ACT’s move to renewables brings price to stability amid turbulent electricity market

If current wholesale electricity prices continue as they are across Australia, the ACT will not just have zero emissions electricity by 2020 – it may also be getting most of it for free.

This extraordinary situation arises out of the nature of the contracts that the ACT government has written with the project developers who have won its unique reverse auction tenders.

The ACT has locked in fixed prices at between $77/MWh and $92/MWh for a total of 400MW of wind energy capacity so far. If the wholesale price is below those contracts, the ACT government pays the difference. If it is above, the ACT receives the excess.

In the past two months, wholesale prices across Australia have gone through the roof, mostly because of soaring gas prices (at record levels in most states), and supply constraints. Some of these rises have already been passed on to consumers.

The first of the ACT commissioned wind farms, the 19MW Coonooer Bridge project in Victoria, opened earlier this year and gets a guaranteed $81.50/MWh from the ACT. But prices in Victoria have regularly jumped above $100/MWh in the past two months.

In South Australia, the difference is even more marked. Last week, the 100MW first stage of the Hornsdale wind farm near Jamestown was switched on. It will receive a contract of $92/MWh from the ACT, but according to Pitt & Sherry analyst Hugh Saddler, the average wholesale price in that state since its opening has been $247/MWh.

In that instance, the ACT would receive the difference. It would not mean just free electricity, but the ACT would be paid $155/MWh for the output of that wind farm.

“ACT consumers will never pay a wholesale price of more than $92/MWh,” Saddler said. “By contrast, electricity consumers elsewhere in the NEM will, sooner or later, directly or indirectly, have to pay for the $247 per MWh wholesale price.

“ACT consumers will thus be protected from having to pay for extremely high wholesale prices because of the hedging provided by the renewable electricity contracts for difference.

“By 2020, the ACT government’s policy will mean that electricity prices in the Territory are much more stable and predictable than anywhere else in Australia.”

© 2016 Solar Choice Pty Ltd

Giles Parkinson