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Australia’s Electricity Markets On A Rollercoaster

December 18, 2017
tags:

By Paul Homewood

 

h/t TomO

 

From ABC in Australia:

 

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Electricity prices are set to fall across the country over the next two years, offsetting this year’s price increase.

Key points:

  • Electricity prices will start to fall from mid-2018
  • Prices rose by 11 per cent this year
  • AEMC warns of instability and blackouts if new systems are not managed efficiently

The Australian Energy Market Commission said the price drop will happen as variable wind and solar generation comes online, which is paid for by the Government’s Renewable Energy Target.

Nationally, prices rose almost 11 per cent this year, but with the extra supply from wind and solar, the commission predicts that will be offset by a 12 per cent fall over the following two years.

The AEMC’s annual report on price trends provides an overall picture of factors driving electricity prices for households in each state and territory.

AEMC chairman John Pierce said this year’s report showed wholesale electricity costs were now the single biggest driver of change in residential electricity bills, unlike earlier price trends reports which found network costs were the main driver.

"Prices rose sharply this year by almost 11 per cent on a national basis as consumers felt the impact of Hazelwood and Northern coal-fired plants retiring and the lack of replacement investment, combined with high gas prices," Mr Pierce said.

"But we expect these price rises will be reversed over the next two years as wind and solar generation enters the system."

Hazelwood power station Photo: The Hazelwood power station closed down in March 2017. (ABC News: Nicole Asher)

The report also found that over time, low wholesale prices contributed to the closure of coal-fired plants.

"Without investment in replacement dispatchable capacity, wholesale prices will go up again and remain volatile," Mr Pierce said.

"And the rollercoaster will be repeated."

The AEMC also warned of instability and blackouts if the new systems were not managed efficiently.

The commission said the price fall will begin from mid-2018.

http://www.abc.net.au/news/2017-12-18/household-electricity-looks-set-to-get-cheaper-from-mid-2018/9266914

 

Reading this article, you would think that prices will come down because renewables are cheaper. But you will have been misled.

Electricity prices have gone up in the last year because of the closure of the Hazelwood and Northern coal plants, which have been squeezed by subsidised wind and solar. As a result, supply has tightened thus forcing up wholesale prices.

It is richly ironic of course that the aforesaid renewables have benefitted very nicely as a consequence.

With more new capacity coming on stream in the next couple of years, wholesale prices should return to previous levels. Nevertheless, subsidies will carry on rising.

The subsidy system in Australia is similar to the ROC mechanism in the UK. It operates as a Large-scale Renewable Energy Target (LRET).

The LRET creates a financial incentive for the establishment or expansion of renewable energy power stations, such as wind and solar farms or hydro-electric power stations. It does this by legislating demand for Large-scale Generation Certificates (LGCs). One LGC can be created for each megawatt-hour of eligible renewable electricity produced by an accredited renewable power station. LGCs can be sold to entities (mainly electricity retailers) who surrender them annually to the Clean Energy Regulator to demonstrate their compliance with the RET scheme’s annual targets. The revenue earned by the power station for the sale of LGCs is additional to that received for the sale of the electricity generated.

The LRET includes legislated annual targets which will require significant investment in new renewable energy generation capacity in coming years. The large-scale targets ramp up until 2020 when the target will be 33,000 gigawatt-hours of renewable electricity generation.

There is also a parallel Small-scale Renewable Energy Scheme.

Currently the market price for LGCs is about A$85/MWh

These costs are added to electricity bills. Analysis by BAEconomics estimates that the cost of these subsidies was nearly A$3bn in 2015/16, (about £1.7bn in proper money!!)

The AEMC report, referred to above, puts the cost of these environmental policy costs as between 5% and 15% on an average bill, depending on jurisdiction. They say these subsidies will increase by another 20% in the next two years.

 

As for the claimed benefit of lower wholesale prices (which merely cancel out the rise in price last year, the AEMC are very clear.

There will be no sustained fall in wholesale prices as more and more renewables come on to the market. Instead, there will be a continual rollercoaster.

 

ScreenHunter_1685 Dec. 18 18.26

 

As AEMC Chairman, John Pierce, says:

"Without investment in replacement dispatchable capacity, wholesale prices will go up again and remain volatile.”

 

Which is the last thing householders and businesses need.

22 Comments
  1. December 18, 2017 7:17 pm

    It is truly amazing that such insane renewable energy policies have spread around the western world by politicians and have replaced sane energy policies given us in the past by engineers. The elite establishment politicians (who have also given us lots of other insane policies) need a good dose of lamp-posts and piano wire.

    • December 18, 2017 7:55 pm

      It’s hard to take issue with / dispute your remedy there….

    • Phoenix44 permalink
      December 19, 2017 8:57 am

      I’m not sure engineers gave us energy policies, nor am I convinced we need energy policies, any more than we need car or supermarket policies. Markets gave us coal and oil and electricity, largely without state intervention.

    • Dave Ward permalink
      December 19, 2017 11:37 am

      “The elite establishment politicians need a good dose of lamp-posts and piano wire

      I’m afraid you will lay yourself open to a knock on the door, with views like that, Philip!!!

      http://www.dailymail.co.uk/news/article-5192781/Home-Secretary-consider-additional-legislation.html

  2. Don B permalink
    December 18, 2017 7:19 pm

    “The AEMC also warned of instability and blackouts if the new systems were not managed efficiently”

    The smart money is betting on instability and blackouts.

    • December 18, 2017 8:00 pm

      as in – get ready to wave your hands in the air and scream at the top of your voice as the renewable rollercoaster gathers speed towards the splash.

