VIC MARKET UPDATE
Electricity market conditions in Victoria remain generally favourable through July 2026, with forward wholesale electricity prices continuing to trade at relatively subdued levels compared with the elevated prices experienced over recent years.
This softer pricing environment continues to be supported by high levels of renewable generation, particularly wind and utility-scale solar, alongside growing battery storage capacity across Victoria and the broader National Electricity Market (NEM). Increased renewable output has reduced average wholesale prices during many daytime trading periods while improving overall market competition.
Despite these favourable underlying conditions, winter continues to bring periods of heightened short-term price volatility. Cold weather, increased heating demand, reduced solar generation during morning and evening peaks, and variable wind output are resulting in intermittent price spikes as the market relies more heavily on dispatchable generation.
Supply Outlook – Generation & Infrastructure
Electricity supply conditions remain adequate across Victoria, although the system continues to experience tighter operating conditions during periods of high demand or reduced availability of large thermal generators.
Key factors include:
Generator maintenance and availability
Victoria's ageing brown coal fleet remains central to system reliability during winter.
While Loy Yang A, Loy Yang B and Yallourn continue to provide the majority of Victoria's baseload generation, planned maintenance and occasional unplanned outages continue to reduce available capacity at times.
With fewer large thermal generators remaining in the market, the loss or derating of a single unit can materially tighten supply conditions and contribute to higher wholesale prices during peak demand periods.
Interconnector reliance and flow constraints
Victoria continues to play an important role within the interconnected eastern Australian electricity market.
Power flows across the Victorian-New South Wales Interconnector (VNI) and the Heywood Interconnector with South Australia continue to influence regional pricing, particularly during periods of high demand.
Strong renewable generation in neighbouring regions can place downward pressure on Victorian prices through imports, while transmission constraints or competing regional demand can limit imports and contribute to sharper price movements during evening peaks.
Renewable variability and system shifting
Renewable generation continues to play an increasingly important role in Victoria's supply mix.
Strong wind generation has regularly suppressed wholesale prices during many trading intervals, while utility-scale and rooftop solar continue to reduce daytime demand on the grid.
However, renewable output remains weather dependent. Extended periods of low wind during winter mornings and evenings can significantly increase reliance on coal generation, battery discharge and gas-fired peaking plant, leading to greater intraday price volatility.
Storage expansion and system support
Battery storage continues to expand rapidly across Victoria and the wider NEM.
Large-scale batteries are now playing a more active role in shifting excess renewable generation into evening peak periods, improving system flexibility and helping moderate short-duration price spikes.
Although battery capacity continues to grow, it is not yet sufficient to completely offset prolonged periods of low renewable generation or major thermal generation outages.
Transmission constraints and congestion
Transmission constraints remain an ongoing feature of the Victorian network.
Congestion within parts of the Latrobe Valley and western renewable energy zones can occasionally limit generation dispatch, particularly during periods of high renewable output.
These network limitations can contribute to localised price volatility and reinforce the need for continued transmission investment as renewable generation expands.
Futures Pricing Outlook
Forward electricity prices remain relatively stable heading into the second half of 2026.
Compared with the volatility experienced during 2022–2024, market expectations remain more balanced, supported by:
-
continued renewable generation growth
-
increasing battery storage participation
-
improved gas supply conditions
-
softer wholesale electricity prices across much of the NEM.
However, market participants remain alert to short-term risks.
During the remainder of winter:
-
heating demand is expected to remain elevated
-
solar generation will continue to be lower during morning and evening peak periods
-
periods of low wind output may increase reliance on coal and gas generation
-
unexpected coal unit outages or transmission constraints could result in temporary price spikes.
Overall, while structural market conditions remain favourable, seasonal volatility is expected to persist through winter.
Network & Tariff Considerations
Network charges remain a significant component of electricity costs for Victorian businesses.
