Australia’s rapid rollout of renewables and batteries has helped deliver a year of lower electricity prices, but top energy executives warn the grid remains precariously balanced while ageing coal-fired generators continue shutting down and the nation races to build their replacements.
Wholesale electricity prices have plummeted to five-year seasonal lows in the past six months, delivering relief to hundreds of thousands of customers on basic retail plans whose bills have fallen by up to 10 per cent. Regulators have attributed the decline to record-breaking renewable energy generation and an unprecedented boom in battery installations, which has allowed more low-cost daytime energy to be stored and used after sunset, cutting reliance on fossil fuels in the evening peaks.
However, industry leaders caution that this year’s smooth performance has also been heavily bolstered by luck: milder-than-average winter weather has suppressed heating demand, while coal-fired power plants across Australia’s eastern seaboard have suffered fewer unexpected breakdowns than usual.
“Not every winter will be this good,” said Frank Calabria, chief executive of Origin Energy.
Winter poses an increasingly difficult test for Australia’s grid stability, due to sudden cold snaps sending heating demand surging just as fewer daylight hours reduce electricity output from solar panels.
“Just remember, you’ve got a lot of coal coming out of the system and a lot of renewables that still need to be built, so we still see a lot of variability going forward,” Calabria said.
The warning comes as Australia’s energy transition approaches a critical juncture. While giant coal-fired power stations still supply nearly 50 per cent of eastern Australia’s electricity, their years left powering the grid are numbered. More than half of the remaining coal generators in the system are scheduled to close by 2035, as their old, emissions-intensive equipment becomes more costly to maintain and unreliable.
The Australian Energy Market Operator (AEMO) and major electric companies insist that replacing those plants with wind and solar – backed up by batteries, pumped hydroelectric storage and gas-powered generation – is the cheapest way to maintain grid reliability, rather than forcing the extensions of facilities that can break down with no notice and cause huge price rises.
As governments and companies pour billions of dollars into renewables and storage across Australia, propelling renewables to nearly half of the grid’s energy mix for the first time, there are clear signs the transition is having a positive impact on prices.
According to AEMO, wholesale electricity costs – what retailers pay generators before selling power to customers – fell 47 per cent year-on-year across eastern Australia in the June quarter – the lowest average for that period since 2020. Victoria led the drop, down 60 per cent to $56 a megawatt-hour. Renewables, batteries and household-level technologies were “changing demand patterns, supporting system reliability and increasing the amount of lower-cost energy available across the market”, said AEMO general manager of policy Violette Mouchaileh.
But AGL, the second-biggest energy provider, echoed Origin’s warning that the market remains vulnerable and new projects must be delivered with greater urgency. AGL chief Damien Nicks said this year’s milder weather had led to unusually soft market conditions, and coal fleet availability had been “the best it has been for a while”.
“What I would say is the market is still finely balanced,” Nicks said. “Risk doesn’t go away in this market, it just evolves over time.”
While solar panels and batteries are being rapidly deployed, the industry says more fast-response gas-fired power plants, known as “peakers”, will be needed alongside them, despite being sources of greenhouse emissions, to play an infrequent but critical role during long stretches of low wind and sunlight, particularly during winter. Unlike grid-scale batteries, which exhaust their stored energy in only a few hours, gas plants can run for as long as they are needed.
“You can’t shift energy between seasons using batteries,” Calabria said.
There are also concerns that not enough wind turbines are being built. While solar farms have become cheaper as the cost of panels falls, major financial pressures loom over wind farms amid surging costs of steel, concrete, labour and financing, as well as increased community opposition in key regional areas and long connection delays due to a congested transmission network.
Nicks said the Albanese government should impose tougher “use it or lose it” rules for its flagship renewable energy program, the Capacity Investment Scheme, to prevent developers from tying up critical underwriting contracts while projects remained unbuilt.
“The economics of wind have got more challenging,” he said. “With the various contracting schemes that are out there, we want to see the proponents either get those assets built or get it back into someone else who can.”
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Nick Toscano is a business reporter for The Age and Sydney Morning Herald.Connect via X or email.From our partners
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