Last week, for the first time in memory, the wholesale price of electricity in Queensland fell into negative territory – in the middle of the day. For several days the price – normally around $40-$50 a megawatt hour – hovered in and around zero. Prices were deflated throughout the week.
There were several reasons for this. A restricted interconnector to NSW added to the volatile trading, as did uncertainty about the carbon price. But the overall softening of prices was primarily the result of the newest and one of the biggest power stations in the state – rooftop solar PV.
“Negative pricing” moves, as they are known, are not uncommon. But they are only supposed to happen at night, when most of the population is asleep, demand is down, and operators of coal fired generators are reluctant to switch off. So they are willing to pay others to pick up their output.
Negative pricing not supposed to happen in the middle of the day. Daytime prices are supposed to reflect higher demand, when people are awake, office building are in use, and factories are in production. It is supposed to be the time of day when fossil fuel generators used to make most of their money.
But that has now been turned on its head by the influx of rooftop solar. There is 1,100MW of it on more than 350,000 buildings in Queensland alone (3,400MW on 1.2 million building across the country), and it is producing electricity just at the time that coal generators used to may hay (while the sun shines).
The impact has been so profound, and wholesale prices pushed down so low, that few coal generators in Australia made a profit last year. Hardly any are making a profit this year. State owned generators such as Stanwell are specifically blaming rooftop solar.
Prime Minister Tony Abbott likes to say that Australia is a land of cheap energy. He’s half right. It doesn’t cost much to shovel a tonne of coal into a boiler and generate steam and put that into a turbine to generate electricity.
But the problem for Australian consumers (and voters) comes in the cost of delivery of those electrons –through the transmission and distribution networks, and from retail costs and taxes.
This is the cost which is driving households to take up rooftop solar, in such proportions that the level of rooftop solar is forecast by the government’s own modelers, and by private groups such as Bloomberg New Energy Finance, to rise six fold over the next decade – with households spending up to $30 billion on rooftop modueles.
Last week, the WA Independent market Operator forecast that 75 per cent of detached and semi detached dwelling, and 90 per cent of commercial businesses could have rooftop solar by 2023/24.
The impact on Queensland’s markets last week is one of the reasons why utilities, generators and electricity retailers in particular want to slow down the rollout of solar. They are
The gyrations of wholesale power prices are rarely reflected in consumer power bills. But let’s imagine that the wholesale price of electricity fell to zero and stayed there, and that the benefits were passed on to consumers. In effect, that coal-fired energy suddenly became free. Could it then compete with roofotp solar?
The answer is no. Just the network charges and the retailer charges alone add up to more than 19c/kWh, according to estimates by the Australian Energy market Commissioner. (The table below reflects National Electricity Market averages, the actual costs vary from state to state).
Solar – according to industry estimates – ranges from 12c/kWh to 18c/kWh, depending on solar resources of the area, Those costs are forecast to com down even further, to around 10c/kWh and lower.
Coal, of course, will never be free. And the rapid uptake of rooftop solar – dubbed the democratization of energy – is raising the biggest challenge to the centralized model of generation since electricity systems were established more than a century ago.
Network operators in Quensland, realizing the pent up demand for rooftop solar, are now allowing customers to install as much as they want – on condition that they don’t export surplus electricity back to the grid.
Households and businesses have little incentive to export excess power anyway because they are getting paid little or any payment for it. Ergon Energy admits that this will likely encourage households to install battery storage.
The next step, of course, is for those households and businesses to disconnect entirely from the grid. In remote and regional areas, that might make sense, because the cost of delivery is expensive and in states such as Queensland and WA is massively cross-subsidised by city consumers.
The truly scary prospect for coal generators, however, is that this equation will become economically viable in the big cities. Investment bank UBS says this could happen as early as 2018.
The CSIRO, in its Future Grid report, says that more than half of electricity by 2040 may be generated, and stored, by “prosumers” at the point of consumption. But they warn that unless the incumbent utilities can adapt their business models to embrace this change, then 40 per cent of consumers will quit the grid.
But even if the network operators and retailers do learn to adapt in the face of competition from telecommunication companies, data and software specialists like Google and Apple, and energy management experts, it is not clear how centralised, fossil-fuel generation can adapt. In an energy democracy, even free coal has no value.
A version of this article was first published at The Guardian.