Energy Market Trends – May 2025
Electricity Market
Overview:
May 2025 experienced continued volatility, driven primarily by unplanned coal outages and constrained renewable generation capacity. Concerns around transition preparedness, firming capabilities, and grid reliability dominated industry discussions. Reduced solar output combined with unexpected maintenance requirements at several coal-fired power stations intensified spot market volatility, particularly in NSW and Victoria. Gas-fired plants continued to underpin grid stability, though surging gas prices maintained upward pressure on wholesale electricity costs.
Key Events:
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Generator Outages: The Callide C3 unit in Queensland experienced an unplanned outage due to clinker issues, extending its downtime until 2 June 2025. This unexpected event reduced available baseload capacity, contributing to increased reliance on gas-fired generation and heightened spot market volatility.
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Weather Impacts: A significant flooding event occurred in New South Wales from 20 to 25 May, particularly affecting the Mid North Coast and Hunter Valley regions. Towns such as Taree, Kempsey, and Coffs Harbour experienced record-breaking rainfall, with Taree receiving 427mm over two days. The floods led to widespread infrastructure damage, power outages, and disrupted energy demand patterns.
Price Dynamics:
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In New South Wales, wholesale electricity prices increased by 18% to $123/MWh, driven by generator outages and weather-related disruptions.
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The Australian Energy Regulator (AER) released the Default Market Offer (DMO) for 2025-26, indicating electricity bill increases ranging from 0.5% to 9.7% across NSW, South Australia, and south-east Queensland.
Regulatory Actions:
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The federal government is reviewing the DMO settings to prevent excessive electricity price hikes and potential price gouging. Proposed changes include removing the competition allowance and capping what retailers can reclaim from consumers.
Natural Gas Market
Overview:
In May, the natural gas sector continued to grapple with uncertainty around domestic supply obligations and the broader implications of energy market transitions.
Policy Developments:
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The federal government's proposed "Domestic Gas Security Mechanism 2.0" underwent further industry consultation, generating substantial debate. LNG exporters reiterated concerns over the potential impact of redirecting gas volumes to domestic markets on international contractual commitments and investment stability.
Market Pressures:
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Industries in Victoria and NSW intensified exploration of alternative energy sources through electrification and green hydrogen initiatives, aiming to mitigate long-term price and supply risks. However, scalability and infrastructure readiness remain major challenges.
Geopolitical Impacts:
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Global energy security is under pressure due to geopolitical tensions, supply chain disruptions, and extreme weather events. Conflicts in key resource regions and growing cyberattacks on critical infrastructure have highlighted vulnerabilities in both fossil fuel and renewable energy systems.
State-by-State Overview
New South Wales (NSW):
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Electricity: Flooding events and coal plant outages increased spot market volatility.
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Natural Gas: Rising prices accelerated industrial energy transition strategies.
Victoria:
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Electricity: Increased dependency on gas-fired generation highlighted the urgent need for grid infrastructure investment.
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Natural Gas: Persistent concerns about long-term gas supply reliability.
Queensland:
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Electricity: Coal plant outages (Callide C3) significantly impacted market stability.
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Natural Gas: Strong LNG exports amid domestic policy uncertainties.
South Australia:
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Electricity: High reliance on gas generation underscored urgency for accelerated storage solutions.
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Natural Gas: Ongoing volatility exposed vulnerabilities in gas infrastructure.
Western Australia (WA):
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Electricity: Renewable energy rollout further delayed, casting doubts on meeting renewable targets.
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Natural Gas: Increasing tensions around balancing domestic supply with LNG exports.
Tasmania:
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Electricity: The Tasmanian Economic Regulator approved a 2.13% electricity price increase, slightly above Hobart’s current inflation rate of 1.6%. Despite this, Tasmania's electricity prices remain among the lowest in the National Electricity Market.
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Natural Gas: While Tasmania does not have a significant natural gas market, the state continues to focus on renewable energy initiatives.
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Infrastructure Developments: The Marinus Link project reached a significant milestone with the board recommending shareholders make a Final Investment Decision to proceed with Stage 1. This project aims to enhance interconnection between Tasmania and Victoria, facilitating greater integration of renewable energy.
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Industrial Activity: The Liberty Bell Bay Smelter in northern Tasmania entered a period of limited operations starting 16 June, scheduled to end on 13 July. This development reflects ongoing challenges in energy-intensive industries within the state.
Policy and Regulatory Updates
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Integrated System Plan (ISP): AEMO's revised ISP highlighted the urgency of accelerating renewable integration and grid investment.
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Domestic Gas Security 2.0: Continued consultation on domestic gas supply mechanisms amid market uncertainty.
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Supply Chain Impacts: Persistent global disruptions delayed renewable and storage projects, threatening Australia's near-term energy goals.