Renewables to eventually lower power prices

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Via The Guardian:

Modelling commissioned by the Turnbull government as part of its efforts to back in the national energy guarantee says renewables will drive the first wave of price reductions under the policy. It also floats substantial regulatory intervention to stop the electricity market becoming even more concentrated.

The work by Frontier Economics, obtained by Guardian Australia, says a steep decline in wholesale electricity prices forecast between 2018 and 2022 is due to the entry of 6,000MW of renewable capacity which has already been incentivised by the existing renewable energy target.

It also acknowledges that the policy, which imposes new reliability and emissions reduction guarantees on energy retailers and large energy users from 2020, could also lead to further market concentration in states like South Australia.

The assessment notes that in order to meet their obligations under the Neg, electricity retailers can either contract for supply externally, or integrate vertically with generators, which could be more “cost-effective than external contracting”.

It notes this is a factor particularly in South Australia “where a high degree of concentration and vertical integration already exists”.

The work floats three heavy-handed options for market intervention by state participants in the national energy market:

  • New restrictions on which parties in the national electricity market can own, control or operate new generation.
  • Restrictions on which parties can be electricity retailers.
  • Restrictions on which parties can be both a retailer, and own, control or operate generation.

It suggests restrictions on generation ownership could be achieved by specifying limits about who can own generation capacity after a particular date, or imposing market-share limitations.

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On the price impacts of the new policy, Frontier predicts there will be a “steep decline in wholesale prices” from 2018 to 2022 “due to the committed entry of almost 6,000MW of renewable capacity across the national electricity market” – capacity which is not linked to the new policy.

It says the new reliability requirement will “initially” lead to more competitive bidding from coal and gas, which will reduce prices if the guarantee is implemented, compared with the business-as-usual scenario.

It says the market will become oversupplied between 2021 and 2022, before the ageing New South Wales coal plant, Liddell, leaves the system, reducing supply once again.

Frontier says if the guarantee is in place, bidding from existing dispatchable plant will be more competitive than in the business-as-usual scenario.

It forecasts household power bills between 2020 and 2030 would be in the order of $120-a-year lower, in today’s dollars, than under a business-as-usual scenario, if the policy applied across the national electricity market.

Wholesale electricity prices would be 23% lower than business-as-usual between 2020 and 2030, on average.

No obvious reasons to doubt any of that. Note that it is the RET lowering prices not the NEG! I would only add that the sooner we update the NEM bidding rules then the more storage we’ll get faster and peaking gas be pushed more to the margins lowering prices as well.

Even better, install proper domestic reservation for gas today and watch electricity and gas prices crash.

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But the biggest problem with the NEG remains nobody knows what its emissions intensity target will be. Via the AFR:

Energy entrepreneurs and CEOs are piling pressure on the Turnbull government to set a more ambitious greenhouse gas emissions reduction target as federal and state Labor parties continue to attack the National Energy Guarantee.

Dean Spaccavento, chief executive of energy management firm Reposit Power, Simon Sheikh, Managing Director, Future Super, Piers Grove, Executive Director of Origin Energy-backed EnergyLab, Nobel prize winning immunologist Peter Doherty and Ben Opquist, head of The Australia Institute, have signed an open letter urging the Turnbull government to adopt a much more ambitious emissions reduction goal than the 26 per cent cut on which the National Energy Guarantee is being modelled.

“The success of the NEG will depend on the credibility of its ’emissions guarantee’, which will determine the emissions reductions required from the electricity sector,” the letter, which is also being carried as an advertisement in The Australian Financial Review, says.

But it says, “The proposed 26 per cent target for the electricity sector is neither credible nor economically efficient. We urge you to ensure the NEG’s emissions guarantee is consistent with Australia’s long-term interests.”

More at Domainfax:

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One senior state official told Fairfax Media the federal government’s handling of the energy issue continued to flout any standard of policy process.

“We don’t know where it’s going to go,” the official said, adding, “what is the curve as far as emissions go?”

The federal government is supposed to release its review of climate policies before the end of 2017.

Queensland’s Energy Minister Mark Bailey, meanwhile said the NEG as proposed “still has too many unanswered questions – the impact on jobs in our booming renewables industry and how Queenslander’s bills will be affected”.

“We have concerns that bill savings for Queenslanders could be much less than $120 [per year], which is an average across the NEM,” he said​. “While any savings from the NEG wouldn’t flow for two years, our Affordable Energy Plan will deliver savings from 1 January 2018.”

Queensland will be represented at the Hobart talks by a senior bureaucrat, ahead of Saturday’s state elections.

‘Thought bubble’

Hopes of a bipartisan federal agreement on the energy guarantee also appear to be fading, with Labor’s climate spokesman Mark Butler saying the modelling released for the government’s “latest energy policy thought bubble confirms their attack on renewable energy will continue”.

“The modelling shows the NEG will crush investment in solar PV with no additional solar – including rooftop – expected until 2028,” Mr Butler said.

The renewable energy mix is only expected to reach 36 per cent by 2030, Mr Butler said, a mere 0.5 per cent increase above already committed investment every year over the 2020s.

Call it what you will – CPRS, RET, CET, NEG – in the end it’s a carbon price and it must remove carbon or it has failed.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.