South Australia takes on energy oligopoly in push for more renewables

South Australia has announced its intention to push for a new electricity link to the eastern states in a move that it says will allow more renewable energy to be built, will help lower power prices, and break the stranglehold on the state held by major energy players.

Premier Jay Weatherill announced on Tuesday that the government will set aside $500,000 to help fund a feasibility study on the proposed $1 billion link, which would likely connect South Australia to NSW and add to the new and expanded links to Victoria.

Two things in the announcement by Weatherill and energy minister Tom Koutsantonis stood out – the desire to open the market to competition, and the reference to “incredibly cheap” renewable energy.

“All Australian consumers would benefit from greater interconnection because it would create more competition between wholesale suppliers,” Weatherill said in the statement.

This is a crucial point. South Australia has always had the highest electricity prices in the country, a legacy the Australian Energy Regulator blames on its historic reliance on expensive gas generation, and the lack of competition in the local energy market.

South Australia’s transition to the leading state for renewable energy – with wind and solar now contributing more than 40 per cent of its demand (and 50 per cent in the month of May) – has meant wholesale prices have been lowered.

That forced out the last remaining coal-fired generator, but in turn has led to reduced competition following the closure of the Northern brown coal power station.

Energy analysts have been surprised by the prices bid in the market, and point to the dominance of the major players, which control more than 70 per cent of dispatchable capacity. A similar situation exists in Queensland where the state-owned coal generators account for more than 60 per cent of capacity.

Koutsantonis lamented that since the state’s electricity generators were privatised by the Liberal Party, “we have lost the ability” to control prices.

“This study will look at how we can better connect with Eastern markets to gain greater access to baseload power and find new markets for the incredibly cheap renewable energy generated in South Australia.”

South Australia is not the only state considering a new cable linking to the National Electricity Market. Tasmania is considering a second link over the Bass Strait, although analysts suggest this should only be done if more renewables are built. They argue there is little point of a new cable if it is merely a mechanism to import more coal from Victoria.

A similar view will be held for the South Australian proposition. There are some in Western Australia who also favour a link to the eastern states market, although the costs of that is likely to be prohibitive.

But there is a general view that more high voltage links will facilitate the delivery and sharing of renewable energy, while allowing local networks to focus more on micro-grids and other options that can use storage and competing technologies.

Indeed, there are some in the industry who question whether a new $1 billion link will deliver value for money, given the amount of storage that could be built for the same sum. That will likely be a question for the regulators, when asked to rule on the investment if a cable is ever proposed.

Transgrid, the NSW-based transmission operator, welcomed the idea, saying it could underpin the building of new solar farms. Some suggest there is limited capacity in western NSW now because the capacity of the existing lines are dominated by the big projects built with government support by AGL Energy.

South Australia’s transmission group ElectraNet says that a “pre-feasibility” study indicated the potential for a new interconnector to be economically feasible.

It says the new study will consider a range of interconnector options and include broad consultation and reporting on outcomes, with electricity consumers and industry stakeholders.

“Stronger interconnection of South Australia to the Eastern States will improve wholesale market competition and power system security for South Australia, as well as providing renewable energy for Australia,” it said in a statement.

Weatherill and the South Australian government have been lamenting the lack of a true national energy market, and have complained that current rules penalise rather than encourage renewable energy.

This is critically important to the state, which is about to head on a path beyond 50 per cent wind and solar towards a 100 per cent renewable energy outcome, although there are still influential factions in the state pushing for nuclear, despite its huge costs.

“We need a true national energy market that supports renewable energy and doesn’t punish it,” Weatherill said. “All Australian consumers would benefit from greater interconnection because it would create more competition between wholesale suppliers.

“Renewable energy is providing the high tech jobs of the future, and is helping South Australia transition to a low-carbon economy. South Australia is blessed with both wind and sun and perfectly positioned to lead the way in the rapidly growing renewables industry.

“It’s important that as a nation we create an energy network that allows greater access for consumers to South Australia’s renewable energy endowment.”