57 per cent decline from Q3 2022’s $216/MWh average. Prices in the NEM declined over the quarter, helping to lower the average. However $93/MWh represents a record spot price for Q4 and is 78 per cent higher than Q4 2021’s average.

Q4 average spot prices in Queensland and New South Wales reached record levels. The spread between northern and southern mainland states prices has never been higher, at around $60/MWh.  Figure 3 illustrates Q4’s price spread between mainland northern and southern NEM states.

Figure 3 – Price divide between northern and southern regions increased

Source: Australian Energy Market Operator (AEMO) Q4 2022 Energy Dynamics Report

AEMO has attributed this increase to higher thermal coal and gas input costs, resulting in higher bids from black coal-fired generation.

Price setting by fuel type

Black and brown coal continued to set spot market prices for shorter periods of time, making way for wind and grid-scale solar.

As figure 4 illustrates, southern mainland states registered increased instances of wind generation setting the price, while New South Wales and Queensland experienced growth in prices being set by grid-scale solar.

Figure 4 – VRE generation increased price-setting frequency while coal-fired generation declined

Source: Australian Energy Market Operator (AEMO) Q4 2022 Energy Dynamics Report

Electricity Futures

ASX Calendar 2023 (CAL23) base future prices continued their Q3 trend and increased at the start of Q4. Prices began to trend down mid-October. Prices around the NEM at the end of the quarter were:

• $127/MWh in New South Wales
• $121/MWh in Queensland
• $89/MWh in Victoria
• $114/MWh in South Australia

AEMO’s report states: “Cal23 prices then began to decline through November, with high inter-day price volatility reflecting anticipation of government intervention in the market aimed at reducing wholesale electricity prices.”

Once the cap was implemented on 9 December, Cal23 electricity futures prices fell steeply for mainland states. Later years also recorded similar falls over the same period.

Figure 5 shows the price difference between Q3 2022 and Q4 2022 for NSW.

Figure 5 – Cal23-25 futures prices fell across Q4 2022

Source: Australian Energy Market Operator (AEMO) Q4 2022 Energy Dynamics Report

Coal and gas-fired generation continue to decline

Australia’s transition to renewables continues to be evident in AEMO data. Coal and gas generation decreased again across Q4 2022 while renewable generation increased by 4.5 per cent compared with the same period in 2022. This was largely at the expense of black coal and to a lesser extent brown coal and gas. Rooftop solar PV and grid scale solar also each established new record peak outputs (10.7 GW and 5.3 GW respectively) and wind recorded its highest Q4 peak output at 6.6 GW.

Batteries

Grid-scale Batteries, particularly in South Australia, experienced strong revenue growth in Q4 2022. Revenue across the NEM was $28 million higher than the same quarter in 2021, totalling $42 million.

Of that revenue, $34 million was earned providing Frequency Control and Ancillary Services (FCAS), the majority of which was accrued between 12 and 19 November when South Australia was islanded. The high level of FCAS revenue can be seen in figure 6 below.

 Figure 6 – Battery Revenue dominated by FCAS markets

Source: Australian Energy Market Operator (AEMO) Q4 2022 Energy Dynamics Report

On a state by state basis:

• In New South Wales, Wallgrove Grid Battery increased its revenue by $2.5 million through participation in the FCAS ($2.1million) and energy markets ($0.4 million).
• Victorian batteries increased their revenue by $6 million through participation in the FCAS ($3.5 million) and energy markets ($2.4 million).
• In Queensland, a $3.8 million increase in revenue was driven by Wandoan BESS fully participating in the FCAS ($1.9 million) and energy markets ($1.9 million).
• In South Australia, a $15.5 million increase in revenue was recorded, driven by Hornsdale Power Reserve ($10.6 million) and Dalrymple North battery energy storage unit ($4.0 million)

Decreases in spot prices and gas price futures markets remain a theme of Q4, 2022. Increased renewables output between 0800hrs and 1800hrs are also a key feature. Given the increasing volume of renewables in the grid, it is anticipated that minimum demand records will continue to be broken, impacting spot markets across the NEM. Markets in the NEM also continue to respond to government intervention, however, distortion will make it difficult to observe how the gas market is functioning beyond observing the price at or below $12 per gigajoule.