Coalition’s myth about renewables and high electricity prices

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Coalition says it is “the only ones that can protect against the electricity price rises”. But in week after its re-election, electricity prices were nearly double those during the carbon tax, and soaring gas prices and the investment drought in renewable energy are to blame.

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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.

saddler spot vs carbon

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.

saddler spot plus wind

“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).

saddler wind weighted

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.

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27 Comments
  1. Tim Forcey 3 years ago

    One can find South Australian (SA) wholesale electricity prices charted by AEMO here for the past 24 hours and forecast for the next 36. http://www.aemo.com.au SA prices were on the floor as the wind blew a gale and are forecast to hit the roof as the wind dies.

    • Radguy1 3 years ago

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      • Roger Brown 3 years ago

        Like the Redflow Battery Commercial , packs a container full of the home units and control them with a mobile phone and over the air up dates .

  2. Geoff 3 years ago

    Do these CRIKEY/GETUP from Giles never end. Suggest you fast forward and investigate Germany’s woes with Wind/Solar

    • onesecond 3 years ago

      We have no woes with wind/solar here in Germany. 90 % of the population support the increased deployment of both and the only concern is that the government is too slow with it.

      • JeffJL 3 years ago

        Somebody got BURNED!!!

      • Math Geurts 3 years ago

        If that would be true there would be another government.

        • Mike Shurtleff 3 years ago

          I suppose they should continue to be reliant on Russian natural gas or imported coal? Brilliant plan. Why are they so interested in off-shore wind? Couldn’t be lower cost.

          • Math Geurts 3 years ago

            Because the government and the 10% of the population with basic knowledge about energy supply are aware that solar always will stay an extremely stupid choice for a country far from the equator.

        • neroden 3 years ago

          Sadly, people vote for governments based on issues other than energy. (Heard of the refugee crisis?)

          • Math Geurts 3 years ago

            As most people don’t have real knowledge about energy fortunately they don’t vote based on their sentiments about energy

    • Michael Lightfoot 3 years ago

      If you are going to make a bland assertion, then for the sake of rational discussion, please state your source for said assertion.

      • Don McMillan 3 years ago

        Engineering
        is an evolving science. Improvements are
        based on learning experiences. My
        concern is that we are charging ahead with renewables without learning from the
        experience of the Dutch and Germans. The
        recent controversy with the CSIRO changing their focus on Climate science from
        Pure to Applied science [5Feb16 Australian] confirms this concern. As George Santayana stated “Those who do not
        know history’s mistakes are doomed to repeat them.”

        • neroden 3 years ago

          The important thing to learn from the Germans is “don’t elect right-wing governments which are in the pocket of the coal mining industry”.

          • Don McMillan 3 years ago

            We do not have that issue here. It was the NSW and QLD Labor governments that promoted CSG, in contrast the NSW Liberals banned CSG. It was the Liberal government in Victoria who put the moratorium on Fracking. So based on political persuasion its the Liberals that are anti-fossil industry and the Labor party Pro Fossil.

    • Mike Shurtleff 3 years ago

      Germany is benefitting from Solar even though they have the solar resources that we have here in Western Washington State in the US, poor. Australia has superb solar resources. You also have extremely good wind resources with plenty of land area on which to deploy it.
      Wind is much lower in cost than coal here in the USA, because we’ve been deploying it. It still costs more in Australia because your backward federal government has been blocking it. Same for utility scale Solar PV. That is now starting to change.
      WInd is the lowest cost of new grid electricity, accept for hydro, here in the US. Utility scale ThinFilm Solar PV is the next lowest cost. The cost of both is still falling significantly. CRIKEY, how foolish can you be not to see this?

      The history of natural gas is one of periodically soaring prices. Cost on the Global market is higher. If you start exporting it… …and guess what is happening in Australia …and you’re defending this?

      If we electric Trump he’ll make the same mistake.

      • Don McMillan 3 years ago

        The history of natural gas prices in the Australia has always been stable since 1970’s. Recently they have spiked and everybody blames the export market. It takes 10 – 15 years to explore, appraise, develop and sell natural gas to the market. 10 – 15 years ago the market predicted an oversupply of gas due to the planned development in NSW. Domgas [NSW] choose to delay renewing their contracts as gas prices where predicted to come down. Also, NSW Domgas expected local supply would be cheaper as pipeline tariffs would be negligible. Over 3 Billion dollars was invested in NSW CSG. This gave QLD CSG an incentive to export. At the time no-one was calling for Gas Reservation. With the banning of Natural Gas exploration in Tasmania, Victoria and NSW changed the supply dimensions.
        The current high gas prices should be an incentive for the investment community, but alas, hey deem sovereign risk is too high. The high gas prices are our own making.
        As a consequence east coast factories [84,000 jobs] are at risk. Pipeline to NT or forcing QLD gas to supply NSW Domgas will not help manufacturing as pipeline tariffs makes them uncompetitive. Gas prices will come down as factories close one by one. It looks like fertiliser plants are first [ IPL 10May16].

