Electrical energy costs within the short-term (“spot”) wholesale markets in Australia are surging once more.
As I first drafted this, at 11.30pm on Tuesday, whereas electrical energy calls for weren’t excessive, the costs quoted for every five-minute interval in Queensland, NSW, Victoria and South Australia had been round A$250 per megawatt-hour, roughly ten instances what they’d usually be.
Thus far this yr, common spot costs have been about 50% greater than final yr in Victoria, South Australia and Tasmania, about 80% greater in NSW, and 150% greater in Queensland.
If it retains up (which is probably going), retail electrical energy costs will probably be on the rise once more.
That impact is more likely to be large. In NSW and Queensland, it may imply will increase as excessive as 50% for giant prospects and as excessive as 20% for households.
Why is it taking place? At first look, it’s laborious to say. The minute-by-minute readout comes with out explanations.
One motive could be that coal and fuel costs are surging. Newcastle “spot” coal is buying and selling at 5 instances its worth over the previous three years.
Fuel and coal costs are spiking
Queensland spot fuel prices 5 instances what it did earlier than the invasion of Ukraine.
A second motive is perhaps that electrical energy producers are making hay whereas the solar shines by withholding technology capability.
Steven Percy and I examined the electrical energy worth surges that adopted the closure of Victoria’s Hazelwood coal-fired generator in 2017, and located that one agency withheld capability from the market, driving up costs.
Subsequently the federal government launched so-called “large stick” laws that imposes penalties for manipulating costs, though it has but for use.
We don’t but know whether or not manipulation can clarify a few of what we see now. It’s going to require detailed research, and such analyses are contested.
The worth of daylight will not be
The easiest way to restrain worth surges within the medium time period is to extend the penetration of low-cost vitality from the wind and solar, and to again it with storage.
South Australia reveals what will be achieved. The Rann and Weatherill Labor governments, after which the Marshall Liberal authorities, have all pushed the switchover to renewables.
By 2021, greater than two-thirds of SA’s electrical energy got here from variable renewable technology, greater than in any developed financial system we all know of.
For many days in 2021, there was no want for another type of technology between 10am and 5pm.
Labor says energy costs are going up, the Coalition says not. Who’s proper?
This has had a huge impact on costs. From having lengthy had the best wholesale costs within the Nationwide Electrical energy Market, by 2021 SA had virtually the bottom.
Conversely, Queensland, which has lengthy had the least renewable technology, now has the best costs. Within the yr thus far, Queensland’s common wholesale worth has been twice SA’s.
When inputs get low-cost, costs fall
The explanation, backed by econometric evaluation is that when a free useful resource (wind and solar) displaces an costly useful resource (coal and fuel), costs fall.
Every state authorities now accepts this and is quickly transferring to decarbonise its provide, which is resulting in a brand new downside. The states that get there shortly are much less eager on sharing their cheaper energy than they was once.
Why would SA need to strengthen its interconnection to NSW, solely to have its electrical energy costs dragged as much as these of NSW by commerce alongside that wire?
20 years on, the nationwide electrical energy market is on the way in which out, and it is OK
The newly elected SA authorities opposed the interconnector at present below building whereas in opposition. From SA’s standpoint, the present excessive costs in NSW lend weight to its place.
Now we have reached the tip of the start of the decarbonisation of Australian electrical energy. With the fossils-vs-renewables argument now over aside from on the fringes, the argument has moved as to if the Nationwide Electrical energy Market can maintain collectively and the easiest way the Commonwealth can assist states get as a lot daylight, wind and batteries into their techniques as quickly as doable.
Bruce Mountain doesn’t work for, seek the advice of, personal shares in or obtain funding from any firm or organisation that will profit from this text, and has disclosed no related affiliations past their tutorial appointment.