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The secret world of Australia’s solar and energy contract prices

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wind and solar-

We know that the cost of solar is plunging across the world, because it is. The publicly released results of solar auctions in Asia, the Middle East, Europe and north and Latin America tell us this.

Since a bid of under $US60/MWh stunned the energy world in Abu Dhabi in late 2014, auction results in the US, Chile, Mexico and Saudi Arabia have traced its fall to the current lows of just $US17/MWh – a 70 per cent fall in three years.

In Australia, auctions for solar power have been held too – in Queensland and Victoria – and numerous contracts written with state-owned and privately owned corporations. But the last official price we heard of was $A180/MWh in 2013. It’s just been speculation ever since.

Why the secrecy? Well, it seems to be part and parcel of the overall workings of Australia’s electricity market. The wholesale market – worth $16 billion – is almost completely opaque. Regulators and private analysts can barely make head or tail out of the retail market.

It has been, and continues to be, a perfect cover for the big utilities to profit from ignorance and confusion and make off like bandits.

Australian consumers, on average, pay around $400/MWh for the power at the socket: it’s a shockingly absurd price that has little to do with the cost of supply so much as the big suppliers extracting a monopoly rent.

And the regulators stand back and watch, and the politicians point the finger at each other.

Networks have been doing this for the better part of a decade, although it now seems that even they realise they have been gilding the lily a little too much.

Essential Energy’s decision not to impose yet more rate hikes on its customers suggests that they recognise the limits of price elasticity: the groundbreaking CSIRO and network reports highlight the dangers of that elastic finally snapping – consumers will simply quit the grid.

The generators and retailers, meanwhile, are still in it for as much as they can get. They have extracted similar rents out of markets which are nominally competitive, but in reality are anything but.

Now, the markets may become even more opaque, with the Energy Security Board proposing that the emissions and reliability obligations in its National Energy Guarantee be satisfied by contracts written by the big utilities. It will simply reinforce the market power of the dominant players.

Solar is not the only technology whose contracts are hidden from view.

There is no transparency about the contract that the South Australian government has written for the Tesla big battery that was switched on last week.

Last week, the Australian Energy Market Operator intervened in the market to command 100MW of “demand response” under its emergency reserve provisions to ensure the lights stayed on in Victoria after problems arose around gas supplies at the Longford gas terminal.

But AEMO will not confirm which companies or technologies were mandated, or how much was paid. When the lights went out last year in September, it took months before AEMO revealed the names of the generators that failed to restart. It’s all “commercial in confidence”.

The veil of secrecy has extended to Victoria’s recent tender that saw two solar farms commissioned to help power its Melbourne tram network. A new tender for 650MW of wind and solar includes a publicly disclosed “strike price”, but the capital cost component will be hidden.

In Queensland, state-owned utilities have written numerous off-take agreements with a burgeoning number of solar farms, but no details have been released.

There are some exceptions to this rule. South Australia recently announced it would pay SolarReserve an average $75/MWh for the output of the proposed 150MW solar tower and storage facility in Port Augusta.

That was released to prove a point, that solar and storage technologies can and do compete with fossil fuel generators. It was a ground-breaking contract that could change the future of the industry, and it was worthy of a little chest beating.

There are other great stories to tell too, but it is largely guesswork.

Anyone in the solar industry will tell you that the cost for new solar farms is around $70/MWh, having halved in just a few years – but there is not much concrete evidence to say so, apart from some ARENA data about the falling capital costs from its solar tender.

We know that wind energy is now below $60/MWh, that’s because Origin and AGL Energy have boasted about it, although not the exact details.

project table

In fact, since the end of the ACT wind auctions, which meticulously noted the strike price of all their contracts – and it should be pointed out that these contracts are fixed for 20 years – the actual prices struck have been labelled “commercial in confidence.”

(All of the prices in the above table were from the ACT auction process. The last three are “indicators” released by the public utilities).

It is a testament to their market power that the investment strike they helped engineer in the Abbott government was followed by a scramble for contracts. The big utilities have made millions out of this – both from the investment strike, blamed on government policy uncertainty, and the knock down prices that followed in the rush to build.

Utilities who buy those contracts are actually getting the solar power or the wind power for a lot less than the assumed price of $60-70/MWh, because it includes the price of the large-scale certificates. But good luck trying to explain that to a Murdoch media journalist or right wing think tank.