      • Tim Forcey 3 years ago

        Australians can heat their homes with (mostly) renewable ambient heat, using heat pumps. See: https://theconversation.com/hot-summer-nights-and-cold-winter-evenings-how-to-be-comfortable-and-save-money-all-year-long-51046

    • DevMac 3 years ago

      For the education of RenewEconomy readers who, as you suggest, may only be getting Crikey/GetUp content from Giles, please point us to some worthwhile articles describing Germany’s woes with Wind / Solar.

      • Geoff 3 years ago

        So you guys want me to do your research for you?
        Don’t you guys subscribe to overseas news feeds? Set up Google Alerts for key issues?
        Have you not noted every one of Giles articles are GETUP/CRIKEY happy Clappy pro renewable? It’s ok if you want to be spoon fed his BS and live in a tea cup.
        FFS guys get off your arse and research. Don’t quote Giles bullshit to me as accepted fact.
        You should have breaking news by now SA has refired its “mothballed” coal power station.
        I thought some of you guys might have some debating juice. Obviously not.

        • Giles 3 years ago

          No, I think the readers merely wanted you to come up with a single fact to support your assertions. For instance, you say here that SA has retired its mothballed coal fired power station. It hasnt, it has temporarily brought back a GAS fired station while repairs are done to the interconnector, in much the same way that tasmania did when the lost their cable. If you’re not sure of difference between coal and gas, do a google search.

        • DevMac 3 years ago

          I tend to link to articles containing the counter arguments when I disagree. Humans are lazy, you have to lead them to water.

          I expect this site to be pro-renewable because that’s the future – or at least a far better and longer future than anti-renewable.

          I also don’t think pro-renewable arguments are necessarily biased from all the research I’ve done into climate change and sustainability. The requirement to present two sides of an argument is silly if the facts / science overwhelmingly supports one side, whilst the other is only ever backed by radio personalities with no qualifications in anything relevant to the point in question.

          If Germany has solar and wind woes, then it’s worth putting the effort in to finding solutions rather than throwing the baby out with the bathwater.

          Enlighten us Geoffrey.

  3. Miles Harding 3 years ago

    This about says it:
    “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 LNP coalition always acts in the interests of its constiuents. The problem for all of us is that those constituents are the incumbent generators, gas frackers and coal miners.

    More seriously, the line of argument is consistent with free market fundamentalists and the short-sightedness that comes with only seeing the bottom line in the current electoral cycle. This approach completely fails to serve society, the flora and fauna over the long term.

  4. Brunel 3 years ago

    The lies abour $100/leg of lamb was debunked by July 2013.

    I think maybe it would have been more politically prudent to have state-based carbon pricing instead of federal carbon pricing.

  5. Garth Power 3 years ago

    Main contributing factors for the high price rise in SA is Northern Power Station shutting down and the interstate link between the Vic and SA being mostly out of service due to an upgrade.

    Northern Power Station was shut down due to it unable to complete in a market that has an intermittent power supply like wind and solar as they have a minimum operational level thus negative prices in the market. Now we are burning gas and the production plants are at max thus a spike in gas price. Liquid fuels such as Kerosene or Diesel have become common this winter.

    Interstate link back online will help but SA will be powered primarily from Lignite during time of insufficient supply from renewable.

    My analysis over the last few weeks is that SA need to get Pelican Point running again as it will burn far less gas to do the same job during your cold still nights when wind is down to <0.4% capacity.

    I'm not saying nothing should happen in the form of growing renewable energy but the wholesale spot market price increase is at leas indirectly if not directly caused by the uptake of wind energy.

  6. Harry 3 years ago

    I like the way those that support renewables jump to a conclusion that suits their argument (it is tightening of supply of gas fault), whilst the anti renewables jump to a conclusion that suits their argument (it is wind farms fault).

    The reality is it’s a combination of both that has caused the issues that are facing South Australia right now, along with a distinct lack of competition and policy uncertainty.

    When the most efficient generator in the market is not generating into a very high pricing environment (both spot and forward) it is clear the market is broken and the government needs to intervene in a more meaningful way before too much pain is inflicted on the economy. I am all for markets, but when they broken there is plenty of precedent for intervention (remember the GFC?)

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