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The subsidy-free wind farms that returned money to ACT consumers in 2017

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Coonooer bridge wind farm
How’s this for an idea. Go green energy, and build a wind farm. Or two. And pay nothing extra for them. No subsidy, no extra payments.

That’s what the ACT government managed to achieve in calendar 2017, with the first two wind farms built towards its goal of matching 100 per cent of its electricity needs with renewable energy by 2020.

In fact, the ACT did better than that. The Ararat wind farm actually delivered a dividend to ACT energy consumers of nearly $90,000 from its opening early in 2017 to the end of December.

The smaller, but lower cost, 19.8MW Coonooer Bridge wind farm delivered an even bigger dividend of $480,000 over the calendar year.

How did this happen? Because the ACT government, when holding auctions for renewable energy capacity, got quite smart.

They delivered guaranteed prices for the wind farm developers – $81.50/MWh in the case of Coonooer Bridge – which has set records in terms of capacity factors – and $87/MWh in the case of the 240MW Ararat wind farm, of which 80MW is contracted to the ACT.

That meant that if wholesale electricity prices at the time of generation were lower than this, then the ACT would make up the difference.

But because this was a specially structured “contract for difference” it meant that if the prices were higher than this – as they were for most of 2017 – then the excess is returned by the wind farm owners, and given back to the ACT and to energy consumers.

It looks something like this example graph above, taken from the ACT government website. When prices are low, overnight in this case, the ACT consumers would pay extra for that period.

But when prices were high during the rest of the day, then the wind farm owners would pay the excess back to the SACT.

That means that the ACT has effectively constructed a financial hedge against any future price rises in the wholesale market – although, to be fair, if wholesale prices actually plunge over the coming decade (not many people think that will happen), then they will miss out.

Still, the benefits are likely to have been extended into 2018, with the average wholesale price in Victoria so far this year at $93/MWh, according to AEMO – although the payments to and from the ACT are judged on the 30 minute intervals when the wind farms actually generate.

The wind farms are also subsidy-free. As part of its plan to go 100 per cent renewable, and because of its determination to ensure that this was over and above the federal renewable energy target of 33,000GWh by 2020, the ACT will surrender the certificates that are generated by the wind farms.

This is one reason why the ACT is insisting that the proposed National Energy Guarantee makes state and territory targets additional to the weak federal target. Otherwise, the ACT’s additional efforts will simply mean that other states, like NSW, can get away with doing less.

Not all the ACT renewable energy contracts will deliver dividends, it should be noted. The four solar farms totalling around 40MW were among the first to be built in Australia, so had relatively high costs, some around $180/MWh.

But most of capacity will be delivered through wind energy – about 600MW in all – with two of the biggest, coming from the Hornsdale wind farm stages 2 and 3 in South Australia, expecting a price of around $73/MWh. Again, the LGCs will be surrendered, so again they will be subsidy free.

Other projects, such as Crookwell and Sapphire in NSW, are priced around $86-$87/MWh. Sapphire has just started delivering on its ACT contract after completing the first 100MW of its project.

The ACT expected that the maximum cost of the program would peak at around $5.50 a household a week, but now expects this to be a maximum of $4.90 a week, and most likely  lower.

“The ACT Government remains confident that the cost of achieving 100% renewables will peak at less than $4.90 per household per week in 2020, and decline over time as wholesale market prices rise,” climate change minister Shane Rattenbury said in an emailed statement.

“The fact we can reduce the pass-through costs reinforces that the ACT’s 100%-by-2020 renewable electricity target is being achieved at the lowest possible cost to ACT electricity consumers.

“Not only does this mean the ACT has some of the cheapest electricity in Australia, it means our previous renewable energy contracts are helping insulate the Territory from future wholesale market price spikes.”