It might actually be useful for the details of these contracts to be publicly announced.

After all, it has helped drive down the price of wind and solar and battery storage overseas – there’s no reason why it wouldn’t do the same in Australia. Consumers deserve a break, and a little transparency would go a long way.  

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  • howardpatr

    Thanks in part to the infamous John Pierce, Chairman of the AEMC.

    • Ken Dyer

      What do you expect from a failed economist, or maybe he has been successful by screwing the consumer for years. Ask Tony Abbott.

  • MaxG

    There is no point in anything (whining, educating, complaining). The baby fell out of the bath tub when energy was privatised; people voted for that, and should stop complaining after the fact; the idea is to think first then act. In AU we act first, and then don’t care.
    Any commercial operator, including the bidders, will rort and milk the system for as much as they can; why my only conclusion was to leave this mess behind. Every day, after every story, I am glad I did. 🙂

    • Roger Franklin

      Ditto! Glad I left this mess behind too

      • solarguy

        Ditto I as well. The only exception is that although I designed my system to go off grid if and when I needed, I’m staying on the grid for now, because I’m making to much money from the FIT.

        Well, seeing that you asked, last bill was $210 in CR, whilst only using 90watts/day from the grid.

        • Roger Franklin

          Solarguy – That is fantastic. I am waiting for a smart energy company to come along and say – 8c FIT/ $1 use and they pick up the connection and meter fees. Just putting it out there!!

          • MaxG

            Energy locals… 11/1.

          • Roger Franklin

            Yes – but I don’t want to pay the connection fee. As far as I know – all deals on the table today involve the consumer paying the connection fee.

          • solarguy

            I’m getting FIT of 12.5c/kwh with EA.

          • Greg Hudson

            11.7c in Vic. Mandated by the State Govt.

        • Phil

          Yes that works if you have a backup for the grid unreliability

          And doesn’t solve the grid instability issue i had frying one appliance every year due volts going as high as 257 volts rms ac

          Or the meter readers who would scare anyone at home alone. No I.D and a 20 year old car never washed. And this was ENERGEX a g.o.c in Brisbane metro 24km line of sight from the Brisbane GPO When i complained TWICE – 2 meter reads in 6 months they said NOTHING WE CAN DO they are subcontractors.

          Depends on where you live but i got sick of it all. And starting the generator is a pain when you have only 97% uptime in a flood year and 99% in a normal year

          Also the bushfire risk is endemic due poor tree trimming and rotting crossarms. I was reporting glowing red at night disconnect switches. Wooden Crossarms virtually rotted through and trees actually touching the upper 11KV feeders

          This is 3rd world stuff and a true reflection on the lack of any professionaism in this industry

          When DIY 100% off grid can do better it should speak volumes for what’s really going on here.

          • solarguy

            Yes where you are it is 3rd stuff. Sorry for you Phil, but hey all is cool for you now.

          • Calamity_Jean

            “… but hey all is cool for you now.”

            Except for the bushfire danger, which persists because of his neighbors’ electric supply.

          • Greg Hudson

            Meter readers? I haven’t seen one of those dinosaurs in years, but, I’m in Vic where Smart meters were made mandatory.

          • Phil

            No smart meter annual fees with Off Grid

            NSW only just starting to roll out smart meters now

            Hopefully for consumers they will accurately read using hall effect sensors only

            Research shows smart meters can inflate useage.

            https://www.bleepingcomputer.com/news/hardware/millions-of-smart-meters-may-over-inflate-readings-by-up-to-600-percent/

        • Rod

          I couldn’t be bothered doing the calculations but here in SA AGL and others i guess increased their portion of the FiT from 8c – 16c as well as 18% increase for power and connection.
          Anyway, in my case, I am actually making more money now!
          I’ll stay on grid for as long as they keep that up.

          • solarguy

            Who could blame you Rod. I just love the fact that guys like us are beating the bastards at their own game. An old mate from my Army days popped in for a beer the other day and said to me, jesus ya got some panels mate…….are ya saving any money? I showed him the batteries and then the bill……he just started laughing and said “you’ve cracked it you bastard”…..your shout!

            Oh what feeling!

