By Dylan McConnell
Dylan McConnell is a Research Fellow at the University of Melbourne
Let’s be honest: the relationship between renewable energy and the electricity market is complex. So what does the latest report from Australian energy research firm RepuTex tell us?
Well, for a start, coal-fired power has reached a ten-year low.
The report, widely covered in the media, shows coal now makes up 74.8% of the National Electricity Market (NEM), down from 85.8% in 2008-2009.
At the same time the contribution of other energy, and renewable energy in particular, has risen. Hydro power makes up 8.7% of the market, with wind making up 3.8%, both record highs for these energy sources. This leads to the conclusion that greenhouse emissions in the NEM have also reached a ten-year low.
The RepuTex report indicates that both increased renewable energy generation and weaker demand is putting a “squeeze” on traditional generation.
This is ultimately reducing the market price of electricity as renewable energy competes with coal and other traditional energy sources. But, as said, the relationship between renewable energy, competition and market prices is complex.
Does renewable energy lower prices?
In 2011 the Victorian Auditor-General reported that the brown coal industry was concerned that the 10% renewable energy target would deliver too much too quickly which would reduce wholesale electricity prices and impact on brown coal generators.
We looked back and modelled the hypothetical impact of distributed solar photovoltaics (PV) on electricity prices in 2009 and 2010. Lowering the wholesale cost of electricity might offset the costs of renewable energy support schemes.
Using the model we estimated introducing 5,000 megawatts (MW) of solar would lower the market price of electricity by more than A$1.8 billion over 2009 and 2010. When we completed this analysis there was a minuscule 385 MW of solar in the electricity market. Now there is already 2,500 MW, making our estimate look conservative.
The Australian Energy Market Operator (AEMO) forecasts 12,000 MW to be installed by 2030 in their “moderate” scenario. The impact of PV on market demand is already starting to show on the market.
The average wholesale electricity prices for 2011-12 were the lowest (in real terms) since the market commenced in 1998. Even with the carbon tax, prices are not much above the long-term average of about A$50 per megawatt hour (adjusted to 2013 dollar terms). Recently, the Australian Energy Regulator (AER) reported that wind generation is moderating wholesale electricity prices in South Australia, and when there is less wind, prices are higher.