Renewables continue to boom, but what's going on with power prices? | RenewEconomy

Renewables continue to boom, but what’s going on with power prices?

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Renewable energy is growing rapidly, but the futures market in particular is yet to take into account the big pipeline of wind and solar about to join the grid.

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Renewables are grabbing a growing share of the National Electricity Market, as we saw this week when the combine output of wind, solar and hydro accounted for more than 50 per cent of net demand for the first time.

But market prices, other than in a few specific examples, like South Australia, have not been showing signs of coming down much.

The good news is that they will. The futures market, particularly in Victoria, may be too high, according to ITK analysis, because new supply will  drive down prices over the next couple of years.

At ITK, we think that the futures market is overestimating flat load Victorian prices, particularly in 2021 and 2022, but also in the current financial year.

Utility scale solar may or may not have a lower cost than wind. And, in general, we don’t think it does. But in any case we do expect average spot prices achieved by wind to be well ahead of those achieved by solar plants, which is good news for those wind farm developers.

Already, it’s clear that new solar will struggle to earn its cost of capital without access to some form of storage, because of some of the negative pricing events that are being seen in South Australia and Queensland.

It should be remembered that there are 20 large renewable energy plants that are still under construction, and not yet contributing to the grid. Wind and solar projects in the ITK database total 4487MW, so there is still a lot of new supply coming and this will impact prices and revenue adequacy of existing providers.

David Leitch is principal of ITK, co-host of the Energy Insiders podcast and a regular contributor to RenewEconomy. Readers interested in seeing more of ITK’s latest price forecasts, quarterly and annual, flat load, peak and forecast prices for wind and solar generation as well as detailed forecasts of new supply by fuel, quarter and region should head over to www.itkservices.com.au.

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8 Comments
  1. Alan Wilson 2 weeks ago

    It would be good for prices to go down to when l first payed a power bill , it was 11 cents a kw , its now 28 it was 36 a year ago , …. l think of power prices more of a tax state governments get less money from the federal so they put up water , power and everything else …. its a tax

  2. Seriously...? 2 weeks ago

    The place to build new solar farms is NSW, if you can find the right site. RE is competing with RE in SA.

  3. Sunnyside Up 2 weeks ago

    I will bang on about the same thing I always bang on about. I live in South Australia. Electricity prices may be going down here due to renewables, but not for the residents. For retailers. There has been no drop in the price on the electricity bills of residential consumers. We still pay the highest prices in Australia for our electricity.

    So where are the benefits of this reduced electricity price going? Simple. Into the pockets of multinational retailers, generators and investors and then, at least for a large part of it, offshore to offshore accounts and tax havens. That way, the electricity retailers, generators and investors show less profits and pay bugger all taxes in Aus. Who loses? We do. So hurrah for large scale renewables, ay? Great for the environment, but has made not a jot of difference to the electricy bill for residents.

    I’ve said it before and am about to again: if you want to see a reduction in your electricity bill, buy as much solar as you can and slap it on your roof, because doesn’t matter how much or how many large scale renewables your state has, as a consumer you will see no difference on your electricity bill from the retailer if SA is anything to go by.

    • Ian 2 weeks ago

      Why are retail prices high in SA? Average wholesale prices are similar to elsewhere.

    • Ren Stimpy 2 weeks ago

      SA uses more gas than any other state, in absolute and percentage terms. Northern coal burner was always going to close and SA was never going to replace it with another coal burner. So the question you should be asking is how much more expensive would SA power prices now be if you had to rely on 100% gas burners (minus imports), compared to the current 45%? i.e. what is the extra cost avoided through the building of renewables? Then, how much will wholesale prices come down as gas power continues to be reduced? If large disparities between wholesale and retail price continue we have a ton of regulatory bodies e.g. ACCC to step in and investigate. All the data is there in detail so the ‘price setters’ and retailers (mostly one and the same entity) can’t get away with gouging ad infinitum. In theory.

  4. digicle 2 weeks ago

    Curiously at 9-9:30 7/11:
    SA wholesale price -$242.05/MWh
    Tas wholesale price $405.73/MWh

  5. Aluap 2 weeks ago

    More scams no doubt. The Prime Minimalist seems not to be interested in fair energy prices, so we’ll give him the bid stick at the next election.

  6. Warwick Forster 2 weeks ago

    Hi David,

    I think it might be worth noting for readers that the futures market reflects demand for contracts, not necessarily a forecast of future prices. If we accept that you may indeed be correct and your forecasts are reflective of what spot outcomes will be, there is usually a premium of contracts over actual spot prices in most years, but the risk of getting it wrong is significant. So it would not be surprising if futures prices are above your forecasts.

    As an example, SA at times has shown lower spot prices than other regions but the contract prices and hence retail prices are consistently higher. This is likely because most retailers have a risk management policy compelling them to buy contracts to hedge customer load, whilst generators will likely have some flexibility around this. In SA, there are more solar and wind, that in the absence of storage are not writing firm contracts such as futures, leaving just a few “conventional” generators to supply the state. Therefore as renewable generation increases, leaving a smaller share of contracting generators, the market price for contracts is driven up as there are fewer contracts on offer for a given total demand.

    regards

    Warwick

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