Renewables reduce energy prices in South Australia – Editor
The following is an extract from a recent article on energy prices by Dr Bruce Mountain and Dr Steven Percy [1]:
- Faced with a complex problem, policy makers often turn to specialists who simulate the future using their assumptions of costs and investments and their characterisation of the power system and market. This sort of thing has a dismal track record in predicting prices and is susceptible to the perception, even if not the reality, that she who pays the piper picks the tune. An alternative is a data-driven regression that analyses large quantities of historic market data to understand the factors that have driven energy prices in the past. This approach requires fewer assumptions, and the predictive power and quality of the model is objectively measured. Even though the future is uncertain, we might be able to get a better sense of it by looking carefully at the past. We used this approach to to analyse South Australia’s wholesale prices from July 2012 to July 2018, during which period the annual average wholesale price increased by more than 30%.
- There are many potential explanations for this increase: the last coal-fired power station closed in South Australia and two coal-fired power stations also closed in Victoria; a greenhouse gas emissions tax came and went; electricity generation from the wind and sun increased by around 70%; while the price of gas rose by a similar amount. However, our research found by far the biggest reason for higher wholesale electricity prices in South Australia is higher gas prices. It does not help that so much of South Australia’s gas-fired electricity generation is remarkably inefficient.
- Displacing expensive gas that is inefficiently used with cheaper sources of electricity can be expected to reduce wholesale prices. And so it does. In fact we found that in 2018, wind and solar generation in South Australia reduced prices by A$38 per megawatt-hour from what they otherwise would have been. Consumers were charged A$11 /MWh to subsidise this production, suggesting the subsidy paid for itself more than three times over. In the market, prices are providing incentives for the development of storage and its substitutes and market participants are responding to these signals with significant investment in batteries and their substitutes and complements.
- Chief Scientist Alan Finkel’s excellent energy policy review popularised the concept of an energy “tri-lemma”, which suggests that electricity policy needed to address trade-offs between prices, reliability, and emissions reductions.
But our research finds, emphatically, that renewable electricity generation brought prices down from what they otherwise would have been – and is likely to continue to do so. In electricity there is no dilemma between decarbonisation and lower wholesale prices.
System reliability and security must be prioritised in the transition to cleaner sources of power. But whether there is a dilemma between reliability and a cleaner power system remains to be seen. [In our view] the “tri-lemma” concept is already past its prime. Policy makers of all persuasions need to reflect this in their thinking. ”
