Coalition energy policy void could reverse wind and solar price gains | RenewEconomy

Coalition energy policy void could reverse wind and solar price gains

Slump in renewables investment could cut short electricity price declines – and potentially send them back in the opposite direction – under current federal policy settings.

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The price declines in wholesale electricity markets brought about by the increase in solar and wind deployment now and over the coming few years risk being reversed by the current slump in renewable energy investment, a new report has warned.

The report from energy analyst RepuTex, forecasts average wholesale prices across the National Electricity Market to fall from around $80 per megawatt-hour (/MWh) in 2020 toward $70/MWh over the next three years, a 15 per cent decline from today’s levels. But they may not last for long.

“We expect medium-term wholesale electricity prices to decline in most regions, underpinned by the continued commissioning of large-scale renewable energy capacity,” said Bret Harper, head of research at RepuTex.

“This effect is largest in markets with favourable renewable energy policy, such as Victoria, and Queensland, where we have seen record levels of large-scale renewable energy investment, supported by the accelerated installation of rooftop solar PV and lower dependence on higher priced hydro-generation.”

The predictions are in line with those from the Australian Energy Market Commission, which in December forecast that power prices would fall by as much as 20 per cent in some parts of the country, off the back of strong investment in solar and wind.

The AEMC predicted household electricity costs could fall by 20 per cent in south-east Queensland by 2021/22, followed by falls of 8 per cent in New South Wales, 5 per cent in Victoria and Tasmania, and 2 per cent in South Australia.

Like the AEMC, however, RepuTex warns that a continued decline in wholesale power prices is not a given, particularly in light of the 2019 slump in new investment in wind and solar, which was last month confirmed at 60 per cent below 2018 levels by BloombergNEF, and at a 50 per cent reduction by the Clean Energy Council.

In its own report this week, RepuTex confirmed that investment decline, which it said was expected to continue, thus putting pressure on continued falls in wholesale electricity prices, particularly as major coal-fired facilities begin to close.

“Record levels of utility-scale solar and wind investment is leading to large-volumes of renewables entering the NEM , however the pace of investment is slowing”, said Harper.

“Under current federal policy we see limited growth in renewable energy from 2021-22, with lower levels of investment the new-normal until the retirement of coal-fired generators later in the decade.”

RepuTex said this limited growth not only threatened to curtail forecast falls in electricity prices, but could even send them back in the opposite direction, if the energy policy void at the federal government level was allowed to continue.

“In the absence of federal policy a return to prices in the $80-100/MWh range is possible later in the decade – with a high price environment needed to incentive new investment”

“This reflects the pitfalls of current policy – where new investment is expected to be reactive to coal-fired closures, rather than proactive to prepare for those retirements, which ultimately leads to higher prices” he said.

On the up-side, RepuTex notes that Australia is likely to pass 50 per cent renewables by 2030 – a target the Coalition government has consistently labelled as reckless and out of reach, until very recently, and somewhat grudgingly, it dialled that figure in to its own emissions reduction assumptions.

The reality is that 50 per cent renewables by 2030 was never really a stretch target. According to RepuTex modelling, nearly 5,000MW of new large-scale wind and solar supply is forecast to enter the market over the next two years, growing to 26GW by 2030 to be 51 per cent of all supply.

A further 12 GW of utility scale storage is also forecast to be added to the market through to 2040, along with 40GW of large-scale wind and solar capacity.

In the short term, Harper said, “the competitive pressure of new low-cost supply will significantly limit demand for coal-fired energy, even without a direct emission constraint.

“As a result, fossil fuel generation is modelled to be more broadly on the decline, displaced by a large volume of solar, wind and firmed by battery and pumped hydro storage.

“However, in the absence of an effective policy framework to guide new investment, the decline of our aging generation fleet will lead to higher electricity prices before the new supply is developed, hurting both businesses and consumers,” Harper added.

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