Electricity prices in eastern Australia fell sharply in the final three months of last year as record-breaking contributions from renewable energy and large-scale batteries reduced the need to call on fossil fuels to plug supply gaps.
Figures from the energy market operator, to be released on Thursday, confirm renewables and batteries powered more than 50 per cent of the grid in the December quarter for the first time in history, crunching coal to its lowest-ever seasonal share of the mix, and gas to its lowest since 2000.
Wholesale power prices – what retailers pay generators for electricity before selling it to customers – tumbled to $39 a megawatt hour, a 44 per cent decline from the same time a year earlier.
Lower prices are now also reflected in what retailers and large industrial users are being charged for 2027 supply contracts, and could provide a timely boost to consumers’ chances of avoiding steep energy bill increases later this year. Regulators take wholesale costs into account in March when they draft each state’s annual default market offers – the maximum that retailers can charge customers who do not take up special deals.
This year’s default offers will have added significance for household budgets after the Albanese government announced in December it would end its $75-a-quarter energy bill rebates.
Energy Minister Chris Bowen, who remains under pressure over rising power bills adding to cost-of-living strains, said the new figures showed Labor’s policies were working.
“The drop in wholesale price is good news – and we are working to ensure as much of that flows through retail prices,” he said.
Violette Mouchaileh, the Australian Energy Market Operator’s head of policy, said the lower average prices across the quarter were the result of years of sustained investment in clean energy and storage projects. It proved that adding more wind, solar and battery capacity into the grid reduced the need to burn higher-cost coal and gas for electricity, putting “downward pressure” on prices, she said.
“This is a landmark moment for the national electricity market,” Mouchaileh said.
“For the first time, renewables and storage supplied more than half of the system’s energy needs for a full quarter.”
Opposition energy spokesman Dan Tehan called on Bowen to “come clean” over the government’s failed 2022 election pledge to deliver a $275 power bill cut by 2025. “There is a big difference between wholesale and retail prices, and retail is what the end user pays,” he said. “It’s like celebrating winning a pre-season night premiership and finishing last in the season.”
Still, experts said sustained wholesale price relief could help smooth out the volatility and reduce the impact of temporary price spikes from earlier in 2025, including in winter, when a shortage of windy days reduced wind turbine output and forced gas plants to run harder.
Lower wholesale prices were already helping drive down the cost of contracts to buy and sell power at future dates, said Lisa Zembrodt, director of sustainability at Schneider Electric, a major energy advisor to Australian businesses. Forward prices in NSW had fallen about 20 per cent to $98, she said.
“As we look ahead, there is some comfort that renewables are delivering as they are meant to,” Zembrodt said. “On some of the hottest days we have seen, rooftop solar has been delivering because it is sunny as well, and that has helped to control some of the prices.”
Water storage levels sitting at a 10-year high at Tasmania’s vast hydroelectric dams were also helping, she said. “It means we have something up our sleeve when we need it in periods of tight supply and demand … and bodes well for keeping forward prices a little bit contained,” she said.
Despite the record-breaking quarter for renewables, the grid remains reliant on supplies from coal and gas plants to provide back-up for wind and solar and ensure the lights stay on. Last week, Australia’s biggest coal-fired power plant, Origin Energy’s Eraring generator in NSW, had its closure delayed by another two years following warnings that the grid was under-prepared for its retirement
Earlier this week, strong reliability across Victoria’s coal fleet helped the grid ride through its highest ever demand levels amid searing heatwave conditions, especially as people began turning up their conditioners in the evening peak, just as solar power was dropping off.
”We are not at a point where renewables alone can meet demand during extreme weather,” said Javier Savolainen, market development manager at Wartsila Energy, which builds batteries and power plants. “Peak electricity demand often coincides with scorching, cloudy or windless conditions, meaning firming capacity must perform reliably when Australians most need it,” he said.
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Nick Toscano is a business reporter for The Age and Sydney Morning Herald.Connect via X or email.