Many difficult cogs in the wheel of electricity prices

Tim Buckley, director of renewables investor Climate Energy Finance, said the high gas price combined with coal-fired plant outages and a cold spell have all combined to drive up electricity prices .

Buckley points out that wholesale electricity prices are only around 30% of the retail cost of electricity, with transmission and distribution costs accounting for around 50%.

Therefore, the cost of transportation will have the biggest impact on electricity prices, he says. Since transmission tariffs are regulated and based on the cost of capital of the transmission networks, they are very sensitive to interest rates. Therefore, while wholesale electricity prices will fall, it is unclear how much overall electricity prices will fall due to rising interest rates.

There is a common view in the electricity industry that the cost of transitioning the economy to renewable energy will drive up electricity prices.

“It’s difficult and expensive and likely to increase energy bills [up] in the short term,” said Andrew Richards, CEO of the Energy Users Association of Australia. Financial analysisEnergy and Climate Summit.

The cost of modernizing Australia’s energy system will be enormous. According to the Australian National Electricity Market Operator, around $320 billion will be needed to develop, operate and maintain generation, storage and future grid investments in the NEM through 2050.

Buckley points out that because the wind and solar power that will be used to generate much of Australia’s green electricity is intermittent, more capacity will be needed to replace coal.

About 20 gigawatts of renewable energy would be needed to replace 10 gigawatts of coal, as renewable energy only runs about 30% of the time, compared to about 60% for current coal-fired generators in Australia.

And that’s just to replace the power generation capacity that Australia currently has.

Amanda McKenzie, chief executive of the Climate Council, said demand for electricity will increase dramatically as the wider economy decarbonizes and fossil fuels are replaced with green electricity, in electric cars for example. .

According to some estimates, the amount of electricity needed will increase fivefold, she says.

This amount of additional electricity would give Australia the opportunity to become a major manufacturer and exporter of manufactured goods.

“It’s something that seems blue sky but if we move away from exporting fossil fuels, Australia needs to think very seriously about what we export and if there are opportunities,” she said. declared.

According to CSIRO’s latest GenCost report, renewables remain the cheapest new power generation option in Australia, although inflation and supply chain disruptions are likely to put cost reductions on hold for the next year.

The 2021-22 report confirms previous years’ findings that wind and solar are the cheapest source of electricity generation and storage in Australia, even taking into account the additional integration costs resulting from generation variable of renewable energies, such as energy storage and transmission.

The report assumes that cost reductions for all technologies will stagnate over the next 12 months as tight global supply chains take longer to recover from the pandemic.

However, after the end of the current inflationary cycle, solar, wind and batteries should all continue to be cheaper.

McKenzie says that ultimately Australia will have the cheapest electricity in the world due to our abundant supply of renewable energy.

The amount of renewable energy produced by different states varies widely, according to data from the Clean Energy Council.

In Tasmania, it is 99.9% thanks to its hydroelectric production capacity. South Australia comes next with 66.5%, followed by Victoria with 33.4%. Despite its abundant sunshine, Queensland has the lowest proportion of renewable energy in its energy mix, at less than 20%.

Wind accounts for about a third of renewable energy generation, followed by small-scale solar accounting for about a quarter, then hydroelectricity.

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