  3. Curious George permalink
    December 18, 2017 7:36 pm

    “The commission said the price fall will begin from mid-2018.” Does the commission’s mandate end in mid-2018?

    • Graeme No.3 permalink
      December 19, 2017 5:30 am

      Curious Georgw:
      No, but the first 2 State elections (SA & Tas.) will be in March, followed by the Victorian State election. Between these there are likely to be various by-elections occasioned by Federal Members being declared ineligible for parliament (we’ve had 2 this month with both ex-mmbers returned).
      The incompetent SA Govt. which were the first infected with lunacy are spruiking this report like mad. No doubt all the others will follow.
      There was a comment (which I failed to record) about a political type who sent a list of 4 things to be ranked in order of concern to his ‘focus group’. Everyone of them responded with electricity prices top of their list, even though it hadn’t been mentioned. To the great surprise of the political type who was so out of touch that he didn’t consider it as of any concern.

      As for the 11% rise in bills I can assure readers that it has been far greater in SA. Try an annual rise of 55% in one case I know of ($A2260 to 3500 p.a.), and 49% in another case per quarter (although that had a 19% discount if paid in 21 days).

      • irritable Bill permalink
        December 19, 2017 10:38 pm

        Absolutely correct Graeme, my NSW bill doubled and doubled again over the last decade and most I know are getting their latest bills that are as much as double the previous bill. No-one is getting bills with the mentioned 10% And…the actual price of energy has quadrupled over the last decade.
        10% in the last year? I don’t bloody think so! Those are figures likely to be used on the lamentable socialistic ABC, not representative of the actual facts at all.
        Vote Cory Bernadi or Pauline to hopefully wrest the balance of power from the bloody grasp of the greens and Commy Mal. and Shorten, his partner in crime against low and middle income Australians.

  4. December 18, 2017 8:50 pm

    Seems like the Aussies are going to a billabong energy policy. Estwhile fossil fuel rivers of energy being replaced with Billabongs of renewables which fill up occasionally.
    Always thought the Aussies were smart. You can’t Barbie on a smart meter.

  5. December 18, 2017 10:38 pm

    Reblogged this on Climatism and commented:
    “Electricity prices have gone up in the last year because of the closure of the Hazelwood and Northern coal plants, which have been squeezed by subsidised wind and solar. As a result, supply has tightened thus forcing up wholesale prices.

    It is richly ironic of course that the aforesaid renewables have benefitted very nicely as a consequence.”

    Excellent summary of Australia’s totally idiot man-made electricity disaster…

  6. December 18, 2017 11:42 pm

    I actually saw the ABC report as down under right now. It did say that renewable subsidies would keep the price down but failed to mention this costs $AUD 3 billion a year and of course it is of taxpayers money and going north. So they are not paying less, they are paying more differently through the tax system. Must think we are all fools.

    • HotScot permalink
      December 19, 2017 12:55 am

      Effing socialist’s. Idealogical nutters leading the world to the brink of extinction.

      When will they ever learn the lessons of the millions killed under their brethren regeim, communism.

      I truly despise socialism.

      • Gerry, England permalink
        December 19, 2017 1:46 pm

        No, everyone is expendable for the cause. Corbyn doing his best to ignore the success of Venezuela’s socialist paradise. But then he is relying on the ignorant snowflake generation who have probably never heard of Venezuela to vote him in. They probably think Venezuela is a girl singing on X-Factor.

    • Graeme No.3 permalink
      December 19, 2017 5:53 am

      timoththosslog:
      The subsidies (Large scale Generation Certificates) MUST be purchased by electricity retailers who pass the cost onto the users.
      Where the taxpayer gets stung is for Small Scale Generation Certificates for roof top solar, where the State government (in some cases) pays out so much per MWh. That scheme is a mess, in SA you could be getting 4¢, 8¢, 16¢, 44¢ or even 60¢ per MWh ofn the excess fed back into the neighbourhood wires. The State Govt. initially offered ~50¢ but cut that back to 44¢, then for latecomers to 8¢ then 0¢. The retailers often add a little as it gives them a cheaper source. e.g. if some householder gets an extra 8¢ then the cost to the retailer is below the wholesale rate at the peak demand period when solar works.
      The claim that more renewables will reduce prices is nonsense. The customers pay the WHOLE cost, not just the wholesale price so coal at $80-90 will be replaced by wind and solar at $165-175. Even if the wholesale price drops to $35 the customer will be replacing some of that with supply at $110-120.

  7. December 19, 2017 6:39 am

    Meanwhile … in the European anglosphere the weasels at Bloomberg claim that coal is responsible for rising German electricity prices…

    Delusion on an industrial scale or the gits really do think that their readers are terminally stupid.

    h/t Patrick Moore on Twitter

    • Bitter&twisted permalink
      December 19, 2017 8:22 am

      Don’t they mean a lack of coal?

      • December 19, 2017 9:44 am

        What * do* they mean to convey to their readers?

        Perhaps piano wire and lamp posts is OTT – I would settle for stocks and rotting fruit and vegetables.

  8. Johngo42 permalink
    December 19, 2017 9:20 am

    Paul,

    Do you mean by ‘Proper Money’ the pound sterling, which depreciates at an exponential rate?
    As a boy, 1940/50,2 the £ was worth $US4.00. Remember when ‘half a dollar’ was 2 & six (half a crown )?

    At that time the Aus pound ($AUS2) was worth £0.75 (15 shillings), in the same terms it is now worth about £1.14, maybe you would like to give us a few words on what is meant by ‘Proper Money’.

    Maybe your ‘Proper Money’ is related to your ‘Proper Cricket Team”?

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