“Energy costs are going up”, shadow treasurer Jim Chalmers declared final week. However in line with power minister Angus Taylor, “Nobody’s family energy costs have gone up.” So who is correct?
With the price of dwelling at forefront of the election marketing campaign, the competing claims of the federal government and opposition are over a report displaying wholesale electrical energy costs in Australia’s Nationwide Electrical energy Market surged 67% within the first three months of 2022, and by 141% within the yr to the top of March.
Neither Chalmers nor Taylor have been technically incorrect of their statements, however every targeted on the details that suited their most well-liked narrative. So let’s contemplate the complete context.
Will increase in wholesale costs
The Nationwide Vitality Market provides electrical energy to about 89% of the Australian inhabitants. Although it’s referred to as a nationwide market, it doesn’t embrace Western Australia, the Northern Territory or western Queensland.
The next graph reveals the common wholesale worth within the NEM for the reason that first quarter of 2019. Costs within the first quarter of 2022 rose by $35 a megawatt hour (or 3.5 cents a kilowatt hour). This put wholesale costs at their highest degree for the reason that first half of 2019.
The following graph reveals costs by state for the reason that first quarter of 2020. The three southern states – South Australia, Victoria and Tasmania – had comparable will increase. Queensland, already with greater common costs, had an even bigger enhance. New South Wales was in-between.
The report units out numerous components contributing to those worth will increase. Larger demand for electrical energy than within the corresponding 2021 quarter was one issue. Many of the different components, nonetheless, relate instantly, or not directly, to the differing mixes of era within the Nationwide Electrical energy Market’s 5 state markets.
Share of renewables
The following graph, based mostly on calculations utilizing very detailed operational information, present renewables’ share of wholesale electrical energy era by state for the primary quarter of 2022. (These numbers exclude rooftop photo voltaic’s contribution to whole era.)
Tasmania led the best way, with renewables supplying 100% of the wholesale market. Subsequent got here South Australia (69%), Victoria (28%), New South Wales (24%) and Queensland (12%).
This clearly reveals a correlation between greater wholesale costs and better reliance on coal-fired era. In Queensland, coal-fired energy stations nonetheless account for 70% electrical energy era, in contrast with 66% in New South Wales and 63% in Victoria.
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Within the first quarter, AEMO’s report notes there was “document low availability” from black-coal turbines in New South Wales and Queensland – the bottom, in actual fact, “since a minimum of 2002”. This was “as a consequence of elevated outages (largely unplanned)”. In different phrases, coal-fired turbines broke down extra.
A sudden, unplanned outage will trigger the wholesale worth to shoot up dramatically. Regardless that such occasions are often short-lived, the costs reached are excessive sufficient to materially have an effect on common quarterly costs.
Restricted interconnectors between states
A second vital issue is restricted connection between the Nationwide Electrical energy Market’s 5 state-based markets.
Interconnector transmission strains enable turbines in a single state to bid to provide electrical energy in a neighbouring state. Victoria’s connectors with Tasmania and South Australia are why its costs aren’t extra according to New South Wales and Queensland.
However there aren’t sufficient connections to equalise wholesale costs throughout all states. Specifically, AEMO’s report identifies the insufficient connection capability between Victoria and New South Wales.
Australian Vitality Market Fee
That is the primary motive for such a worth separation between the southern and northern states. Wind and photo voltaic farms in Victoria and South Australia merely can’t promote extra to the higher-priced northern markets.
That is, after all, good for customers in Victoria and South Australia, as a result of the wind and photo voltaic turbines should as an alternative promote to their native state markets, driving down costs. But it surely’s not good for customers elsewhere, or for the homeowners of these wind and photo voltaic turbines.
AEMO says an additional drawback is inadequate transmission capability inside NSW itself. This implies the market operator should generally intervene to instruct wind and photo voltaic turbines within the state’s southwest to curtail output to keep away from overloading native transmission strains, endangering system safety. Decreasing the provision from the bottom price suppliers out there will clearly push up common wholesale costs.
A 3rd issue has affected black-coal turbines in New South Wales and Queensland, which compete for coal with consumers abroad. (Victoria’s coal-fired turbines use poorer high quality brown coal, which isn’t exported.)
When worldwide coal costs go up, as they’ve as a consequence of Russia’s invasion of Ukraine, the price of producing electrical energy for Australian customers at these energy stations additionally goes up. Just some coal stations are affected however the impact is giant sufficient to push up the overall wholesale worth.
Renewable turbines, against this, are unaffected by unstable worldwide coal costs.
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What this implies for family costs
Labor has promised to determine a public Rewiring the Nation Company to speed up the development of transmission strains connecting new renewable turbines to main electrical energy markets.
Nevertheless, Labor’s statements about energy costs going up have blurred the excellence between wholesale and retail costs.
The worth customers pay for electrical energy is a industrial determination of the electrical energy retailer (with some regulatory constraints). It clearly contains the wholesale worth the retailer pays to turbines. However in 2021 the wholesale price was simply 35% of the common whole worth of residential electrical energy within the NEM.
Wholesale contracts between turbines and retailers cowl numerous intervals and embrace numerous worth change provisions, They don’t instantly mirror spot wholesale costs, which change each 5 minutes. Retail costs usually change solely annually.
If the rise of three.5 cents/kWh within the wholesale price part within the first quarter was handed on instantly and in full to customers, it might imply a 13% enhance within the common retail worth.
That hasn’t occurred but, as Taylor appropriately stated.
Nevertheless, until wholesale costs fall dramatically over the subsequent few weeks, they nearly actually will go up from the beginning of July.
Hugh Saddler doesn’t work for, seek the advice of, personal shares in or obtain funding from any firm or group that might profit from this text, and has disclosed no related affiliations past their educational appointment.