Energy companies will face rising pressure to reduce consumer costs after the average wholesale electricity price fell nearly 50% in the year to March due to increasing solar and wind generation, falling demand and lower gas prices.

The wholesale price fell despite electricity system costs to keep the grid running ballooning to a record $310m after a severe storm and bushfires cut major transmission lines between states for extended periods. It sparked a warning the grid needs to be better equipped to deal with the climate crisis.

A quarterly report by the Australian Energy Market Operator says wholesale power and gas prices have been extremely volatile in the three months to March, falling to on average 49% and 42% less than a year ago.

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“With prolonged bushfires and major power system separation events, changing markets and a reduction in operational demand, and the lowest east coast wholesale energy prices since 2016, it’s been an extraordinary start to the year,” the market operator’s chief executive, Audrey Zibelman, said.

The Covid-19 pandemic had relatively little impact on power use by the end of March. The report says energy demand was down just 4% compared with previous years, mostly due to mild weather. Comparatively, the US and parts of Europe have seen a 20% to 30% fall in electricity use as economies have shut down.

Dylan McConnell, from the University of Melbourne’s climate and energy college, said the 49% decline in wholesale electricity prices should equate to about a 15% cut in power bills for households and industry if retailers passed it through in full.

“There’s always a lag between wholesale and retail, but if competition is working you would expect these price reductions to flow through to retail prices over the next couple of months,” he said.

McConnell said the sharp rise in system costs due to extreme events was a warning of what lay ahead if the electricity grid was not built to deal with global warming. “It serves as a good illustration of how we need to account for the impacts of climate change in a more comprehensive way,” he said.

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System issues in the national electricity grid are usually only about 1% to 2% of total energy costs, but reached 8% in the first quarter this year. About three-quarters of the record system cost was due to a major storm knocking out transmission lines in western Victoria on 31 January, cutting the state off from South Australia for 18 days. It forced the market operator to require energy companies to boost power reserves in both states.

New South Wales and Victoria were cut off from each other for seven hours on 4 January by the unprecedented east coast bushfires.

Electricity demand – how much is drawn from the grid – reached record lows for this time of year in Victoria and South Australia due to sunny conditions helping rooftop solar generation and mild temperatures leading to less use of air-conditioning. Rooftop solar also drove Western Australia to its lowest power use from the grid for a second consecutive quarter.

The report says average gas prices fell from $9.75 a gigajoule a year ago to $5.63, mostly due to more gas being available and a slump in international oil prices. Average wholesale electricity prices fell from $130 per megawatt hour to $66 due to the cheaper gas used in some generation, reduced demand, increased solar and wind output and lower prices for some black coal and hydro power.