Coalition’s myth about renewables and high electricity prices

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.