Green power to give a sugar hit to bills

Large-scale renewable power schemes will deliver short-term savings on bills but risk pushing up prices over time.

Wind turbines at the Windy Hill wind farm near Ravenshoe, Queensland. Picture: Brendan Radke

Large-scale renewable power schemes will deliver short-term savings on energy bills but risk pushing up power prices over time by squeezing out reliable generators, including coal ­stations.

The warnings on price volatility in the energy market are outlined in a report released today showing that most Aust­ralian households will see a modest power bill reduction by 2021.

The 2018 price trends report by the Australian Energy Market Commission will show the typical Australian household will pay 2.1 per cent less by 2021 with the national average bill falling from $1367 to $1338 — a saving of about $29.

The reduction in price is being driven by a forecast cut of 10.2 per cent or $55 in the wholesale compon­ent of a typical household power bill by 2021.

But warnings were also sounded about the long-term consequences of bringing new renew­ables into the system.

The impact of the Large-scale Renewable Energy Target was singled out for particular attention.

The scheme, when coupled with state-based programs, will be responsible for about 20 per cent of all power in 2020 being ­supplied from renewable sources, such as solar and wind.

The AEMC report finds the LRET could drive up household power bills in the long term and increase price volatility despite bringing them down in the short term.

“Over time, to the extent to which the LRET contributes to the exit of thermal generation but does not incentivise investment in firming technologies, it may resul­t in a tighter supply-demand balance and lead to higher wholesale prices,” the report said.

“The overall impact of the LRET has therefore been to drive down wholesale prices in the short term but, in the absence of policies and incentives to encourage investment in replacement generation and firming technol­ogies, it contributes to more volatil­e and potentially higher wholesale prices.”

 

In the short term, wholesale costs are expected to decrease in all states and territories by 2021, with 9732 megawatts of new generati­on and battery storage expected to come online.

This includes 8961 megawatts of new large-scale intermittent generation, 566 megawatts of new thermal generation and 205 megawatts of battery storage. The forecast price reductions come after Energy Minister Angus Taylor pressured the big energy companies to reduce power bills from January and built the case for controversial new “big stick” divestiture ­powers to prohibit market ­misconduct.

AEMC chief executive Anne Pearson said: “Prices across Australi­a are likely to be down in states which have competitive markets, but there are regional supply chain factors that will affec­t price outcomes in the jurisdic­tions depending on where you live and how much electricity you use.”

Over the next two years, those living in Western Aust­ralia, the Northern Territory and the ACT will be hit with higher prices, with bills set to increase by 9 per cent, 2.7 per cent and 5 per cent respectively.

The AEMC found last year that the LRET would impact on the “medium to long-term ­financial viability of existing generators, such as coal-fired generators” and may lead them to “exit from the market”.

In the short term, the savings from lower wholesale costs will more than offset predicted ­increases of 2.5 per cent in ­network costs (poles and wires) and expected rises in green scheme costs of 4 per cent.

The AEMC suggests that, overall, this will flow through as a cut to household power bills of 6.5 per cent or $120 in South Austral­ia; 5.5 per cent or $76 in southeast Queensland; 2.3 per cent or $25 in Victoria; 2.1 per cent or $39 in Tasmania; and 2.1 per cent or $27 in NSW by 2021.

The rise in green scheme costs — while being offset by the reduction in wholesale costs — is attributed to the growth in subsid­ies under a program known as the Small-scale Renew­able Energy Scheme.

From last financial year to 2020-21, the AEMC predicts, the cost of the SRES will rise in most states and territories due to a growth in the take-up of rooftop solar and accompanying increase in small-scale technology certificates.

The Clean Energy Regulator set a target earlier this year requiri­ng electricity retailers to surrender about 29.3 million small-scale technology certificates to meet their obligations for 2018.

With the certificates usually trading close to the maximum legislated price of $40, the total cost of the scheme this year was estimated to fall just short of $1.2 billion — about $700 million more than the cost of the scheme last year.

Ms Pearson said yesterday: “The Small-scale Renewable Energy Scheme is driving upwar­d pressure on prices nationall­y in response to strong growth in take-up of solar PV and other technologies like solar hot water, small-scale wind system­s and source heat pumps.”

She identified a larger challeng­e in connecting large renewabl­e power plants to major population centres, but said power bills would be likely to drop for most households.

“Managing the costs of connectin­g new generation will be a major challenge. We must avoid over-engineered solutions to stop gold-plating and price spikes.”

In a separate report being release­d today, the AEMC has also provided advice on how to put into action the “integrated system plan” aimed at supporting the large amount of new genera­tion coming into the grid.