Extreme weather and a growing reliance on renewable sources are contributing to fluctuating wholesale electricity prices. Amid ongoing uncertainty – exacerbated in many cases by power quality issues – proactive maintenance strategies can help businesses better manage energy costs and support more effective budget planning.
Volatility in electricity prices is an ongoing concern for businesses, consumers and governments across the world. It adds to the growing global pressure on electrical asset managers, which involves issues ranging from rising demand to poor power quality. And the challenge is nowhere more evident than in Australia, where extreme weather events and the variable output of renewable energy sources are among the factors contributing to sometimes dramatic price fluctuations.
Data from Australia’s National Electricity Market (NEM) indicates that in recent years, spot prices have hit maximum caps on several occasions, while also dropping below zero at other points. Storms in the state of Victoria last year were one event that prompted electricity prices to rise, as damage to transmission lines led to generators being disconnected, severely restricting supply. More than half a million customers lost power at the peak of the outages as providers sought to reduce the load on the grid.
An analysis last year by the Australian Energy Regulator (AER) argued that the growth of renewable power is also having a considerable impact on electricity price volatility. Intermittent renewable sources such as wind and solar are now responsible for about a third (32%) of generation output, and are increasingly “setting the price during the day”. During sunlight hours, the country’s growing solar energy capacity is sometimes leading to excess supply that causes negative prices – particularly during milder weather, such as in September last year. However, at night, dispatchable sources such as coal and gas set the price more than 90% of the time.
The global challenge of energy market volatility
The AEC concludes that overall, “the increase in extreme price periods (either high or low) suggests the supply-demand balance is becoming tighter than it was historically, and harder to accurately predict”. And we’re seeing similar situations elsewhere. Extreme cold weather during winter storms led to electricity prices rising to the maximum level in Texas in 2021. But growing renewable output is also increasingly leading to sub-zero prices in the state and elsewhere in the US, such as California. High fuel costs and geopolitical instability can also contribute to volatility – as they did in Europe between 2021 and 2022, when countries such as Germany and the UK saw record-high electricity prices.
In many cases, another factor driving high energy costs is the quality of power within businesses’ electrical systems. Efficient and reliable operations rely on smooth, stable patterns of current and voltage – but these can often become disrupted, creating power quality issues such as harmonic distortions or sags, swells and fluctuations in the voltage. As well as potentially causing outages and accidents, these problems accelerate the wear of equipment and create inefficiency, with electric power being lost as heat. If the power factor – the proportion of electricity drawn from the grid that is actually used – is too low, this can lead to additional costs for businesses. Utilities may, for instance, increase demand charges (based on the maximum usage), and some impose direct penalties if the power factor drops below a certain level. Power quality can be worsened by extreme weather and the growing pressure on systems from rising demand.
For all of the reasons I’ve discussed, the increasing volatility of electricity prices is an important global issue. For many consumers, spikes in the cost of power cause anxiety as they struggle to pay bills. This creates challenges for political leaders and policymakers, who must quickly implement effective responses – which may include providing funding to support the cost of living, making government interventions in energy markets and taking steps to improve energy security. Meanwhile, for businesses that rely on electrical power, energy market volatility makes it difficult to plan ahead. Companies need to be able to accurately forecast their costs in order to create meaningful budgets. In contrast, fluctuating (and sometimes very high) energy prices create uncertainty and instability – which in turn curbs investment and holds back growth.
Optimizing electrical systems to support efficiency and sustainability
Addressing electricity price volatility is a complex challenge that will require governments and businesses to work together to develop effective solutions. These are likely to include major infrastructure changes such as increased renewable generation, and more battery storage to help balance supply anddemand. But whatever the future brings, organizations can manage the impact on their own operations by making sure their use of energy is as efficient as possible.
Schneider Electric can contribute to this goal by providing businesses with a clearer understanding of how their electrical systems are functioning. Our approach involves bringing together the capacities of digital technology with electrical power to support more efficient, sustainable industries. We install internet-connected sensors on equipment, which take continuous readings of important variables such as temperature, current and voltage. Our AI-powered analytics can then use this data to provide accurate models of the condition of the components, without the need for in-person inspection.
In this way, electrical asset managers gain greater visibility over their system. They have a much better grasp of when equipment needs maintaining and where power quality disruptions are arising, with early indications of inefficiencies and possible problems. As a result, they can work more proactively: instead of reacting to issues they hadn’t previously known about, they can anticipate them in advance. This helps businesses avoid the high costs arising from unplanned shutdowns, low power factors and inefficient operations, while extending the lifespan of components and reducing the need for planned maintenance downtime. By bringing greater stability and efficiency to their systems, they can limit the impact of price fluctuations and poor power quality on their budgets
Building resilient electrical systems for long-term reliability
As uncertainty over electricity prices continues, it’s more important than ever that power systems function as well as they possibly can. With decades of industry experience, a global network of more than 6,000 consultants, and hundreds of data scientists continuously developing our analytics, Schneider Electric has the expertise and the technology to help you modernize your systems effectively. To kick-start your journey towards proactive electrical asset management, we can carry out an in-depth assessment of your current equipment, allowing us to recommend practical steps that will support you to manage it more effectively and efficiently. In addition to analyzing your system as a whole, we also offer power quality audits – focusing specifically on how to improve your power factor by identifying and addressing common issues such as harmonics.
As well as improving resilience to price volatility, these services help businesses build reliable foundations for growth, with electrical systems that can scale and adapt to meet new challenges. And while improving efficiency is crucial, there may also be other ways to mitigate against market uncertainties – such as creating on-site generation and storage, or redesigning processes to make better use of energy. We can provide expert advice on all the options, allowing you to make informed strategic decisions. Volatile prices and poor power quality are only some of the hurdles that businesses will have to overcome as they face the electricity-powered future. But with our support, exploring solutions to these potentially daunting problems can point the way to exciting opportunities.
If you’re ready to explore how a proactive asset management strategy can yield quick benefits and a strong ROI, I invite you to connect with me on LinkedIn or complete the form for a complimentary 30-minute consultation. Let’s work together to secure a more reliable and efficient future for your electrical assets!
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