A study from the Melbourne Energy Institute suggests that the benefits of solar energy on the National Electricity Market could outweigh the costs of feed-in-tariffs, and could deliver energy cost savings for all customers, rather than an impost as is commonly believed.
The conclusion comes from a draft of the latest update of its study – which also includes researchers from the ANU’s Solar Thermal Group, Beyond Zero Emissions, and Clean Technology Partners – into the merit order effect, which relates to the impact that energy sources with small or zero marginal costs (such as wind and solar) can have on the overall grid by lowering prices.
The merit order effect is considered crucial in the debate around clean energy deployment because it suggests that the cost of incentives – such as renewable energy certificates or feed in tariffs – can be offset by the benefits this energy has on wholesale prices in the NEM. Once a wind farm or a solar farm is constructed with an upfront subsidy, its low marginal cost means that it can bid beneath coal and gas generators into the energy stack. This reduces margins for the coal and gas generators, but it also delivers considerable savings on wholesale prices, particularly solar, as it delivers into the grid at times of higher demand.