The Australian Energy Regulator (AER) announced this week an increase in electricity prices for households with standing offer plans.
Electricity customers in NSW face the biggest increase in default market offer prices from 1 July, with power bills across the state to rise by between 6.1% and 9.1%.
AER chair Clare Savage says that while the price increase will put further pressure on households, it is necessary given the rise in wholesale and retail electricity prices over the last year.
Energy Users Association of Australia (EUAA) CEO Andrew Richards warned that electricity prices will stay high for the rest of this decade.
“I can’t see in the next five years that there is going to be downward pressure on prices”, he said.
Richards added that the physical rollout of renewables by 2030, as required under the Albanese government’s 82% renewable energy target (RET), is unfeasible.
“Just physically this is like D Day-Normandy invasion co-ordination required and it just isn’t happening”, he said. “Can the roads and bridges handle it? Well, probably not”.
“Do we have the port infrastructure to bring it all in the same time? No. Do we have the workforce? No. Do we have enough steel and cement? Well, it’s going to be difficult as well. So this isn’t an issue of policy or even capital, this is just an issue of materials and labour”.
The economic reality is that the latest report from AEMO, which warned of a massive surge in the cost of building transmission lines by up to 55%, makes it clear that there is a consequence of trying to build so much renewable infrastructure so quickly to meet the 2030 RET.
There is huge competition for all the materials, the contractors, workers, etc., which means that prices will rise considerably.
Even Tony Wood, energy director at the Grattan Institute, admitted that the full extent of a $20 billion-plus transmission build is yet to be seen on retail power bills, which will offset any lower wholesale power prices.
“For the next few years, we expect that the lower cost of wind and solar generation will be largely offset by higher costs of transmission, both interstate and intrastate”, he said.
The Australian’s report included the following statement, which is worth dissecting:
“Renewable energy remains significantly more affordable than fossil fuel generation on a per-unit basis, but the broader system overhaul – particularly the construction of new transmission infrastructure – and back-up power supplies poses a major challenge”.
It is not just the whole of system cost, which is enormous under renewables. Additionally, the need to replace wind, solar, and battery infrastructure every 15 to 20 years contributes significantly to the overall costs.
There is also the duplication of ‘per unit’ supply in multiple dispersed locations to increase the odds that the energy needed to meet demand is delivered, given periods of cloudy skies and low winds.
Finally, there is the need to have a significant proportion of the network backed by hydrocarbon power generation (e.g., gas) so that there is sufficient power for industry as well as for regular circumstances where a substantial proportion of the East Coast is covered by a weather system and solar/wind power does not perform.
The cost of constructing each renewable project raises the regulatory asset base and, ultimately, retail power bills.
Australians will pay higher energy costs directly through their bills, as well as through their taxes to support renewable energy subsidies. There is no free lunch.
Policymakers should stop gaslighting and be upfront about the costs and trade-offs in Australia’s renewable energy transition.
