Hard to read crystal ball backlit by renewables

One of the most useful pieces of ­advice I was given when I took up newspaper commentary was to use the future tense as sparingly as possible.

It’s fine to comment on what has been and to analyse the reasons for these past figures and events, including recent ones. But when it comes to prediction, particularly when it is precise in ­nature, it’s best to steer clear.

So how do I react to the predictions of the Australian Energy Market Commission of future movements in electricity market prices? With a very large grain of salt, given that the AEMC and many other agencies have been dead-wrong about electricity ­prices in the past.

We have been told many times over the past several years that retail electricity prices are on the cusp of falling, only then to be confronted by substantial rises. The ever-increasing prevalence of renewable energy in the system just doesn’t seem to have done the trick, notwithstanding the promise of its proponents.

Take the recent market overview released by the Australian Energy Regulator — yet another agency in the dizzying array of agencies in the energy space — which focused on what actually happened in 2018 and prior years.

“Electricity retail prices in 2017 increased in most regions on the back of rising wholesale costs, and remained elevated in 2018. Electricity prices rose by 56 per cent in real terms over the 10 years to 2017-18. Outcomes varied across regions, with Queensland having the largest price rise (71 per cent) and Tasmania the lowest (39 per cent). Australian electricity prices, traditionally low by global standards, are now around 10 per cent above the European average.” (They are also two to three times higher than in the US, just saying.)

The AER notes that wholesale electricity prices are now the main driver of retail prices, having overtaken the costs of transmission and distribution. When it comes to wholesale prices: “NSW prices in 2017-18 were 55 per cent higher than two years earlier ... wholesale prices in Victoria set a regional rec­ord in 2017-18, averaging almost $100 per megawatt hour.”

So along comes the AEMC, which has an optimistic take on future movements in retail electricity prices. (Warning, warning) It is expected that retail prices will fall over 2019-20 and 2020-21 in Victoria, South Australia, Tasmania, NSW and Southeast Queensland. Prices are expected to rise in the ACT, the Northern Territory and Western Australia.

Driving these predictions is an assumed fall in the wholesale price of electricity consequent upon the “pipeline of new renewables supply and flat demand”. Given the high prices, it’s hardly surprising that demand is likely to be flat. But we have heard the proposition before that more renewables will lower prices. The trouble is that weather-dependent renewables do not synchronise with demand, meaning that a large element of costly redundancy has to be built into the system. Around the world, the higher the penetration of renew­ables, the higher the prices.

By the way, don’t spend all the projected savings all at once. The AEMC expects the typical consumer to save $28 between now and mid-2020. That should get you about six cups of coffee; bring your own smug mug.