Australia’s energy system is undergoing a rapid and historic transformation that many experts have called a “once-in-a-century” transition. The diverse and resilient nation offers lessons on homegrown sustainable energy generation. In comparison, its dependence on renewables is climbing even faster—particularly solar energy. In many ways this is fantastic, but Australians are still living through an energy crisis with soaring electricity prices and out of control market volatility.
South Australia is known for regularly breaking records with its high levels of renewable penetration – at times reaching over 100%, on occasion. Yet, this shift has contributed to a dual reality: while some regions benefit from cheaper energy during peak solar production hours, others endure soaring costs during periods of high demand. This contrast has been the hallmark of the Australian energy market’s transition.
Under today’s market, we see rampant price instability. David Dixon, an analyst at Rystad, explains that this is a phenomenon not only limited to Australia but is currently taking place across many global markets. After Russia invaded Ukraine in 2022, the wholesale price of Australian electricity skyrocketed by a factor of double. This unprecedented demand rebound has pushed global fossil energy prices to record heights.
The Impact of Renewable Energy on Prices
In their recent report, the Australian Energy Regulator (AER) called out extreme volatility in wholesale prices. That trend continues all day long, according to its annual State of the Energy Market report. During times when grid demand is low — such as midday when rooftop solar generation peaks — prices can drastically fall. On the flip side, when demand is high or the sun isn’t shining, costs skyrocket.
David Dixon explains, “What we’re seeing in the market in Australia, to put a global lens on it, is the highest volatility in the world in electricity markets.” This volatility is due to fierce competition among energy generators, driven in large part by Australia’s abundance of solar assets.
“High prices apply to a greater proportion of the electricity that is dispatched and therefore have a larger impact. So it is an enormous spread from the floor to the ceiling. And for context, you don’t see those kinds of spreads between floor and ceiling in very many markets around the world.”
This constant back-and-forth makes the market ripe for consumers to find themselves paying much higher prices at certain hours. Electricity consumers who are able and willing to change the timing of their electricity usage can realize meaningful savings. Bruce Mountain from the Victoria Energy Policy Centre points out that “the vast majority of customers can’t do that or are not willing to do that,” leaving many individuals vulnerable to high costs.
Challenges in Energy Distribution and Interconnectivity
Australia’s National Electricity Market has long struggled with issues of distribution and interconnectivity. The nation’s transmission lines are at a low capacity. This is especially pronounced when compared to developed economies in Europe and America. This empirical limitation greatly undermines the intent of sharing power between the states and enhances it even further within regions.
David Dixon emphasizes the importance of interconnectivity: “Why that matters is the ability to utilise another state’s generation is what can dampen volatility.” More interconnection is a useful and necessary step towards preventing price spikes. It enables the movement of surplus energy from states with high levels of solar generation to those that require additional energy supply.
Australia has approximately 14 gigawatts of renewable energy projects currently under construction or commissioning. The current infrastructure is failing to distribute this rapidly emerging, massive generation capacity. This leads some states to be unconnected or ‘landlocked’ during peak demand times when they can’t tap their neighbors’ resources.
Looking Ahead: Strategies for Stability
In light of these challenges, experts suggest that moments of market distress may hold valuable lessons for improving future energy strategies. Josh Stabler from Energy Edge notes, “You can have a lot more time holding onto the ice cube than you can the stove.” Yet this metaphor illustrates perfectly the urgent need for energy storage solutions. They are key to ensuring stability of supply during periods of high demand or when renewable output is diminished.
As Australia’s energy landscape evolves, Dixon warns that “there are going to be periods of the year where we just have low renewables,” underscoring the critical role natural gas will play in ensuring a secure energy supply. Gas will be key to ensuring there’s electricity when renewable generation is low. It can’t be applied in enough volume.
The ongoing transition toward renewable energy and greater reliance on solar power presents both opportunities and challenges for Australia’s energy market. As competition grows among generators and new technologies emerge, stakeholders must navigate price volatility while striving for a more interconnected and resilient energy system.