        • mick

          fair enough i hate the bastards which made cutting the cord a non descision no hard feelings babe no feelings at all

          • solarguy

            Mick, you should have a warm fuzzy feeling at least! I like to pour myself a tall glass of who gives a f&#k after work, go out and sit down under the back porch, whilst looking at my west array making $.

            Feels like victory!

    • Phil

      And i did same and can’t believe all the EXPERTS at the time who said i was mad because energy costs would drop !

      Not to mention the grid instability frying at least 1 appliance every year

      Or the meter reader with no i.d in a never washed 20 year old car who looked like a recidivist criminal.

      And my 99.9999% uptime versus their 99% in a good year and 97% in a bad one.And this was in the metro area of Brisbane !

      I’m convinced On Grid Consumers are doormats (or sheep) who deserve to be walked on as such.

      • MaxG

        Hear your sentiment, but disagree with the city folks; most of them cannot do what we do or did, for various reasons. They’re certainly the poor bastards in this game.

    • Andy Saunders

      Not much to do with privatisation, despite all the hoo-ha. And without condoning the terrible way in which some of the privatisation was done, I just need to point to Qld’s public system in comparison to the privately-owned ones in other states.

      In other words, state-government owned utilities are just as capable (maybe even more so) of rorting the consumer.

      • MaxG

        Comes back to my “four pillars of democracy”… the people, the gov, the corporations and the free press…. where the free press is no more, corporatised; the corporations corrupt the politicians, and the people are left to fight both. — I understand what you’re saying… the issue is the gov using energy as a cash cow… disguised tax… unfortunately, it is not that simple; in Qld energy companies are gov-owned corps.

      • Andrew Thaler

        yes, NSW government jacked the prices of network charges and retail very high to fatten their networks to then sell off.

        • solarguy

          Yep and now the bastards want to piss the proceeds up against the wall on bullshit we don’t need. Bugger the hospitals, schools etc.

    • lin

      “people voted for that”
      My memory was that Kennett privatised stuff without taking it to an election, and against massive public opposition, and this was one reason he got the big A so quickly. At least that’s how I remember it.
      There are always many factors in deciding how people vote, and politician’s talk of mandates to do things that are against the public wishes and interests are bullshitting us.

      • wideEyedPupil

        Jeff assumed a mandate for every sell-off he and Stockdale made, it was all under a “fix Labor’s mess” mandate according to one of the most arrogant men to ever be premier of Victoria in living memory. Interesting how stockdale ended up on the board of a bank he sold off a kings ransom worth of state owned land too, which on-sold it to subdivision developers who on-sold again and again in some cases given the margins involved in the original fire sale prices.

        • lin

          yep. other countries call this corruption. In China, it might get you a bullet, depending on your connections.

    • Alan S

      Agreed that the baby was lost back then but SA people didn’t vote for privatisation. John Olsen went to the 1997 election promising not to. His government was elected then did a U turn.

      • MaxG

        And he is back being party leader this year. And party leaders become premier; and the loop is closed and the people then voted for the same crap, bringing a privatisation guy back into business, and wonder what happens to Medicare, and whatever is left in the public purse.

        • rob

          No he is not……..Haven’t heard of John Olsen since he sold off the power grid,,,,,He is no longer in politics and for all I know may be deceased!

          • MaxG

            I am all for your stance 🙂
            But what about “He became the State President of the South Australian Division of the Liberal Party of Australia in June 2017”?

          • rob

            sorry Max….I had no idea…thought he was dead!

  • Chris Fraser

    Haha, the Murdoch tin-foil hatters … just dont mention the RET.

  • Phil

    Actually i don’t have much sympathy for consumers because they could overnight elect decision makers who are more consumer friendly but they choose not to.

    • Andrew Thaler

      as was shown *again* last saturday.

  • Andrew Thaler

    Some of the very low contact prices we have heard about have a (mostly) hidden clause… the low price does not start until AFTER 2012. Between now (earlier this year in the case of Telstra deal) the project operates on the spot-price and the project recovers most of its capital outlay in those first 4 years of operation, whereby the project can then move to the low price in safety of not losing money.
    I have been told this by two different market players now…

    So my quick summary is this: Low prices claimed are bullshit.

