Rooftop solar costs are projected to add more than $240 per year to average electricity bills within five years, according to research from the Queensland Competition Authority (QCA).
In November last year that’s what we were told would happen if the feed-in tariff (FIT) for rooftop solar remained at 44¢/kWh. The evil Bligh Government:
was unwilling to limit access to the scheme which resulted in the current situation whereby 80 per cent of households were paying for the electricity of the 20 per cent of households with rooftop solar.
So the Newman Government acted forthrightly to limit the FIT for new installations to a mere 8¢/kWh. We were told that that myth, perpetrated by Labor and the Greens, that renewable energy schemes are decreasing the cost of electricity had been finally exploded.
Or has it?
Imagine John Davidson’s surprise a few weeks later when he was approached by an electricity utility offering him more than 44¢ if he would move his account to them. Were these people insane?
Unlikely, one would think. Electricity utilities would better than anyone know what contributes to their bottom line. You can read the results of John’s investigations at RenewEconomy. In short, when the sun shines warmly in the afternoons in Queensland the utility is purchasing power at peak rates well above 44¢. Also in a market where demand for electricity is falling the extra power available from renewables should be depressing the price of wholesale power.
John calculated that rooftop PV was saving the “typical Queensland household” (without PV) $65/yr. But he indicates that his calculations apply to Queensland only.
Utilities interstate have been singing from the same song sheet as the Queensland Government.
Dylan McConnell at Climate Spectator and The Conversation reports on a study done by himself and colleagues where they modelled the impact of solar on Victorian prices in 2009 and 2010. His conclusions:
In a competitive market, lower wholesale prices are completely foreseeable. What is less clear is whether, and to what extent, these prices will be passed on to customers.
This depends largely on the electricity generator’s hedging and contracting arrangements, and market behaviour, among a myriad of other factors.
Some argue that price reductions will flow through to consumers and eventually lower electricity prices.
Others argue that the oligopolistic behaviour displayed in electricity markets will erode competition and the merit order effect, preventing it being passed on to consumers.
By the way McConnell is a Research Fellow at the University of Melbourne and tells us he:
does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
Two of McConnell’s co-authors, Mike Sandiford at the Melbourne Energy Institute and Matthew Wright from Beyond Zero Emissions, have been involved in a peer-reviewed research paper which comes to similar conclusions. Wind is producing more power, rooftop PV is reducing demand from the network.
‘‘PV is taking away from demand, wind is adding to supply,’’ Professor Sandiford said.
The effect on the economics of the energy market includes a flattening of peak-demand periods, typically the most lucrative time for fossil fuel-fired generators.
‘‘The biggest demand events are in the sunny afternoons in summer, and PV is contributing to a decline in demand,’’ Professor Sandiford said. This outcome is particularly the case in South Australia because of the high penetration of solar panels.
‘‘Without those high-price events, (traditional generators) in the current circumstance are finding it hard to generate the revenues they’d like to generate,’’ he said.
Power utilities have been blindsided by a reduction in electricity demand (see this two part report). Recently a meeting of electricity supplies focussed on saving their business models. Whether an increase in electric vehicle use will have much effect is moot, I think. The report foreshadows the possible closure of Australian aluminium smelters. Closure of oil refineries are another factor not mentioned in the report.
Germany is well-advanced in the switch to renewables to the point where the old energy market is already “kaput”. Recently they achieved a solar power record in Germany, but it will be interesting to see what difference the recent decision on the EU trading system makes.
Prior to that there was an uptick in the use of coal as this graph shows, apparently related to the early phase-out of nuclear and a downturn in gas:
This graph shows the dramatic increase in solar, but also in waste and wind:
In the US modelling is also being done to anticipate a predominant use of renewables by 2050.
Out of all this I would emphasise that statements about the impact of renewables on electricity prices need to be taken with care. The default position is that what we are being told is not disinterested.
Secondly it is very clear that renewables are already disrupting the status quo in energy supply. In the future we’ll hear more about storage facilities, when the fun will really begin.