South Australia would face higher electricity bill without wind energy

A major new report to be released this week will show that South Australia’s electricity bill would be higher – not lower – if it didn’t have wind energy.

In the wake of the controversy about the state’s so-called “energy crisis” – and the big leaps in wholesale prices earlier this month – a report by the Melbourne Energy Institute shows that South Australia is actually saving money by having large amounts of wind energy in its system, not paying more.

The report – sponsored by the Australian Conservation Foundation – and to be released in detail later this week, also looks at key issues in the South Australian energy market, including the role of incumbent fossil fuel generators, their bidding patterns, and the lack of competition.

The fossil fuel industry, with the enthusiastic support of many in the Coalition and the Murdoch media, has been seeking to blame South Australia’s high level of wind energy (around 37.5 per cent in the last financial year) for the recent high prices.

But as energy ministers at both state and federal levels have pointed out, South Australia’s price spikes have been caused by soaring gas prices, not renewable energy, and it is the price of gas-fired generation that has historically meant South Australia has had higher electricity prices than other states.

The MEI research reinforces that point. It estimates that if there was no wind generation in South Australia, the cost of wholesale electricity would have been higher, even if the Northern coal-fired power station – which was retired in May because wholesale prices were not consistently high enough – was still operating.

MEI estimates that if Northern were still in operation, South Australians would be paying $32 million a year more for their electricity in the wholesale market. And it would be emitting 4.38 million tonnes more of greenhouse gas emissions.

If all the wind generation was substituted by gas, the cost would be $133 million more, and it would add a further 1.72 million tonnes of greenhouse gas emissions. (This estimate is based on Pelican Point – the most efficient gas plant in the state operating. At the moment it is mothballed because its owners have decided it is not economic to run).

The situation in South Australia is amplified by the fact that the there is a lack of competition in the state market, meaning that the few generators operating in the market have greater ability to influence the price.

This has also been a bug-bear of the South Australian energy minister Tom Koutsantonis, and is one of the main reasons he is keen to have a new interconnector built, preferably into the NSW market.

The MEI analysis also notes that apart from the savings on the bill for wholesale electricity, South Australia is also effectively receiving $120 million from other states, because it was smart enough to encourage nearly half of the large-scale renewable energy investment in Australia.

Consumers in other states such as Queensland and NSW, which trail badly in large-scale renewables, are effectively paying money to have large-scale renewables built in South Australia because of the failure of their own governments to encourage investment. That is the price of ideological opposition to renewables, or the desire to protect their coal generators.

The cost savings on wind energy identified by MEI are important not just to justify the past investment in renewable energy in South Australia, but also to guide future choices.

Should the state encourage more investment in gas, along with the volatility that the fuel price entails, or should it encourage more investment in wind and solar? In the latter, at least, it will be able to lock in prices for the future, and possibly add storage to smooth the output and cater for big changes in demand and supply.

The ACT has shown the advantage of locking in contracts for renewable energy. By 2020, it will have the equivalent of all its electricity needs supplied by renewable energy, with an effective price cap that means if wholesale prices in Australia rise, its own exposure will fall.