NEM wholesale prices hit five-year low despite record underlying demand

Average wholesale electricity prices in the National Electricity Market fell to $63 per megawatt hour in the September quarter, marking the lowest level in five years. According to AEMO data, this represents a 27 percent drop compared to the same period last year.

The price decline occurred even as underlying demand reached 25,472 megawatts, a figure reported by AEMO. This juxtaposition highlights a divergence between market pricing and consumption levels during the quarter. The data indicates that despite robust demand figures, the average cost of electricity in the NEM continued its downward trajectory.

Price dynamics by region

• Victoria and Tasmania recorded the lowest average wholesale price at $56/MWh.
• Queensland followed closely with an average of $61/MWh.
• South Australia averaged $69/MWh.
• New South Wales posted the highest average price at $74/MWh.

AEMO data shows a clear hierarchy in pricing across the National Electricity Market regions during the September quarter. The southern states of Victoria and Tasmania led the decline, settling at $56/MWh, while Queensland remained close behind at $61/MWh. In contrast, the eastern states experienced higher costs, with South Australia averaging $69/MWh and New South Wales reaching $74/MWh. This spread reflects the varying mix of generation and demand conditions in each jurisdiction during the period.

The disparity between the lowest and highest regional averages underscores how local grid conditions influence pricing. New South Wales, at $74/MWh, saw prices significantly higher than the Victorian and Tasmanian average.

Renewable output and grid impact

Renewable sources supplied 44.3 percent of electricity in the September quarter, an increase from 41.8 percent during the same period last year, according to AEMO. This rise was driven largely by solar, with grid-scale solar output reaching 2,211 gigawatt hours, a 30 percent jump year on year. The surge in solar generation coincided with a 6 percent decline in wind generation, though the net effect was a substantial increase in total renewable penetration.

The imbalance between supply and demand reached a peak on September 19, when renewables met 80.4 percent of demand in a single half-hour. AEMO recorded this as the highest penetration level for that metric. Such high levels of intermittent generation can overwhelm local grid capacity, particularly when solar output is high and wind contribution is low. The resulting surplus of clean energy pushes prices down, as seen in the regional averages, because the market must accommodate the excess supply. This dynamic illustrates how the mix of generation sources directly influences wholesale pricing, independent of total demand levels.

Battery performance and gas displacement

Grid-scale batteries are increasingly determining market prices, with AEMO CEO Daniel Westerman noting they set the price on nearly half of all intervals. This shift has fundamentally altered evening peak dynamics, where battery storage now supplies more power than gas-fired generation. The displacement effect is stark: gas generation hit its lowest level for a third quarter since 2000, according to AEMO data.

Residential storage is also reshaping demand patterns. AEMO reports that homes equipped with both solar panels and batteries draw 75 percent less grid power during evening peaks compared to households relying on solar alone. By shifting consumption away from the grid when prices are typically highest, these systems reduce the immediate need for peaking plants. Consequently, the traditional role of gas as a flexible backup is eroding, replaced by dispatchable storage that can respond to price signals more efficiently. This transition underscores how widespread battery adoption is altering the fundamental supply-demand balance in the evening hours.

Market signals and negative pricing

Queensland experienced a notable shift in negative pricing conditions during the September quarter. AEMO data indicates that negative price events occurred in 43 percent of dispatch intervals, a reduction of 30 basis points from the previous year. While the frequency of these episodes declined, the depth of the negative prices also moderated. The average magnitude during these intervals was minus $10 per megawatt hour, compared to minus $16 per megawatt hour a year earlier. This suggests that while the market is still facing surplus generation, the severity of the price penalties for producers has lessened.

Market signals for renewable developers have also weakened. Large scale generation certificate prices fell to $7 per certificate, representing a 50 percent drop year on year. This decline affects the revenue stream associated with renewable energy certificates, which are often bundled with electricity sales. The simultaneous reduction in negative price frequency and certificate values highlights changing economic conditions for new renewable projects. Developers must now navigate a market where both the risk of negative prices and the value of associated certificates have shifted, altering the financial outlook for upcoming investment decisions in the sector.

What to watch

Market participants are now closely monitoring the rapid integration of new capacity into the National Electricity Market. Luminity reported on 21 October that 23 projects totaling 4.5 GW received connection application approval during the September quarter. Over the same period, four projects aggregating 1 GW completed registration and connected to the grid. These additions sit within a broader backlog that now exceeds the market’s current total capacity, a situation detailed in an earlier report on the grid queue.

As this new generation comes online, it will interact with significant retirements of existing infrastructure. AEMO group manager of onboarding and connections James Lindley stated that 15 GW of generation is scheduled to retire in the coming decade. This replacement cycle coincides with a projected surge in consumption, with AEMO forecasting electricity use to increase by more than 40 per cent over the same period. The drivers behind this growth include electrification, industrial demand, and data centre consumption, according to AEMO.

The central challenge is managing the timing of this supply and demand shift. AEMO executive general manager policy and corporate affairs Violette Mouchaileh noted that electricity use continues to grow, but more solar and storage is changing when energy is produced, drawn from the grid and shifted across the day. This dynamic suggests that the market will continue to experience volatility in specific time periods, even as total consumption rises. The interplay between the 15 GW of retiring assets and the growing queue of new projects will determine how quickly the grid stabilizes under these new conditions.