Renewable energy ‘drives down power prices by more than cost of subsidies’

Posted December 07, 2018 07:06:30

A landmark study has shown that renewable energy has reduced electricity prices by far more than the subsidies paid for it.

Key points:

  • The study’s lead author said the research proved renewables were the key to lower power prices
  • Researchers found South Australians were paying, on average, the highest electricity prices in the world
  • Gas-fired power is pushing prices higher, while wind and solar are placing downward pressure on prices, the study found

The independent study, by the Victoria Energy Policy Centre, focused on the South Australian electricity market and confirmed households in the state have on average the highest electricity prices in the world.

The report comes as the Federal Government attempts to develop a fresh energy policy after the collapse of the National Energy Guarantee earlier this year.

The Government hopes to pass new laws to force energy companies — especially retailers — to offer customers cheaper electricity.

The study’s lead author, Associate Professor Bruce Mountain, said the research provided verifiable evidence that renewables drive down prices.

“I think in the current climate it’s critically important,” he said.

“We have an evidence base that puts this issue on the table for people to engage with.

“What our study finds unequivocally is the route to lower prices lies with cleaner sources.”

Wind and solar reduce prices by more than subsidies

The study used computer modelling to crunch electricity price data from the past five years.

It sampled wholesale market prices every half hour from 2013 to 2018, and calculated the factors that led to those prices.

It found that even though South Australians were paying the highest average bills in the world, wind and solar generation in South Australia actually brought wholesale prices down — and by far more than the subsidies paid for them.

It found that in the 2017–18 financial year, renewables reduced wholesale prices by an average of about 30 per cent, or about $37 per megawatt hour, mostly due to wind generation.

This was far more than the cost of the subsidies paid for them, which the study calculated was $11 per megawatt hour of electricity produced.

Renewable generators have been able to sell electricity on the wholesale market very cheaply, because the ongoing cost of producing electricity from wind and solar is effectively zero.

These cheap offers from renewable generators on the wholesale market displace more expensive offers from gas generators, effectively reducing prices for the entire market.

But gas generation drives up prices

But the study found the reduction in wholesale prices thanks to renewables has not been enough to offset the high price of gas.

The closure of the Northern and Playford coal-fired power stations has left South Australia reliant on expensive generation from gas-fired power stations, which are needed especially when wind and solar are not producing energy.

The study found electricity sourced from gas pushed prices higher by about 40 per cent on average in the 2017–18 financial year, or $56 per megawatt hour of electricity.

“Every additional unit of production you get from the wind or from the sun, that displaces gas generation, and brings your price down,” Associate Professor Mountain said.

“As long as you have so much gas generation with such inefficient and old gas plants … your prices will be high.”

The Grattan Institute’s energy program director, Tony Wood, said the study was a sharp analysis of the South Australian experience.

“Certainly renewables have benefited the system, and we would have had higher prices in South Australia without renewables, fundamentally because of the high price of gas,” Mr Wood said.

“And that’s a conclusion that I think makes sense and this report shows it very clearly.”

Policy vacuum part of the problem

The researchers also compared the average Australian household prices with those in European countries, which have the next highest residential electricity bills, and found other states on the east coast were not far behind.

South Australia was closely followed by Denmark and Germany, countries which pay by far the highest taxes.

The graph showed high prices were also being felt by households in other Australian states — next in line were New South Wales, Queensland and Victoria.

Mr Wood agreed that South Australia’s current energy mix meant expensive gas generation was setting the price for the whole market.

“What tends to happen is that gas is setting the price so high, so often, that it overwhelms everything else,” he said.

He said an energy policy vacuum at a federal level is part of the problem.

“Because we’ve not had good policy … nationally, we’ve not seen other kinds of generation come in to compete with gas-fired power stations, which set the price so often and keep the price so high.”

Topics: environment, alternative-energy, solar-energy, wind-energy, government-and-politics, sa, vic, nsw, qld