With updated network tariffs now in effect from 1 July, many businesses are reassessing whether their current tariff structure remains aligned with their operating profile.
For many sites, network charges can represent a substantial proportion of the total electricity bill, meaning tariff optimisation may deliver savings comparable to, or greater than, wholesale energy procurement.
Businesses supplied through distributors including AusNet, Jemena, United Energy, CitiPower, Powercor and Victorian Power Networks should periodically review whether their tariff remains appropriate as operating hours and demand profiles evolve.
What it means for your business
Current market conditions continue to provide a favourable environment for businesses approaching contract renewals or reviewing their energy strategy.
While wholesale pricing remains supportive, network tariffs and load alignment are becoming increasingly important in managing total electricity costs.
A review of both contract structure and network tariff configuration can help identify savings opportunities and improve exposure management ahead of winter volatility and upcoming contract cycles.
For businesses without an active energy strategy, now is a practical time to reassess positioning before seasonal demand pressures increase market sensitivity.
vic ELECTRICITY FUTURE PRICING CHARt
Elmhurst synchronous condenser boosts renewable capacity
Australia's largest synchronous condenser has commenced operation at Elmhurst near Ararat in western Victoria, marking a significant milestone in strengthening the state's electricity network. The 250 MVA system is designed to improve grid stability and system strength, enabling an additional 600MW of renewable energy generation to connect to the National Electricity Market (NEM) without compromising reliability.
Unlike batteries, a synchronous condenser does not generate or store electricity. Instead, it provides the voltage support and system inertia traditionally supplied by large coal-fired generators, helping maintain stable frequency and voltage as renewable generation continues to replace conventional power stations. The project forms part of Victoria's broader investment in modernising the electricity network to support the energy transition.
Key benefits:
-
It will enable around 600MW of additional renewable generation to connect to the Victorian grid.
-
The project strengthens grid stability by providing system strength, voltage control and inertia as coal generation retires.
-
It supports greater integration of wind and solar while reducing network constraints.
-
The investment improves the reliability and efficiency of the National Electricity Market and supports Victoria's clean energy transition.
What this means
The new synchronous condenser strengthens Victoria's electricity network, supporting greater renewable generation and improving long-term grid reliability.
While it is unlikely to lower electricity prices immediately, increased renewable capacity and improved system strength should help reduce network constraints, support a more competitive wholesale market and contribute to greater price stability over time.
Victoria announces Australian-first CO₂ battery project
The Victorian Government has announced plans to build Australia's first commercial compressed CO₂ battery in the Latrobe Valley as part of a new energy innovation precinct near Morwell.
Developed by the State Electricity Commission (SEC) in partnership with Energy Dome, the 20MW long-duration energy storage project will store excess renewable electricity generated during the day and discharge it during periods of higher demand, helping strengthen grid reliability as Victoria transitions away from coal-fired generation. The project is expected to support regional jobs while demonstrating an alternative form of long-duration energy storage beyond traditional lithium-ion batteries.
Key takeaways:
-
Victoria will build Australia's first commercial CO₂ battery in the Latrobe Valley.
-
The 20MW system will store renewable energy for up to 10 hours, supporting grid reliability.
-
The project is part of the SEC Energy Works precinct near Morwell.
-
CO₂ battery technology provides a long-duration storage alternative to lithium-ion batteries.
-
The project will support renewable integration and regional jobs.
What this means
The project represents another step in Victoria's transition towards a renewable electricity system supported by long-duration storage. Technologies capable of storing renewable energy for extended periods will become increasingly important as coal-fired generation retires, helping improve grid reliability and reduce reliance on gas during peak demand.
While the project will not have an immediate impact on electricity prices, expanding long-duration storage should help improve wholesale market stability over time by making greater use of low-cost renewable energy and reducing price volatility. For businesses, this reinforces the long-term trend towards a more flexible, reliable and renewable electricity market, where ongoing investment in storage is expected to support greater energy security and more stable electricity costs.