AEMC admits, reluctantly, that renewables will push prices down

Print Friendly, PDF & Email

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.

ESB modelling 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.


  • ben

    I’m looking forward to the ALP clearing this lot out if they gain power in 2019

    • MaxG

      Don’t care who cleans them out — as long as they’ll be cleaned out. 🙂

  • mick

    ouch that must have hurt 5 minute rule by jan 2018 any one?

    • MrMauricio

      the single best thing that can be done at the stroke of a pen!!!

  • neroden

    Scamming liars are always annoying. Hope Labour throws them out on their ear into the street where they belong.

  • howardpatr

    John Pierce, the Chairman of the AEMC, must have felt he was eating an onion at the same time as making the admission.

  • Joe

    The Pierce, is he Turnbull’s stooge or what. Next he will be telling us it is cheaper to dig coal out of the ground than it is to collect sunshine or the breeze. The dude is a disgrace and should resign.

    • mick

      more likely abbot by the by lost a good shot of undoing the government over the week end rotten luck

  • petergoggin

    There is no doubt that an extra 4000MW of wind turbines connected to the grid will drive the wholesale price down when the wind is blowing and even if the wholesale is driven down to zero, wind generators still make a tidy profit with LREC’s.
    But the casualties will be fossil fuel generators who will find that they have become less viable and will eventually shutdown. In Europe this is already happening and many governments pay “capacity payments” to gas and coal generators to keep them running on standby.
    But I know the great hope is batteries and pumped hydro and I suppose spending a couple of hundred billion dollars and decentralizing the grid should fix the problem.

    • RobertO

      Hi Petergoggin, Poland and Spain are two that are resisting the EU plans to change to RE and both have large capacity payments to coal. Wind and Solar on their own will need lots of capacity to cause coal to retire, but if you add storage to the system (batteries or PHES) then it make Wind and Solar much more likely to cause coal retirements immediately (say 1000 MW wind and Solar possibly no retirements, but add capacity factor plus battery same size (35% + 350 MW) then coal will lose about 350 MW overnight (and it’s working MW’s not name plate size only. It just mathematics that do it, and they cannot compete. They will not compete if they cannot make good profits (unless they get the COALition or Fed Gov to pay capacity payments or they work the NEG so that coal get payment from RE to keep going).

      • petergoggin

        RobertO, All you say is correct and you seem to think that storage can solve the problem of fossil fuels withdrawing from the market. But it can’t. In Australia you would have to have at least 5 days of storage that can discharge at 25GW and even then you couldn’t guarantee 100% reliability.
        Then there’s the cost, why do you think the SA government or Tesla wont reveal the TOTAL installed cost of the 129MWh battery? It was the same with the 80MWh Mira Loma battery in California, a closely guarded secret. And of course, its because its expensive and the installed cost of the SA battery is probably close to $150 million and hopefully if the opposition get elected next year, we can find out.
        Pumped hydro is cheaper but the “round trip” efficiency is around 75%, which means a huge amount of power is lost in conversion and friction.
        The irony is that storage will further accelerate the demise of fossil fuels and the only way to keep the lights on will be to pay capacity paymentsw like they do in Europe.
        So, first we highly subsidise wind and solar to force fossil fuels out of the market, it works, then we subsidise the fossil fuel generators to stop them all closing up shop.
        My prediction is that after Liddell closes in 2022, our grid will become a fragile mess and retail electricity costs will go through the roof.

        • Barri Mundee

          Surely gas can make up for some of the times when wind, solar is low?

          • RobertO

            Hi Barri Mundee, yes it can and at the same time if we have too much wind/solar then this excess can be used to make H2 gas which could be added into the existing Natural Gas (CH4) pipe lines in the country at a rate of up to 10% volumn without any changes required in the CH4 pipes. Note that we may have better uses for the H2 gas so this may be the last alternative until we get proper production going for outer uses.

