New report exposes myth around Australia’s “cheap energy”

Australia’s wholesale electricity prices  have hardly budged in the last few decades, thanks largely to the impact of renewable energy, a new report has shown.

The report, the latest of Hugh Saddler’s monthly reports from Pitt & Sherry and The Australia Institute, suggests renewables have acted to help bring down wholesale prices from where they would otherwise be.


The graph (above) illustrates his argument. On the left are the average wholesale prices for all states since the creation of the National Electricity Market nearly 20 years ago. Note the historically high South Australian wholesale prices, when the state relied only on brown coal and gas.

On the right are the average prices for Victoria and NSW only, compared to the average retail price in those states. As is clear, retail prices have doubled – thanks mostly to the more than doubling on network charges and higher margins for the retailers, while wholesale prices have remained subdued.

Saddler uses NSW and Victoria as examples because these are two states with the most ageing coal infrastructure, and where coal generators are likely to retire over the next decade.

Saddler says the table also shows an interesting inverse relationship between NSW wholesale prices (in pink) and wind generation across the three mainland states in southern Australia (in green). “Note the almost exact relationship in timing between changes in wind generation and changes in spot price.”

The strength of this relationship is noteworthy, as contributions to meeting the supply shortfall have come not from wind, but from increased output from the other NSW black coal power stations, especially Vales Point, increased imports from Victoria and Queensland, increased hydro generation, and slightly reduced demand.

“Even though wind generation is a small contributor to NSW supply, it has a surprisingly large effect on wholesale prices, even in NSW, where at present wind generators supply less than 3% of total consumption within the state. This is the so‐ called merit order effect.

The ability of wind generation to reduce spot prices is undoubtedly a benefit to electricity consumers.”

© 2016 Solar Choice Pty Ltd

Giles Parkinson