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Surging Electricity Prices Spark Calls for National Inquiry into Renewable Energy

May 23, 2016

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Surging electricity prices in South Australia have sparked calls for a national inquiry into renewable energy and whether the electricity market is coping with the influx of wind and solar.


Over the past month South Australia has had surges in wholesale electricity prices. Normally sitting below $100 per megawatt hour, they have fluctuated dramatically in recent weeks, hitting as much as $14,000 per megawatt hour and regularly jumping above $10,000.


The prices have spooked energy-intensive heavy industry in the state, including the embattled Arrium steelworks, and led the premier, Jay Weatherill, to call on a recently mothballed gas power plant to fire up.


South Australia leads the Australian states and territories when it comes to reliance on renewable energy sources besides large-scale hydro. About 40% of its electricity comes from variable renewable sources such as wind and it has a 50% renewable energy target for 2025.


In response to the price surges, the South Australian senator Nick Xenophon told the Australian Financial Review he would suggest a Senate inquiry examine the mix of renewable energy in Australia.


“I am not anti-wind but there are legitimate questions to ask about the renewable energy mix and the role of interconnections and the like,” he said.


The Northern Territory chief minister, Adam Giles, called for a “national energy summit” to look at the state’s “over-reliance on renewables”.


“The nation can’t afford to see heavy industry shut down because of crippling power prices and uncertainty over supply,” he said.


But the problem wasn’t the state’s reliance on renewable energy, said South Australia’s treasurer and minister for energy, Tom Koutsantonis. Instead, he said South Australia was being penalised by the National Electricity Market for its success in attracting renewable energy to the state.


“The National Energy Market has passed its use by date – it has failed to keep up with environmental policies and advances in technology,” he told the Guardian.


Koutsantonis said said one problem was a trade imbalance since, while South Australia only had an electricity connection to Victoria, Victoria had a connection with three states.


“A truly national energy market with greater interconnection would allow this clean renewable energy to be sold into other states, and would help meet the renewables targets of those states.”


Koutsantonis welcomed the newly combined federal portfolios of energy and environment, and called for an urgent Coag meeting. “These portfolios areas are inextricably linked, but federal environmental policy has for too long been at odds with national energy policy,” he said.


“Now that Mr Frydenberg has been appointed we need to convene an urgent meeting of Coag so we can get to work on reforming the national energy market.”


Hugh Saddler from the infrastructure consultancy Pitt and Sherry agreed that the National Electricity Market needed to be reformed.


He said there were short-term problems causing the recent price spikes in South Australia. They were mostly the cold weather there and maintenance on one of the two interconnectors to Victoria. A high gas price was also partly to blame.


But he said the underlying problem was an outdated National Electricity Market. He said it needed to be reformed to cope with variable sources of electricity and a Senate inquiry or a national summit could be a way of starting that process.


“It was designed in the 1990s when the assumption was the energy supply would mostly be coal,” he said. “With a system with a large penetration of renewables – which is the case in South Australia– you need a completely different system.”


Saddler said there were lots of possibilities for redesigning the wholesale energy is traded, which could keep electricity prices down. “We need to have a debate about [those options].”


Among the aspects that could be changed were the “gross pool market” where all wholesalers are forced to sell all of their energy on an open market. That meant prices dropped very low when there was a lot of wind or solar being produced but non-renewable wholesalers could then push prices higher to recoup costs when less wind or solar was available.


He said creating more connections between states, like connecting South Australia with New South Wales, could also help smooth out the market.


“We need some sort of process – a Senate inquiry might be a good way to kick it off, provided it’s not just a question about renewables but about the overall structure and the operation of the National Electricity Market, with a high penetration of variable renewable electricity supply,” Saddler said.

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