   

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  • Peter F

    That is very encouraging except that the wholesale price is actually crashing. In NSW it is falling to $66, $75 and $64 in March, April and May to date respectively. In Victoria wholesale power prices have fallen even faster $76, $74, $62, compared to $90, $108 and $107 for the same months last year. With 1,200 MW of more wind and 2,500-3,000 MW of new solar to come on line by the end of the year, prices are only going to fall further

    • Rod

      I think you will find the drop in average wholesale prices is mainly seasonal.
      Shoulder seasons usually have much lower demand and peak demand.

      • Peter F

        But they are much lower than the same time last year

        • Rod

          Hmmm, you are correct. It does seem a large drop all over. I have my doubts it is all down to RE though.
          Gas is down a bit, which may account for some of the drop.
          https://reneweconomy.com.au/wp-content/uploads/2018/04/nem-april-13-copy.jpeg

          • Peter F

            Spot gas price is contributing for sure but the main contribution is the market rather than technology. For a perishable product, and there is none more perishable than electricity, minor changes in supply cause major changes in price.
            Six months ago a new wind or solar farm could have made money without RECs at $90/MWh. At $60 much more difficult. Therefore I have changed my mind I see a slowdown in large scale renewables until the challenging economics of gas and black coal plants at $55-60 / MWh forces more out of the market and prices rise a bit while renewable costs fall so that when new renewables can make money unsubsidised at $55, then the market will pick up.
            Because reductions in generation costs are not affecting retail prices much, the rooftop solar boom will continue, Small community wind and solar farms which avoid transmission charges may become popular because there are some people who will pay more for locally generated power

    • Dirk Knapen

      That is also what we see here in Europe. Wholesale prices are lowest in the countries with highest shares of renewables (Germany with 8 billion AUD excess on FIT-budget or Scandinavia, with power cost structurally lower than the price of crude oil). That is not unlogic since the marginal cost of non-biofuel renewables is close to zero. The merit order then prioritizes the use of renewables unless politics or incumbents manage to keep power prices high.

      Wholesale marketprices today UK 87 A$/MWh, France and Belgium with 75 % and 50 % share of nuclear 68 A$/MWh, Germany with 42 % share of renewables average this year 62 A$/MWh and Scandinavia 51 A$/MWh (http://www.energymarketprice.com/) https://uploads.disquscdn.com/images/6eae22cff8bb35e6f5b7a4951861fce31f161b10b6467104c24a28015b3af284.png

  • Guy Perkins

    Dieter Helm’s latest book (Burn Out) paints an alternative narrative to the widely held assumption that prices will rise in the whole energy value chain as a result of carbon constraints and make these contracts good for the ACT over the long term. I think your audience would be interested in your take on the book and it’s implications Giles

  • Ken Dyer
  • Peter Campbell

    Why is this not on the front page of The Canberra Times?

  • Nick Kemp

    No that’s impossible wind power is more expensive it can’t work I love coal I can’t look Nooooo!!!

  • Tom

    So who gets renewable energy certs then which are about 85 $. Or who pays for them more to point

    • David Osmond

      No one gets them. They are voluntarily surrendered for no money. Same as what happens when you buy Greenpower. That’s how you make sure it is additional to the Federal target.

  • Andrew Roydhouse

    I cannot see why wholesale prices will not plummet. Rapidly increasing supply and flat to slightly increasing demand coupled with roof top panels point to only one outcome.

    As the new projects begin to supply power then the daytime use of gas must fall due to simple economics. What is really terrifying the incumbents is that the coal plants will soon be hit and we will see a replay of the 2011 to 2016 period where the capacity usage fell and a game of chicken followed to see which generator would blink first and shut down.

    If some of the larger mooted production/storage projects do get going then the arbitrage will make many gas peaking plants lose big money as their ability to super-charge will be severely restricted by the battery and pumped hydro storage projects.

    With the possibility that we will see almost zero (possibly negative) prices during daylight hours on days of good sun and wind – will see the book values of coal and gas projects plummet.

    I’ll make the call for the equivalent of a “Banana Republic” statement about the fossil fuel generators seeing a bailout called for – within the next three years!

    IPART’s slashing of the FIT for the next financial year will only help hasten this outcome.

    Interesting times ahead indeed.