Energy prices rise sharply in Q1 2022 03 May 2022

It is clear that the energy crisis unfolding in Europe is not leaving Australia untouched. High prices for oil, gas and coal have persisted for several months, and domestic energy markets have not been immune to upwards price pressures. The latest Quarterly Energy Dynamics report, published by the Australian Energy Market Operator, reported that average wholesale price for electricity in Queensland hit $150/MWh for Q1 2022 – driven by increasing offer prices and reduced availability from black coal generation, constrained interconnector capacity, and periods of record demand. This is more than triple the average price for the corresponding period in 2021.

Domestic gas prices also remain very high at an average of $9.93/GJ in Q1 – more than 60% higher than the equivalent period last year. Against this backdrop, the Wholesale Demand Response Mechanism finally got underway, with the first dispatch of DR facilities recorded in the quarter.

Source: AEMO

The first quarter of 2022 has seen prices rise in all NEM regions, reflecting an increase in the cost of fuels for thermal generation. Constraints on the Victoria-New South Wales interconnector have limited the flow of power from lower-priced southern regions to northern NEM regions, meaning that while Victoria, Tasmania and South Australia saw price rises, they were largely insulated from the volatility and big price increases witnessed in Queensland, and to a lesser extent NSW. During the quarter, Queensland also experienced a period of record demand on 8 March. High temperatures also saw increased demand in Western Australia, with an overall 14% increase to the weighted average balancing price – a relatively modest increase compared to the NEM.

Although gas prices have eased marginally since Q4 2021 and remain substantially lower than the export-parity LNG netback price of around $30/GJ, gas prices at all five eastern monitoring points increased by more than 60% compared with Q1 2021.  

These trends are unlikely to disappear any time soon. The supply-demand balance in Queensland appears to remain tight ­ – while QED noted increases in ASX electricity futures for 2023 increasing by around 46% to $108/MWh in Queensland, recent trading in Q2 2022 futures has seen forward base prices in Qld hit $239/MWh.

Such high prices underscore the importance of energy efficiency, energy management and demand-side participation in the market. Two demand response facilities, managed by EnelX, were dispatched into the market to provide 10MW of demand response on 31 January in Victoria in the first use of the WDRM. 58MW of demand response capacity is now registered in the NEM, available to respond to high-price events. 

Watch out for our post-election edition of Energy Briefing Quarterly Update, when we’ll explain some of the forces at work on energy prices, and what it means for Australian businesses.