Australia's primary electricity grid experienced record demand during the final quarter of the year, while renewable energy sources collectively supplied over half of the power for the first time. This period also saw a significant reduction in wholesale electricity prices and demonstrated the grid's stability during recent heatwaves. Despite these developments, challenges related to grid stability, transmission infrastructure, and future investment requirements persist.
Record Demand and Renewable Energy Milestone
The Australian Energy Market Operator (AEMO) reported that underlying electricity demand, which includes power supplied by rooftop solar, reached an all-time high of 24,271 megawatts (MW) in the three months ending December. This represented a 2.2 percent increase from the previous high recorded in 2024, driven by increased needs for heating and cooling, electrification, the expansion of data centers, and population growth.
During the same quarter, renewable energy sources, including rooftop solar, wind, and grid-scale solar, provided 51 percent of the National Electricity Market's (NEM) total supply. This marks the first instance of renewables surpassing 50 percent of the NEM's supply, an increase from 46 percent in the corresponding period of the previous year. In Western Australia's main market, renewables supplied 52.4 percent of demand for the quarter.
Contribution of Renewable Sources
Rooftop solar played a substantial role, supplying an average of 4,407 MW during the quarter, a record. At its peak, rooftop solar contributed up to 61 percent of demand. During a recent heatwave, solar power provided over 60 percent of the electricity consumed in the NEM at its peak, with approximately two-thirds originating from rooftop installations. When combined with wind and hydropower, renewable sources met up to 76.6 percent of demand on specific days during the heatwave.
Over a seven-day period during the heatwave, solar power contributed 30 percent of all electricity to Australia's main grid. During daylight hours (9 am to 6 pm), solar met 59 percent of electricity demand, with 37.6 percent from small-scale rooftop systems and the remainder from large-scale solar farms. Between 12 pm and 1 pm, solar output reached a peak of 67 percent of consumption nationwide, exceeding 70 percent in New South Wales and South Australia.
The increase in renewable supply was primarily due to a 29 percent rise in wind output and a 15 percent increase in grid-scale solar in the final quarter. Battery discharge also nearly tripled as new storage capacity was integrated, with approximately 4,000 MW of grid storage added since 2024.
Fossil Fuel Trends
Conversely, coal-fired generation declined to an average quarterly low of 11,544 MW in the final quarter, a 4.6 percent reduction from a year prior. Gas-fired power also reached its lowest level for the three months since 2000, decreasing by 27 percent compared to the same period in 2024. While their output decreased, coal and gas plants continued to provide essential frequency and voltage services, and coal-fired power, along with other sources, supported the grid as solar output decreased at sunset.
Wholesale Electricity Prices
Wholesale power prices across the national market averaged $50 per megawatt hour (MWh) for the final quarter. This represented a 44 percent reduction compared to the same period in 2024 and a 43 percent reduction from the previous quarter. Price falls were most substantial in Queensland, decreasing by 55 percent to $58 per MWh, while South Australia and Victoria recorded the lowest average prices at $37 per MWh. AEMO noted reduced price volatility due to increased wind generation and battery discharge, particularly during evening peaks. In Western Australia's main market, wholesale energy prices fell by 13 percent to $69.55 per MWh. Sustained lower wholesale prices are anticipated to benefit consumers, potentially impacting retail electricity bills by mid-2026.
Grid Stability and Heatwave Performance
The National Electricity Market (NEM) exhibited stable spot prices during a recent heatwave, with temperatures exceeding 40 degrees Celsius across southern Australia. AEMO issued minimal warnings regarding supply risks. The system's response was observed to be different compared to previous heatwaves, with an absence of typical stress indicators, no Lack of Reserve notices, and prices largely remaining stable throughout the middle of the day.
High output from rooftop solar matched air-conditioning demand, aiding grid management during the summer heatwave.
Despite temperatures exceeding 45°C in parts of Melbourne and high electricity demand, the system maintained stability, experiencing minimal evening volatility.
The grid also experienced record low operational demand (excluding rooftop solar) of 9,666 MW in October. However, instances of extremely high demand also occurred, such as during a heatwave in South Australia when spot prices peaked at $20,300 per MWh.
Ongoing Challenges and Future Outlook
Despite the advancements, challenges persist within the energy system. AEMO reported interventions were sometimes necessary to maintain system strength in Victoria and New South Wales when the number of synchronous generators (coal and gas plants) fell below minimum levels. Additionally, constraints in high-voltage transmission lines led to "economic offloading," or curtailment, of available wind and solar capacity, reaching 15 percent and 18 percent respectively.
Concerns exist that investment in new developments may not be sufficient to meet climate targets or ensure adequate replacement capacity as older coal plants close. Delays in new transmission lines mean some coal plants, such as NSW's Eraring, are expected to continue operation until 2029, and the planned closure of the Torrens Island gas power plant was postponed.
Gas is anticipated to remain necessary longer than coal as a quick-response backup when wind and solar generation are not abundant. The gas market faces challenges, including diminishing Bass Strait wells and significant liquefied natural gas (LNG) exports. Governments are exploring solutions, such as a potential mandatory east coast gas reservation scheme. Victoria, Australia's most gas-dependent state, has opened new areas for gas exploration and is pursuing offshore wind farms, aiming for 2 gigawatts by 2032.
The Australian government has a target of 82 percent renewables in four years.
The energy transition is characterized by both rapid progress and ongoing challenges.