Renewable power has surged to provide a quarter of Australia’s electricity needs over the past year, eating into the dominant market share of black coal power plants, data from the Open National Electricity Market project shows.
At the same time cheap gas and a slight drop in electricity demand due to the coronavirus pandemic has dragged down wholesale prices across the market by as much as 67 per cent in the quarter just completed in Tasmania compared to the 2019 June quarter.
NSW wholesale prices were an outlier, dipping just 47 per cent, while prices in Queensland, South Australia and Victoria dropped by more than 50 per cent, according to preliminary figures from the Open NEM project run by Dylan McConnell from the University of Melbourne’s climate and energy college.
“The driver behind the massive drop in wholesale prices is the role that gas has in setting the prices, even though it’s a smaller percentage of generation mix,” said Mr McConnell.
The spot price for gas has dropped by half, from around $8-9 a gigajoule to around $3-4 per GJ, thanks to gas being tied to the crude oil price which dramatically crashed when demand evaporated because of the COVID-19 economic slowdown.
While wholesale electricity prices have dropped sharply, retail prices haven’t, posing a test for the federal government’s “big stick” legislation which came into effect on June 10. It requires wholesale price reductions to be passed onto households and small businesses.
The Australian Competition and Consumer Commission can now scrutinise and take action against electricity retailers that keep prices unnecessarily high when costs fall.
“The drop in wholesale prices will be a test for the Australian Energy Regulator and the retailers because when wholesale prices are coming down, in theory that should flow through,” said Mr McConnell.
“If they don’t flow through the Federal government or AER might start going after the retailers.”
In an interview with the Australian Financial Review on Tuesday the chair of the Australian Energy Regulator, Clare Savage, suggested that bigger price reductions were expected from retailers in future compared with the modest ones announced so far for 2020-21.
AGL Energy is holding prices flat in NSW, while Origin is dropping its average tariff by just 0.6 per cent, although both are making bigger cuts in South Australia and Queensland.
Despite gas becoming dramatically cheaper, Mr McConnell’s data shows gas generation actually decreased from the March quarter, with renewables and coal dominating the power grid.
Large-scale wind and solar farms, hydro power and rooftop solar generated 25.2 per cent of Australia’s electricity needs in the second quarter to June, compared with 21.4 per cent in the 2019 June quarter.
“The surge in renewables is probably due to solar farms added last calendar year in 2019. While it is impressive, the increase in renewable generation will slow down in the future given the drop-off in new installs,” said Mr McConnell.
Fossil fuel generation inched lower with black coal power plants producing just under half of the nation’s power at 49.4 per cent, down from 54 per cent year on year to June 30. Brown coal increased slightly from 16 per cent to 17.8 per cent of electricity generation.
Cheaper renewable energy and brown coal are squeezing out black coal. Overall, renewables grew by 10 per cent, while black coal fell by the same amount as brown coal increased – about 5 per cent.
But black coal is still beating gas, Mr McConnell found.
“The market operator essentially ranks all the generators in terms of fuel costs and dispatches the cheapest mix of generators. Because renewable energy has no fuel costs, it’s run first, then brown coal because it’s cheaper. Black coal and gas are run last because they’re more expensive.”
“Under the previous gas price regime (~$8-$10/GJ) the difference between marginal cost of coal and gas would have been in the vicinity of ~$30-40/MWh – with a healthy margin of error – coal would comfortably outcompete gas.”
“The recent drop basically shrinks that difference [in competitive price] with black coal still out-competing gas – but only just.”
Source: Financial Review
Renewable power has surged to provide a quarter of Australia's electricity needs over the past year, eating into the dominant market share of black coal power plants, data from the Open National Electricity Market project shows.