The secret world of Australia’s solar and energy contract prices

We know that the cost of solar is plunging across the world, because it is. The publicly released results of solar auctions in Asia, the Middle East, Europe and north and Latin America tell us this.

Since a bid of under $US60/MWh stunned the energy world in Abu Dhabi in late 2014, auction results in the US, Chile, Mexico and Saudi Arabia have traced its fall to the current lows of just $US17/MWh – a 70 per cent fall in three years.

In Australia, auctions for solar power have been held too – in Queensland and Victoria – and numerous contracts written with state-owned and privately owned corporations. But the last official price we heard of was $A180/MWh in 2013. It’s just been speculation ever since.

Why the secrecy? Well, it seems to be part and parcel of the overall workings of Australia’s electricity market. The wholesale market – worth $16 billion – is almost completely opaque. Regulators and private analysts can barely make head or tail out of the retail market.

It has been, and continues to be, a perfect cover for the big utilities to profit from ignorance and confusion and make off like bandits.

Australian consumers, on average, pay around $400/MWh for the power at the socket: it’s a shockingly absurd price that has little to do with the cost of supply so much as the big suppliers extracting a monopoly rent.

And the regulators stand back and watch, and the politicians point the finger at each other.

Networks have been doing this for the better part of a decade, although it now seems that even they realise they have been gilding the lily a little too much.

Essential Energy’s decision not to impose yet more rate hikes on its customers suggests that they recognise the limits of price elasticity: the groundbreaking CSIRO and network reports highlight the dangers of that elastic finally snapping – consumers will simply quit the grid.

The generators and retailers, meanwhile, are still in it for as much as they can get. They have extracted similar rents out of markets which are nominally competitive, but in reality are anything but.

Now, the markets may become even more opaque, with the Energy Security Board proposing that the emissions and reliability obligations in its National Energy Guarantee be satisfied by contracts written by the big utilities. It will simply reinforce the market power of the dominant players.

Solar is not the only technology whose contracts are hidden from view.

There is no transparency about the contract that the South Australian government has written for the Tesla big battery that was switched on last week.

Last week, the Australian Energy Market Operator intervened in the market to command 100MW of “demand response” under its emergency reserve provisions to ensure the lights stayed on in Victoria after problems arose around gas supplies at the Longford gas terminal.

But AEMO will not confirm which companies or technologies were mandated, or how much was paid. When the lights went out last year in September, it took months before AEMO revealed the names of the generators that failed to restart. It’s all “commercial in confidence”.

The veil of secrecy has extended to Victoria’s recent tender that saw two solar farms commissioned to help power its Melbourne tram network. A new tender for 650MW of wind and solar includes a publicly disclosed “strike price”, but the capital cost component will be hidden.

In Queensland, state-owned utilities have written numerous off-take agreements with a burgeoning number of solar farms, but no details have been released.

There are some exceptions to this rule. South Australia recently announced it would pay SolarReserve an average $75/MWh for the output of the proposed 150MW solar tower and storage facility in Port Augusta.

That was released to prove a point, that solar and storage technologies can and do compete with fossil fuel generators. It was a ground-breaking contract that could change the future of the industry, and it was worthy of a little chest beating.

There are other great stories to tell too, but it is largely guesswork.

Anyone in the solar industry will tell you that the cost for new solar farms is around $70/MWh, having halved in just a few years – but there is not much concrete evidence to say so, apart from some ARENA data about the falling capital costs from its solar tender.

We know that wind energy is now below $60/MWh, that’s because Origin and AGL Energy have boasted about it, although not the exact details.

In fact, since the end of the ACT wind auctions, which meticulously noted the strike price of all their contracts – and it should be pointed out that these contracts are fixed for 20 years – the actual prices struck have been labelled “commercial in confidence.”

(All of the prices in the above table were from the ACT auction process. The last three are “indicators” released by the public utilities).

It is a testament to their market power that the investment strike they helped engineer in the Abbott government was followed by a scramble for contracts. The big utilities have made millions out of this – both from the investment strike, blamed on government policy uncertainty, and the knock down prices that followed in the rush to build.

Utilities who buy those contracts are actually getting the solar power or the wind power for a lot less than the assumed price of $60-70/MWh, because it includes the price of the large-scale certificates. But good luck trying to explain that to a Murdoch media journalist or right wing think tank.

It might actually be useful for the details of these contracts to be publicly announced.

After all, it has helped drive down the price of wind and solar and battery storage overseas – there’s no reason why it wouldn’t do the same in Australia. Consumers deserve a break, and a little transparency would go a long way.