New research has shown that the increasing adoption of wind power in Australia is contributing to lower overall energy prices, but that an increase in energy market volatility pointed to the need for more investment in firming infrastructure.
Working alongside Dr Christina Nikitopoulos and Dr Otto Konstandatos from the UTS Business School, and advisory firm Baringa Partner’s Dr Alan Rai, PhD candidate Muthe Mwampashi analysed emerging trends in Australian wholesale electricity prices as the penetration of wind energy grew.
The study found that for each 1 gigawatt-hour rise in daily wind generation, wholesale electricity prices decreased by up to $1.30 per megawatt-hour.
The effect was strongest in South Australia, which has the highest penetration of wind power of all Australian states, followed by Tasmania and Victoria, which each saw a wholesale price decline of $0.60 MWh for each gigawatt-hour of added daily wind power.
However, the study found that the growth in electricity demand and an increase in electricity supplies from variable sources like wind could lead to an increase in electricity price volatility when gas generation served as the primary form of firming capacity.
The study suggests that this was related to the combined effects of an increase in wind power generation, and the increased role of gas generators as the marginal price setter, and raises questions about a push for new investment in gas generation as a ‘complement’ to wind and solar.
“We find strong statistical evidence that electricity consumption increases price volatility in NSW, SA, and VIC. SA experiences a far higher impact, where a 1GWh increase in daily electricity consumption increases the daily price volatility by 6 per cent,” the study says.
“This increase is approximately three and six times the effect experienced in VIC and NSW, respectively. The impact of consumption in the smallest NEM market, TAS, is marginal and not statistically significant. The importance of gas in the SA generation mix is reflected in price volatility.”
The study found that there had been an increase in the number of instances where wholesale electricity prices fell between the $100 to $500 per MWh range, and that wind generation had little impact on the frequency with which wholesale electricity prices traded nearer to the market cap of $15,000 per MWh.
The research suggests the growing frequency at which gas generation serves as the ‘marginal generator’ in the National Energy Market, and therefore sets the electricity spot price, is a factor in increasing price volatility.
The energy market was seeing an increased frequency with which marginal wholesale electricity prices moved between lower cost supplies of wind power, and the comparatively higher priced gas generation, as the variability of supplies increased.
“While lower prices are good news, increased volatility in prices – including negative prices and rapid price spikes – are a concern because this creates greater uncertainty in the market, and poses a risk to investors, as well as impacting end-consumer electricity bills,” Mwampashi said.
“Australia is currently experiencing one of the world’s fastest transitions to renewable energy generation – up to 10 times higher than the global average.”
“This rapid transition brings considerable challenges, particularly because the national energy market is made up of an interconnected network of states with very different mixes of renewable energy generation – from mostly hydro, to solar and wind.”
However, the research found that that it is not always the case that increased use of wind energy along was the cause of increased price volatility. Tasmania, which recently announced was able to meet 100 per cent of its needs, saw price volatility decline as more wind was built.
Tasmania generates the bulk of its electricity from hydroelectricity plants and uses minimal supplies of gas generation to supplement its electricity consumption.
In contrast, South Australia, which sources more than half of its electricity from wind and solar, and the bulk of the remaining supply from gas generators, has the highest electricity price volatility.
The researchers suggest that further investment in low-cost firming technologies, and expanding the capacity of interstate network connections, would help mitigate the volatility of electricity prices and reduce the risk for investors.
“The research findings underscore the importance of investment in cross-border connectivity within the national energy market to reduce price volatility and ensure the reliable and effective delivery of renewable energy,” Dr Nikitopoulos said.
“Investment in complementary technologies, such as in storage, transmission and fast-start plant, which are able to respond rapidly to changes in renewable generation supply, will also ensure a smoother transition with minimal capacity disruption.”