Fear of rising electricity prices has been one of the mainstays of the Coalition’s re-election campaign: any efforts to increase the share of renewable energy – as proposed by Labor or even more dramatically by The Greens – or impose some sort of carbon price would end up as a Great Big Electricity Tax.
Environment minister Greg Hunt is still at it: “And let me say that equally, we are the only ones that can protect against the electricity price rises that the ALP wants,” he told Melbourne radio 3AW in an interview on Tuesday.
So, it should probably be seen as something of an irony that in the week after the July 3 poll, wholesale electricity prices shot to their highest levels on record – in most states averaging nearly double the average price when the carbon tax was in place.
The reason, most analysts agree, lies mostly with the soaring price of gas, which has also hit record levels due to the impact of the massive LNG export facilities, and supply blockages in Queensland.
But the Coalition is not blameless. Apart from being a hugely enthusiastic supporter of the gas export industry, it brought large-scale renewable energy investment to a halt for three years. As we shall see below, if the estimated 4,500MW of large-scale wind and solar that could have been built in that period had been built, then Australia would likely be enjoying much cheaper wholesale electricity prices today.
And while the Coalition has railed against the expense of new renewables, the Labor minority government that runs the Australian Capital Territory has quietly been going about its target of sourcing 100 per cent of its electricity needs from renewable energy by 2020.
Already, it is reaping the benefits. Under an ingenious financial arrangement with the wind farms it has contracted, the government agrees to pay a certain amount to the wind and solar farms. If the wholesale price exceeds that level, as it has for much of the past few months, it will receive the difference.
So, while the rest of Australia is paying a huge bill for its reduced investment in wind and solar farms, and its attachment to fossil fuels, the ACT will likely get a net benefit from having the vision and ambition to go 100 per cent renewables. It might even get its electricity for free.
Indeed, there seems to be a complete misunderstanding in the government and much of the mainstream media – wilfully encouraged by the principal fossil fuel lobby groups – about the impact of wind energy on the national energy market. The biggest myth is that more renewables equals higher prices.
This is debunked by the main utilities themselves, who have often used the “merit order” impact to argue against renewable energy policies. The merit order argument points out that when more wind and solar are added to the grid, this has the effect of reducing wholesale prices.
The argument has been taken up by Pitt & Sherry energy analyst Dr Hugh Saddler in his latest monthly assessment of the Australian electricity markets.
Saddler notes that the emergence of high wholesale prices in the National Electricity Market has seen renewed claims that higher prices in South Australia are caused by the high share of wind generation in state electricity supply.
“Looking over the whole period since AEMO (the Australian Energy Market Operator) began comprehensive reporting of wind generation, there is in fact no relationship between the share of wind generation and wholesale prices in SA,” he writes.
“The average annual price in 2007-08, when wind supplied only about 10% of total demand, was higher than in 2015-16, when it supplied nearly 35%.”
Saddler says it is useful to look at the relationship between wind generation and high wholesale electricity prices in two most recent months in SA and Victoria, the two states with significant shares of wind generation in total supply.
When that is done, he says, a strong inverse relationship between market price and wind generation is found; that is, the higher the share of wind generation, the lower the price (Figures 7 and 8 below).
The data shown in this graph are the wholesale prices in each month in SA and in Victoria, averaged over the 1,440 30 minute trading intervals in May and the 1,488 trading intervals in June, weighted by the total demand for electricity, in MWh, in the trading interval.
This is called the volume weighted average wholesale price. It is compared with volume weighted average prices in each month and each state during various subsets of the complete set of trading intervals.
Saddler says the graphs show that wind generation had a very dramatic effect on lowering wholesale prices in both state wholesale markets. In Victoria, in the top quartile of trading intervals for wind generation (dark green), the average wholesale price was 32% lower than the average for the whole month in May and 22% lower in June.
Corresponding figures for SA are 62 per cent lower in May and 34 per cent lower in June. Conversely, in the bottom quartile of trading intervals for wind generation, prices were 55 per cent above average in May and 36 per cent above average in June. Corresponding figures for SA are 64 per cent above average in May and 47 per cent above average in June.
“The effect is larger in SA than in Victoria, which is to be expected, given that wind generation over the two months was higher in SA than in Victoria – 958 GWh compared with 705 GWh – and much large in relative terms – 43.5 per cent compared with 9.7 per cent of total electricity supplied,” Saddler notes.
“What is surprising is the effect of wind generation on market prices is so large in Victoria, given wind’s current relatively small share of supply.”
Saddler also notes that the very high gas prices have caused the two most efficient and lowest emissions gas-fired generators in the country – Swanbank E in Queensland and Pelican Point in South Australia – to cease operations.
The owners of both plants say the high gas prices mean it is no longer economic to run the gas plants – despite the high wholesale electricity prices. Saddler notes that this means less efficient plant is operating, such as the ageing Torrens Island units in South Australia – and this is pushing up greenhouse gas emissions in Australia.
“Competition from LNG exports is contributing to higher gas prices, (and) this … is driving additional Australia’s greenhouse gas emissions in the electricity market,” he notes.
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.