Australia’s principal rule maker, the Australian Energy Market Commission, has belatedly admitted that the much delayed surge in investment in wind and solar will cause wholesale electricity prices to fall in Australia, but it is clearly not happy about it.
In a report that appears to be deliberately misleading about the impacts of wind and solar, the costs of coal generation, and the impacts on wholesale prices, the AEMC says that rises in consumer bills this year, due to the jump in wholesale prices, should be reversed in the next couple of years.
The fall in wholesale prices from the influx of renewable energy has long been predicted by most analyses, but its impact has been delayed because of attempts – supported by the AEMC – to kill the renewable energy target, causing an effective three-year investment strike.
That investment strike is nearly over, but it will be until well into 2018 before the bulk of new capacity comes on line and begins to have an impact on wholesale prices, which have been bid up ruthlessly by fossil fuel generators due to the lack of competition.
In its Retail Electricity Price Trends report, the AEMC concedes that wholesale prices that have risen 12 per cent over the last year should reverse that trend over the next two years as more than 4,000MW of new wind and solar is completed to meet the now reduced renewable energy target.
AEMC chairman John Pierce uses the retail price report to make a pitch for the controversial NEG, and continues to paint renewables in the worst possible light; warning of a rebound in wholesale prices, a risk of a shortfall in “dispatchable base-load generation” and putting the blame firmly on renewable energy.
But a number of his conclusions are directly contradicted by either his own report or other modelling.
One example is the efforts to downplay the fall in wholesale prices, which Pierce suggests would be temporary and not economically efficient.
But this is contradicted by modelling done by the very same firm (Frontier) that the AEMC commissioned on behalf of the Energy Security Board while pushing for the National Energy Guarantee.
It shows that the falls could and should last four years at least, and over the next decade should be well below the recent, and unjustified surge, in wholesale prices.
AEMC’s antipathy to renewables is long held. It views renewable energy rather like an old headmaster must have viewed the encroaching of hair length over the collars of high school students in the 1970s: inevitable, but highly regrettable.
And in its report, it can barely disguise its distaste.
It blames renewables for the closure of power stations like Hazelwood and the loss of such baseload generators with “low operating costs” – ignoring that Engie’s decision to close Hazelwood was based on a global commitment to exit coal, and because Hazelwood “was no longer economic to run.”
The same is true of Liddell, which the Coalition wants to keep on-line despite clear analysis which says that it would result in costlier, dirtier and less reliable energy than replacing it with renewables, storage and demand management.
Pierce though, is a fan of base-load, and notably pushed for coal generators to be given an extra $2 billion in added compensation under Labor’s then carbon price, for fear of the lights going out, as former greens leader Christine Milne underlines in her new book.
The report echoes his support of old technologies over the new:
“The retiring generators generally provide stable levels of electricity into the market. In contrast, new generation, such as wind and solar, have limited control over the amount of electricity exported into the system as they are dependent on weather conditions.
“However, over time this new renewable generation may be developed in such a way as to also have the ability to provide relatively stable levels of generation – for example, the incorporation of battery storage with a wind farm.”
And the report appears to contradict itself. Because while Pierce’s main message is the urgency with which we should be building “dispatchable baseload”, the reports own modelling says:
“While the retirement of Hazelwood has tightened the supply-demand balance, the suppressed level of demand and the large amount of both modelled and committed renewable entrant means that new thermal investment is not needed before the 2020s.”
This is consistent with what the Australian Energy market Operator has pointed out; was the main point to be made by the energy storage report commissioned by chief scientist Alan Finkel, as well as being one of the main points of the energy transition review by the CSIRO and Energy Networks Australia.
These reports suggest that the amount of storage, or back-up, needed to support large amounts of wind and solar is actually quite low, and is only needed when the penetration pushes beyond levels of around 50 per cent.
The AEMC also appears keen to blame the LRET scheme for the recent surge in wholesale prices because it forced out baseload coal generators and this forced prices up.
In its infographic distributed to media is says wholesale prices “Increased by 62% this year due to the exit of Northern and Hazelwood coal generators, and higher gas prices which increase the cost of operating gas-fired power stations.”
Apart from failing to mention the carbon and economic reason’s for Hazelwood’s closure, nowhere in the report is their mention of the radical bidding that occurred from all the major players in the market nearly the moment that Hazelwood closed.
This graph from the Australian Energy Regulator last week could not have made it any clearer. Low cost generation from Snowy Hydro simply evaporated, and all the big fossil fuel generators jacked up the prices of most of their generation.
Perhaps also the AEMC should look firstly at the reasons Engie closed Hazelwood (it was old and costly and it was getting out of coal around the world).
It was no longer, as the AEMC insists in its report, one of the lowest cost generators in the system. According to Engie “it is no longer economic to operate”.
The AEMC view that prices must surge again due to the need for storage or “dispatchable baseload” is contradicted by AGL’s plan for the replacement of Liddell – again a coal generator not forced out by wind and solar, but by its own age, cost and decrepitude.
AGL says the replacement cost will be $83/MWh, compared to $106/MWh to keep Liddell open another 5 years.
Independent analysts suggest the cost could be even lower if smarter technologies like energy efficiency and demand management could be deployed more effectively. But that would require the AEMC to approve collar-length hair.
There was one other major discrepancy between the Frontier modelling for the AEMC retail pricing report and the Frontier modelling for the AEMC/ESB NEG report.
In the NEG modelling, Frontier suggested that the share of renewables, including rooftop solar, would be 26 per cent by 2020, which made their anticipated range of 28-36 per cent renewables by 2030 look like at least something would happen, even if not very much.
In the retail pricing report, however, Frontier recognises – as every other analyst does – that the share of renewables including rooftop solar will be 28 per cent by 2030.
Which means that according to its own modelling, at the bottom end of the range, there would be just a 3% increase in renewables out to 2030.
That would require even rooftop solar to be scaled back significantly, not to mention large scale solar, including the corporate market and the state-based targets to come to a complete stop.
That is what has gotten everyone’s backs up about the the NEG. If modelling can be so stupid, obviously to cater for the troglodytes in the Coalition right wing, then there is nothing to say that the scheme won’t be designed that way. There’s going to be a lot of convincing to do.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.