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Electricity prices and renewable energy in Australia

I have previously written a page on wind power costs, but by 2018 solar power was also producing a substantial proportion of Australia's electricity. So it seemed worth writing a page on the relationship between renewable energy, both wind and solar, and electricity costs.

As mentioned in several of my other pages the fossil fuel lobby and the federal coalition governments, under Abbott, Turnbull and Morrison, have all tried to connect renewable energy with rising electricity prices in spite of a lack of any evidence to support this. This page is my attempt to provide some facts to counteract the fallacies.

This page was written 2018/11/18, modified 2018/12/22
Contact: email daveclarkecb@yahoo.com (David K. Clarke) – ©
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Wind, solar and storage is clearly cheaper than coal

On 2018/12/21 Giles Parkinson wrote a piece titled CSIRO/AEMO study says wind, solar and storage clearly cheaper than coal for RenewEconomy.

The CSIRO (Commonwealth Scientific and Industrial Research Organisation) is the preeminent Australian scientific organisation; AEMO (Australian Energy Market Operator) controls the National Electricity Market that supplies the great bulk of electricity in all but Western Australia and the Northern Territory.

Quoting the article on RenewEconomy:

"The joint study – GenCost 2018 – by the CSIRO and AEMO shows that the levellised cost of energy (LCOE) of solar and wind is well below that of any other generation source.

Even adding two and six hours of storage with batteries or pumped hydro still leaves the cost of “firm” solar and wind power cheaper than any fossil fuel alternative."
I suggest that the reader refers to the RenewEconomy link above for a summary, or to the the original CSIRO report for a fuller account.
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The rise in electricity prices from 2004 to 2015 was strongly correlated with the rise in the price of gas in Australia. There is no evidence to link the rise in electricity prices to the rise in renewable energy generation.

 
Gas prices
Graph credit Morgan Stanley via ABC (see text)
ABC business editor Ian Verrender wrote a piece on 2018/07/16 titled: How government inaction fuelled Australia's renewable energy boom.

Quoting Ian Verrender:

"The east coast gas boom transformed Australia into one of the biggest global gas exporters but left us chronically short of gas, sending prices into orbit. Because it plays such an important role in electricity generation – as the final player to meet peak demand – gas is the swing factor in our power bills. These two graphs from investment bank Morgan Stanley tell the story:"
As shown on the graphs, gas prices in Australia rose particularly from 2004 to 2015, electricity prices rose steeply from about 2007 to 2014. This has to be much more than a coincidence.

 
Electricity prices
Graph credit Morgan Stanley via ABC (see text)
There are several things that should be noted on these graphs:
  1. Rises in national electricity prices are strongly correlated with rises in gas prices;
  2. The second graph shows that the electricity price rose steeply in South Australia (Adelaide) from 2002 to 2004, only the first and smallest of the state's wind farms (Starfish Hill) was built in that period;
  3. While far more renewable energy (particularly wind power) was built in SA in the period from 2004 onward, electricity prices rose no more in SA than elsewhere in that period;
  4. The rise in electricity prices in Queensland (Brisbane) in the period 2006 to 2014, during which no wind power or utility scale solar was installed in that state, was just as steep as anywhere else;
  5. Electricity prices fell in SA from 2012 onward, a period in which two of the state's biggest wind farms were built (Snowtown 2 and Hornsdale).
All but one of SA's wind farms were built after 2004 (see wind farm chronology) and SA is heavily reliant on gas to generate its electricity. Its last coal-fired power station was shut down in May 2016.

These facts suggest that blaming SA's renewable energy for its high power prices is absurd.

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This section added 2019/09/08

Power prices have risen less in South Australia, with its adoption of
renewable energy, than the average for the eastern states

The detractors of South Australia's renewable energy miracle often make misleading claims about power prices. South Australia does have high power prices, but they were high both before and after the adoption of renewable energy and they are high because SA had and has a higher percentage of expensive gas-fired generation than the other states.

According to the Australian Energy Regulator the annual volume weighted average spot prices on the wholesale electricity market in SA have risen more in the period during which the state developed its renewable energy than in Queensland, but less than NSW and much less than Victoria.

Average wholesale spot prices from the Australian Energy Regulator and percentage rise in average spot prices in the period during which SA developed most of its renewable energy. Prices in dollars per megawatt-hour.
 PeriodQldNSWVicSA
5 year average before renewablesJuly 1998 to June 2003$46.6$34.2$33.4$51.4
5 year average following development of substantial renewablesJuly 2014 to June 2019$77.2$71.0$75.0$93.8
Percentage rise 66%108%125%82%

The power price rise in SA during the period of renewable energy introduction was less than the average of that in the eastern states; 82% against 100%

It can be calculated from the table that while South Australia's power prices were 35% higher than the average for the other states before the adoption of renewables they were only 26% higher in the last five years, following the adoption of substantial renewable energy.

It is also notable that in the year to the time of writing this section (September 2019) SA has exported nearly twice as much power to Victoria than it has imported, suggesting that wholesale prices in SA have become generally lower than those in Victoria. In addition, the ratio of exports to Victoria to imports from Victoria has been steadily increasing since late 2016. See OpenNem.

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Renewable power is reducing South Australia's power prices

Liz Hobday wrote for the ABC 2018/12/08 a piece titled Renewable energy reduces power prices by more than cost of subsidies, study finds. It discussed the findings of an independent study by the Victoria Energy Policy Centre focused on the South Australian electricity market. Quoting from the article:
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."

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Renewables

Wind power

North Brown Hill Wind Farm, near Jamestown, South Australia
Wind farm
Photo taken with my drone, 2017/09/15
More information


Solar photo-voltaic

Peterborough Solar Farm, South Australia
Peterborough Solar Farm
Photo taken with my drone, 2018/05/12
More information


Solar thermal

Sundrop Farms, near Port Augusta, South Australia
Sundrop Farm
Photo taken with my drone, 2016/03/14
More information
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External links

CSIRO/AEMO study says wind, solar and storage clearly cheaper than coal; RenewEconomy, written by Giles Parkinson, 2018/12/21.
CSIRO page on the same report.

On this site

End of coal: the coal industry is facing its end days; coal is a very poor investment.

Fossils versus renewables

Power price rises in Australia and renewable energy

South Australia's great success in changing toward renewable energy

Wind power cost






Index

Clearly cheaper than coal; wind, solar and storage
Electricity prices correlated with gas prices
Power prices have risen less in South Australia than in the eastern states
Related pages
Renewables
Renewable power is reducing South Australia's power prices


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