        • RobertO

          Hi Petergoggin, Sorry but I think your wrong with your numbers, I would put it at 35GW and at least 20 days of storage and even then I would worry about the numbers so I would rate the reliability at only 95%. And I think that is a stupid idea.
          We are changing to a Distributed network (from about 200 Generators to more than 1 Million Generators and there are more to be added maybe as many as 5 million) each household that had solar on it roof is a generator. Batteries for each household is not the best idea however PHES is better and if when you spill capacity from the network, the fact that PHES has a loss factor becomes use less (we already curtail wind and shortly we will curtail solar) information. Yes I say coal need to go but we have gas as the backup to PHES storage (95%-99%). Yes the battery in SA costs money and is it worth it. If it keeps the system going for 5 minutes while gas starts the yes it is. The whole system is a jigsaw puzzle that need to be put together and it includes large transmission cables as well (CRE zones may make money to pay for the Transmission lines). Remember it is the consumer whom will pay for this, not the Fed Gov, not big business. I told my bosses that I expect 10% rises year on year for the next 5 years, then maybe some relief on prices (and part of the rises is the Gentailer taking consumers for a ride as they buy solar or wind with LGC at $25 – $50 per MWhr and get the LGC included (valued at about $80.00 or effective price of -$30 to -$55 per MWhr, and the sell it to us at $240 MWhr.

      • Joe

        Poland is the King of Coal Use in the EU.

  • RobertO

    Hi All, If this is how he reacts to a little RE how is he going to react if 2 Tounges goes ahead with the idea of Snowy 2 (I am still on the fence on that one). This is big solar and wind, but businesses and households are not likely to slow down the solar so we may have to have stoppers somehow to cater for his plans (keep coal at all costs).

  • PaulC

    What seems to be forgotten here by AEMC is that high prices in a commoditised market are the investment signal which triggers more supply. Hence the cure for high prices is… high prices.

    So the market is working, albeit with some delay (due to the COALition-triggered investment strike in which AEMC appear complicit). But even with increased RE supply, the risk remains the concentrated control of marginal supply which invites market manipulation. AEMC should be working with ACCC to address that via market reform instead of playing at carbon politics.

    Of course we need dispatchable energy, but high prices which occur in low-RE periods should create niche opportunities for firming projects. NEG could help that if framed appropriately but we can see that opportunity is lost to political dogma. Dare I say: So sad, so sad!

    • Mike Shackleton

      The great thing about this energy transition is that bigger is not necessarily better. Everyone (homeowners for now) can participate by installing solar. In Victoria and NSW, with the recent upswing in house prices, it is a no brainer to set aside 10 k of that gain for a decent rooftop system and some more for batteries when they become a genuine economic proposition.

  • Nick Thiwerspoon

    How is it possible that we get such idiots in charge?

  • MrMauricio

    So,in brief, the current rise in prices is due to Abbott,creating massive uncertainty in the investment market for 3 years. He has cost consumers and business and the country’s competitiveness dearly.Pierce seems to be doing his utmost to sow doubt and confusion even now!!!

  • trackdaze

    want higher prices for generation to hide the network rorting

  • Chris Fraser

    Given all that I read from here about the AEMC (as hardly anyone else writes objectively about them) I think John Pierce is too biased for the responsibilities of his office. He’s so biased that he can’t understand the investment pain he has caused us over years of transition.

  • Ray Miller

    Interestingly last night the “tv media” reported to the masses that as early as this month ALL our electricity bills are going down! Clearly this was false and misleading how dumb are they and us for believing them?
    All the fundamentals of the retail prices are set by whatever state regulator and take now 6 to 12 months depending on the state, Queensland will be in July with some of the others January 2019. All the massive jumps in retail cost to the consumers were a result of extreme prices for just a couple of weeks last summer. So for anyone to predict a decrease in prices ‘before’ this summer is over is very ‘brave’ indeed.
    Then not to mention that Queensland’s metering chargers are going up, approx. $75 annually for each connection.
    So one can imagine extra use of those air-conditioners due to the “lower prices” and some extremely unhappy customers after receiving their first bill after summer are likely to want to take it out on someone.
    So maybe now this is the plan to put the AEMC upfront, and be the sacrifice?

    The only problem then is who is lined up next?