Each quarter, the Australian Energy Market Operator (AEMO) release their Quarterly Energy Dynamics (QED) report providing a detailed overview of the energy market.
This article outlines the key insights from the recent Q2 2025 report, including the primary factors driving electricity and gas prices in the National Electricity Market (NEM) and Western Australia.
Key Factors Affecting East Coast Electricity Prices
- Renewable Penetration and Demand Shifts
Underlying electricity demand hit a Q2 record of 24,118 MW (+0.7% YoY), but strong growth in rooftop PV (+15%) reduced operational demand by 0.7% to 21,760 MW. Mild and sunny conditions near the start of the quarter supported high rooftop solar output, setting new lows for minimum demand levels, while cold, wet and windy winter evenings later in the quarter pushed heating needs and operational demand, especially in Victoria, which set a new winter demand record.
- Variable Renewable Energy (VRE) and Storage
VRE generation surged, with wind output up 31% and grid-scale solar up 17%. Renewables supplied nearly 38% of total NEM demand (up from 32.2% in Q2 2024), cutting emissions intensity to new lows. Battery storage also played a growing role, with discharge volumes more than doubling YoY. These technologies helped dampen price pressures during periods of high supply, but couldn’t fully offset shortfalls during still, cold evenings.
- Price Volatility in June
While the quarterly average wholesale electricity price rose modestly to $140/MWh (+5% YoY), June alone averaged $232/MWh, up sharply from April and May (~$95/MWh). This was driven by cold, still weather and peak heating demand, which coincided with low wind generation and forced increased reliance on gas and batteries. Just three extreme June days contributed $32/MWh to the quarterly average, with 12 June recording the highest daily NEM-wide price in market history.
East Coast Gas Market Dynamics
- Reduced Demand Eases Prices
East coast wholesale gas prices averaged $12.36/GJ, down from $13.66/GJ in Q2 2024. Overall demand fell 3%, due to lower gas-fired electricity generation and weaker LNG export volumes. Victoria continued to lead reductions in industrial and residential gas usage.
- Supply Adjustments and Storage Drawdown
While Queensland LNG projects pulled back domestic supply, Victorian production rose modestly, supported by increased output from Otway and Orbost. Iona Gas Storage was heavily drawn upon in June to meet gas-fired generation needs, setting new withdrawal records, but inventories remained healthy thanks to strong pre-winter injections.
Western Australia Gas and Electricity Dynamics
- Rising Demand Offset by Rooftop Solar and Embedded Generation
Cooler weather and increased battery charging drove underlying demand up 8.6%, but operational demand rose only 4.4% due to strong growth in distributed PV (+31%) and embedded generation.
- Renewables Supply Over One-Third of Demand
Renewables met 35.1% of demand, with a record 78.8% share in a single interval. Emissions intensity fell 5.5% despite rising consumption.
- Energy Prices Up, But System Service Costs Plummet
Average energy prices rose to $90.46/MWh due to higher demand and market changes. However, FCESS and uplift costs fell 72% thanks to increased competition and rule reforms. - Gas Demand and Production Down Slightly
Compared to Q2 2024, domestic gas consumption declined 4.6% and production dropped 1.4%, while gas storage withdrawals surged to support winter demand.
Brief Outlook
Energy prices remain highly weather-dependent. While renewable output and battery storage continue to grow, their intermittent nature, especially during winter peaks, means gas-fired generation remains critical for reliability and price stability. In the near term, expect continued volatility during extreme conditions, though increasing renewable and storage capacity may gradually smooth price spikes over time. Longer-term pricing will depend on the pace of coal retirements, renewable integration, and gas market flexibility heading into summer 2025.
