Consumers reap rewards of 100 pct renewables as wind and solar farms hand back windfall profits

The ACT is the only region of Australia’s main grid spared from sharp increases in electricity bills, and its consumers can thank the shift to 100 per cent renewables and the structure of their deals with wind and solar farms.

The ACT government has written contracts with 11 wind and solar farms to provide the equivalent amount of electricity consumed by homes and businesses in the ACT each year.

The nature of these deals – called contracts for difference (CfDs) – means that if the wholesale market trades below the agreed strike price, the government (and consumers), top up the difference to the wind and solar farms.

But if the wholesale prices are above the strike price – as they have been by a big distance over the last six months – then the wind and solar farms must return these windfall gains to ACT consumers.

And in the last quarter, as wholesale prices soared to record highs – and an average of more than $300/MWh in NSW – the wind and solar farms paid back a total of $58 million to electricity consumers in the ACT, shielding them from any significant bill hikes.

Biggest rebates

The biggest rebates came from the Crookwell wind farm in NSW, which handed back nearly $14 million. The difference between its contract with the ACT government and the average wholesale price in the June quarter was a staggering $204/MWh.

The three Hornsdale wind farms returned a collective $27.4 million between them, although the difference in their contract prices was lower – around $110/MWh – because wholesale prices in renewables dominated South Australia were significantly lower than coal dependent NSW.

Even the four solar farms returned excess earnings to ACT consumers, despite the elevated contract prices of around $180/MWh – a legacy of the fact that they were among the first solar farms to be built in Australia. The contracts for new solar farms in Australia now is less than one third of that price.

The ACT is not the only energy customer to enjoy the benefits of a big rebate – the steelmaking giant Bluescope also reported a $42 million bonus from the contract it has with the Finley solar farm in NSW. It has a similar arrangement where windfall profits are returned to the customer.

Customers see returned windfall profits

These contracts provide certainty for consumers, be they in the ACT or corporate customers such as Bluescope, and a shield from the impact of soaring fossil fuel prices.

As this graph shows, the ACT has had to top up some of the payments to the wind and solar farms in recent years, but it has done so in the knowledge that it would be protected if the energy markets got out of hand.

It does, however, beg a question: If contracts with wind and solar farms can be tailored to ensure windfall profits are returned to the consumer, why can’t the fossil fuel industry be encouraged to do the same.

As the oil and gas industry makes off with what the UN describes as “grotesque profits”, it might be time for the Australian government to consider – as other governments are doing – the introduction of a windfall tax to recycle some of those gains to the consumers paying for them.

Note: For those interested in finding out more on how the output of the contracted wind and solar farms matches with consumption in the ACT, this story gives an interesting insight: Deep dive into the ACT’s 100% renewable energy target.

And for another explanation of how the ACT feed in tariffs work, you can read this story here: How going 100 pct renewables will shield one part of Australia from surging power prices