Is this the reason power prices are so high?
On July 1, electricity prices rose from 15 to 20 per cent in Sydney, 16 to 20 per cent in Adelaide, 19 per cent in Canberra and 11 per cent in Perth. The prices will increase in Melbourne on January 1.
According to a new analysis by a leading Australian expert, it’s high gas prices – not high renewable energy prices – that are responsible for pushing up electricity prices,
"When the rises flow through, retail prices will be the highest ever in real as well as nominal terms," writes Australian National University specialist Hugh Saddler in a report to be released on Thursday by the Australia Institute.
Dr Saddler compared the price movements for South Australia, the state that uses the most wind energy against its reliance on wind energy, finding that there was "absolutely no relationship between the two".
The wholesale electricity prices in South Australia have moved up and down as wind power grew to 45 per cent.
"More detailed analysis shows that market wholesale prices are consistently lower when there is a high level of wind generation, than when there is little wind. Over the past four or five years in the South Australia wholesale market, volume weighted prices received by wind generators have been around 20 to 30 per cent lower than volume weighted average prices for the market as a whole."
However, Dr Saddler found that wholesale electricity and gas prices move up and down together.
"Higher wholesale electricity prices, and hence higher retail prices are almost entirely caused by higher gas prices," Dr Saddler concludes.
"A similar, though less stark effect is seen in the other mainland national energy market states. This is not a malfunction of the market, but precisely how it was expected to operate."
"The launch of the market in 1998 was followed by a rush of construction of gas turbine power stations in Queensland, NSW and Victoria and even in Tasmania, accelerated in Queensland by a gas generation mandate policy introduced by the state Labor government.
"It was envisaged that both the much lower greenhouse gas emissions and the superior operational flexibility of these power stations compared with coal would make them ideally suited to supplying hour-to-hour and day-to-day variations in demand for electricity, while also reducing emissions, by using a then relatively low cost source of fuel."
Although most electricity is supplied by coal, gas is used supplement supplies during peak periods. That means the price of gas-fired power determines the final price.
Electricity prices rose in 2015 after three gas liquefaction opened in Gladstone in Queensland to bulk export gas that has previously supplied only the Australian market.
"It seems that the decision to allow so much of the gas resources of eastern Australia to be exported was made without considering the likely effects on the electricity market," Dr Saddler writes. "Household and business consumers of electricity are now paying the price."
Source: Sydney Morning Herald