    • Geoff Roberts

      The un-firmed output of a Wind farm is not of much use to most users. When batteries and pumped storage take many years to develop to useful extent for firming purposes, the forming source is coal or gas. Retail price must include the cost of hedging, firming and bad debts, as well as the network charges inflated because of the transmission line costs that are high because of the wind farms being in unfavourable locations relative to fossil generation.

      • wideEyedPupil

        Victoria is nowhere near the point of needing large amounts of storage, but when it is, it’s coming and the prices are falling faster than PV in the case of short term storage like chemical batteries.

        • Geoff Roberts

          Not sure why you might have assumed I was discussing Victoria. Notwithstanding the limited capacity of the interconnectors, which is likely going to increase, adding further to network charges, storage can be shared around the NEM. Mechanical inertia is more difficult to share because of a pesky physical property called impedance, which limits fault current contribution from distant sources. Inertia is a free by-product of synchronous generators, but unavailable from inverter connected sources.

          Despite protestations from some quarters, “synthetic” inertia is not a substitute. It is a term that is better associated with Fast Frequency Response, and ancillary service in many energy markets. Synchronous condensors can provide inertia and voltage control, but not free. Northern and Hazelwood Power Stations could usefully have been converted to Synchronous condensors, which don’t require any coal to be burnt.

          • neroden

            “Inertia” is not particularly useful.

            If you’re doing AC current rather than DC, it’s a way of generating fast frequency response and voltage control. Which you can generate essentially as well with batteries, inverters, and the occasional capacitor.

            If you are running a lot of equipment which really really cares about sine-wave signals you might want some mechanical inertia, but nobody runs much of that any more anyway.

          • Geoff Roberts

            Gee Nero, u make some partly valid points here. You can do a certain amount of voltage control and FFR with an inverter connected generator.

            But how do you get fault current from an inverter, above the full load rating of the inverter? Not many developers would willingly oversize an inverter, just to be grid-friendly.

            The mechanical inertia permits the very important function of short-circuit detection and fault-clearing when overhead conductors strike each other in high winds or when an object bridges them.

            Developers are proposed by AEMO-supported rule change to be required to deliver mechancal inertia, by means up to them, but are ducking and weaving. Anyone concerned with bushfires or emergency services, which could be any of us in reality, should be interested in preserving mechanical inertia.

            High winds and wild fires go together, you may notice.

    • neroden

      I have no idea what’s going on with the rorted market in Australia, but I can tell you as a matter of stone-cold fact that in *functioning* markets, wind farms are bidding fixed, hard, “start now” long-term prices of <$40/Mwh routinely, and solar routinely <$60/Mwh.

      So even the leaked Australian prices are too high.

      Go off the grid.

  • Ray Miller

    The NEM is not reliable, I just had a 4 hour outage today, NBN off (not backed up), local private network off (backup not working). Yes it just was the local distribution network but from my point of view the it was the NEM.
    Added to the outage the other week at least a couple of hours that took down the NEM substation on the Gold Coast.
    I had my backup small battery system and solar 300W still working enough to run the fridge etc….
    Just changed my retailer from one of the major ones the other month, saved annually $200, (which is massive on my small usage of <3kWh/day about 1MWh/y) saved on connection fee, energy usage and got extra for solar…

    We have been sold a pup with the NEM, it is too expensive, too polluting, too ugly (most cables are aerial) ,unreliable and not customer focused.

  • Public announcement of PPA contract prices should be MANDATED BY LAW. Commercial in confidence bunkum; more like in confidence to enable ripoffs of consumers. Privatization of the essential service of electricity has been a complete failure done for the good of the corporate rent seekers not the voter public.
    Seems the only way to fix this is by new parties / independents running on a ‘transparency for public good’ platform and mass voting out of the incumbent parties and the pollies who have put us in this mess and sat on their hands for the decade since electricity privatization as we know it was proved to push prices up.

  • PacoBella

    Giles, could you please organise one of those on-line petitions calling for the release of this data. Surely one of the Labor state governments could be cajoled into releasing something useful in order to sway public opinion with some hard facts about cost relativity. I’m sure all your readers would sign and recruit others to do so as well.

  • Ken

    Giles, if the market price for large scale certificates is $80 MWh and they are selling their solar output for $60 to $70 MWh, does that mean they are effectively selling the output for a negative value, and just relying on the LGCs for revenue ?
    Does not seem right to me ..