Australia’s Renewables Are Driving Down Costs And Keeping Electricity Reliable In Extreme Heat

CREDIT: AP Photo / Mark Baker

Alicia Campbell stands on the roof of her Sydney, Australia home, surrounded by solar power panels.

When heat waves wracked Australia at the start of the year, driving up electricity demand, the presence of wind power in the country actually kept electricity costs 40 percent lower than they otherwise would’ve been.

That’s the conclusion of a new Australian study, which RenewEconomcy flagged today.

In Australia, the electricity market is divided between the wholesale and retail portions. In the wholesale market, major generators — from wind farms to coal plants — sell electricity to major suppliers. In the retail market, the suppliers then turn around and sell that electricity to individual consumers. Wind generation enters at the wholesale market, and once built, its cost of operation is essentially zero. So it never adds to wholesale prices, but does cut them when the wind is blowing.

“In the seven days to 19 January, wind farms contributed around 6 percent of overall supply in [South Australia] and [Victoria],” the study concluded. “As a consequence, wholesale prices were at least 40 percent lower (on a consumption weighted average basis) than they would have been without the contribution of wind.”

There’s evidence that the boom in rooftop and distributed solar Australia saw in the last few years also helped.

Instead of cutting electricity prices at the point of generation, solar allows Australia’s consumers to generate their own power directly. That means they have to buy less electricity from the market in the first place, which lowers stress on the grid. The heat waves that just hit the country were similar to ones that arrived in 2009, yet this time peak demand in the states of South Australia and Victoria remained lower — despite a 7 percent increase in their combined populations since 2009.

In fact, the absolute level of electricity consumption in Australia peaked in 2009 and has been dropping since. That’s likely due to the rise in rooftop solar, a national policy push for energy efficiency, and a general move in Australia’s economy (similar to what a lot of advanced economies have gone through) away from electricity-intensive manufacturing and toward services.

Some of that adjustment has been driven by high prices in the retail electricity market, and opponents of Australia’s renewable energy target blame it for that rise. But the prices are most likely caused by heavy spending on the country’s electricity networks.

The prices in the wholesale market, which drive the prices in the retail market before the network costs are added on, are at remarkable lows. So low, in fact, that EnergyAustralia and other major energy suppliers are starting to close down power plants because of the glut in electricity supply. And thanks to the renewable energy target, virtually all the shutdowns are for fossil fuel power. EnergyAustralia’s profits fell to $18 million in 2013, down from $236 million in 2012, and its written off $445 million in capacity — nearly all of it coal.

The suppliers hold up these closings as a threat to Australia’s energy stability. But practically speaking, what’s going on here is wind’s competitiveness vis-a-vis fossil fuels is driving down costs, while the renewable energy target is driving up the supply of green energy. The result is less profits for suppliers that are heavily invested in fossil fuels, forcing them to downscale.

Which is a problem for the suppliers, obviously. But not really a problem for anyone else.